Microsoft's (MSFT) is Well Positioned for Growth in AI and Cloud Services

Investment management company Vulcan Value Partners recently released its second-quarter 2025 investor letter. A copy of the letter can be downloaded here. The firm does not focus on short-term outcomes, whether positive or negative, and believes it can enhance the potential long-term returns and reduce risk. In the quarter, the Large Cap Composite returned 7.0% net of fees and expenses, the Small Cap Composite returned 6.7% net, the Focus Composite returned 9.5% net, the Focus Plus composite returned 8.8% and the All-Cap Composite returned 8.1% net. For more information on the fund’s best picks in 2025, please check its top five holdings.

 In its second quarter 2025 investor letter, Vulcan Value Partners highlighted stocks such as Microsoft Corporation (NASDAQ:MSFT). Microsoft Corporation (NASDAQ:MSFT) is a multinational software company that develops and supports software, services, devices, and solutions. The one-month return of Microsoft Corporation (NASDAQ:MSFT) was 5.28%, and its shares gained 14.82% of their value over the last 52 weeks. On July 16, 2025, Microsoft Corporation (NASDAQ:MSFT) stock closed at $505.62 per share, with a market capitalization of $3.758 trillion.

Vulcan Value Partners stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its second quarter 2025 investor letter:

"There were two material contributors to performance: Microsoft Corporation (NASDAQ:MSFT) and Ares Management Corp. Microsoft is the world’s largest software company with a broad range of offerings including Microsoft Office, gaming, Azure cloud computing, LinkedIn, and more. Microsoft is a key beneficiary in the growth of AI and hyperscale cloud infrastructure. Azure growth accelerated from the prior quarter and is expected to maintain that growth in the coming quarter, driven both by an accelerating contribution from AI and an acceleration in its non-AI core Azure business. In addition, cost controls led to an increase in operating margin. Microsoft is deeply entrenched within its customer base, has high switching costs, and is benefiting from growth tailwinds such as cloud computing and artificial intelligence. We think an underappreciated strength of Microsoft’s business model is that not only are its products designed to work together, but it is also more economical for the customer when multiple products are bundled together. This bundling approach enables Microsoft to gain share at the expense of less well positioned competitors over time."

Microsoft Corporation (NASDAQ:MSFT) is in second position our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 284 hedge fund portfolios held Microsoft Corporation (NASDAQ:MSFT) at the end of the first quarter compared to 317 in the previous quarter. In the fiscal third quarter of 2025, Microsoft Corporation (NASDAQ:MSFT) reported $70.1 billion in revenues, up 13% year-over-year. While we acknowledge the potential of MSFT as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we covered Microsoft Corporation (NASDAQ:MSFT) and shared the list of best US stocks to buy according to billionaires. In addition, please check out our hedge fund investor letters Q2 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.