Is Microsoft Still a Safe Bet? Hedge Funds Weigh In on MSFT's Stability in a Volatile Market

Hedge funds have long viewed Microsoft Corporation (MSFT) as a "safe" stock due to its dominance in cloud computing, enterprise software, and artificial intelligence (AI). Yet recent 13F filings for Q1 2025 reveal a nuanced picture: while MSFT remains a top institutional holding, aggregate positions fell by 1.48%, signaling cautious sentiment. Is this tech giant still a reliable investment, or are hedge funds hedging their bets elsewhere?

Hedge Fund Activity: Mixed Signals in Q1 2025
Recent filings show a divergence in strategy among hedge funds. While 10 funds added shares, including Global Assets Advisory (+$5.0 million) and Archford Capital (+$0.8 million), larger players like Daymark Wealth Partners slashed holdings by -92,292 shares (-$52.8 million). This net reduction, totaling 96,579 shares, reflects a sector-wide reevaluation of risk.

The largest holders—Rhumbline Advisers, Assenagon Asset Management, and Handelsbanken Fonder—maintained their stakes, but the overall decline underscores a strategic pivot. Analysts note that while MSFT’s cloud leader Azure drives growth, funds may be rotating into cheaper AI stocks (e.g., those trading at <5x earnings) for short-term gains.

Financial Performance: Strength Amid Regulatory Clouds
MSFT’s Q2 FY25 results (ended March 2025) reported 12% YoY revenue growth to $69.6 billion, fueled by Azure’s 43% contribution to total revenue. Paul Chew of Phillip Securities reiterated a Buy rating, citing a $480 price target and Azure’s enterprise demand stability.

However, KeyBanc downgraded MSFT to Sector Weight, citing concerns over AI monetization timelines and rising capital expenditures. Meanwhile, Morgan Stanley lowered its price target from $530 to $472 by April 2025, reflecting skepticism about near-term margins.

Regulatory Risks and Competitive Pressures
U.S. regulators are investigating MSFT’s OpenAI investments and cloud licensing policies for potential anti-competitive practices. This scrutiny could disrupt its AI strategy, particularly as rivals like Amazon and Alphabet intensify cloud competition.

Additionally, while MSFT’s South Africa expansion—committing ZAR 5.4 billion to cloud/AI infrastructure—bolsters long-term growth, hedge funds may prioritize companies with clearer short-term catalysts.

Short Interest: A Quiet Corner of the Market
As of May 2024, MSFT’s short interest was just 0.60% of shares, far below tech peers like Amazon (0.68%) and significantly lower than heavily shorted stocks like Qualys (9.12%). While this suggests limited bearish bets, the lack of Q1 2025 data leaves room for uncertainty.

Conclusion: A Safe Stock, But Not Without Risks
Microsoft’s cloud dominance, recurring enterprise revenue, and long-term AI bets justify its status as a top hedge fund holding. The 317 funds still backing MSFT, including giants like Two Sigma and Rokos Capital, highlight its structural advantages. However, the 1.48% aggregate decline and analyst downgrades signal that MSFT is no longer a "set-it-and-forget-it" investment.

Investors should weigh regulatory risks and short-term margin pressures against Azure’s 43% revenue contribution and global expansion. For long-term portfolios, MSFT remains a core holding, but traders may seek higher-risk, higher-reward AI plays. As JP Morgan’s Bruce Kasman noted, with recession odds at 60%, MSFT’s diversified revenue streams make it a relative safe haven—just not the only one.

In short, MSFT is still a "safe stock" for patient investors, but hedge funds are increasingly balancing that safety with bets on faster-growing, albeit riskier, opportunities.