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Every era has its darlings – the golden gems that investment managers swear by for rock-solid returns. In the current landscape, it’s no surprise that technology, healthcare, and consumer staples steal the limelight. Among these sectors, tech takes the crown, with stocks like Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), and Amazon (NASDAQ:AMZN) standing as the epitome of financial allure for institutional investors.
The tech trio – Microsoft, Apple, and Amazon – reign supreme in the minds of notable money managers, adorning numerous portfolios. The affection towards these stocks is palpable, evident in Warren Buffett’s hefty investment in Apple, constituting over 40% of Berkshire Hathaway’s holdings. Similarly, Ken Fisher, Mairs and Power, Philippe Laffont’s Coatue Management, and Fidelity’s Contrafund all share a penchant for Microsoft, Apple, and Amazon. These giants take center stage in the investment world, proving their mettle time and time again.
While risk-loving managers may dabble in AI and metaverse plays like Nvidia (NASDAQ:NVDA), the enduring appeal of Microsoft, Apple, and Amazon lies in their dominance and vast growth potential in realms like cloud computing and e-commerce. Unveiling the reasons behind this fervor, the following sections delve deep into why these tech juggernauts have captured the hearts of elite money managers.
The Unstoppable Force: Microsoft (MSFT)
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A force to be reckoned with, Microsoft (NASDAQ:MSFT) stands tall as the cornerstone in money managers’ portfolios. The tech titan’s unwavering fundamentals and competitive edge position it as a must-have for wise investors seeking long-term growth. Microsoft’s near monopoly in key business segments, especially cloud services, underpins its success. The company’s robust cloud platform, boasting 2024 Q2 revenue of $62 billion – a commendable 18% YoY growth – testifies to its unmatched prowess in the tech arena.
With a sturdy operating income surge of 33% to $27 billion in the same quarter, Microsoft’s trajectory showcases its clout in cloud, AI, and the metaverse. A significant stride in the metaverse realm was Microsoft’s monumental $68.7 billion acquisition of Activision Blizzard, solidifying its gaming domain and opening doors for lucrative metaverse ventures. Marked by a 61% surge in gaming revenue in Q2 2024, Microsoft’s foray into the metaverse spells a promising future.
Given its cloud supremacy, metaverse pursuits, and stellar growth metrics, Microsoft emerges as a go-to choice for money managers, offering a blend of present-day returns and futuristic gains.
A Dazzling Beacon: Apple (AAPL)
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Apple (NASDAQ:AAPL), with its enviable brand and consumer technology dominance, shines brightly in the eyes of top money managers. The tech titan’s stronghold in hardware sales and services revenue continues to dazzle, surpassing market forecasts.
In its fiscal 2024 Q1 earnings report ending Dec. 31, 2023, Apple boasted over $119 billion in quarterly revenue, a resilient 2% YoY growth, even amid supply chain bottlenecks. Bolstering its hardware portfolio, Apple’s recent revelation of the Vision Pro mixed-reality headset in January 2024 underscores its foray into futuristic tech landscapes. Priced at $3,499, the device targets creative professionals, expanding Apple’s market horizons.
Backed by unwavering brand loyalty and an active device base exceeding 1.8 billion globally, Apple exhibits resilient revenue streams and pricing power. The services segment recorded an all-time high revenue of $23.1 billion last quarter, up 11%, driven by offerings like Apple Music, iCloud, Apple TV+, and Apple Arcade. These robust revenue streams and enduring strengths propel Apple to the forefront of money managers’ preferences, weathering market uncertainties with ease.
The Mighty Behemoth: Amazon (AMZN)
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Amazon (NASDAQ:AMZN) emerges as an unrivaled powerhouse in the eyes of top money managers, commanding a leading position in global e-commerce and cloud computing realms. In 2023, the e-commerce giant reported astounding net sales of $574.8 billion, marking a robust 12% YoY growth. Operating income surged to $36.9 billion, tripling the previous year’s figures.
The crux of Amazon’s growth story rests in its online retail and cloud segments, with Amazon Web Services (AWS) acting as its star performer. Raking in $91 billion in revenue in 2023, AWS boasts stellar operating margins of 30%, underpinning Amazon’s exponential growth trajectory. As the global cloud market gears towards a $1.6 trillion outlook by 2030, AWS presents an expansive growth avenue for the tech giant.
In the e-commerce landscape, Amazon’s footprint is substantial, influencing nearly 40% of U.S. online spending. With online sales comprising a mere 16% of total U.S. retail transactions, Amazon’s growth prospect seems boundless. Given these compelling fundamentals and expansive growth vistas, Amazon retains its allure as a primary long-term holding for institutional investors, mirroring its pivotal role in the stock market echelons.
On the date of publication, Andrea van Schalkwyk held long positions in AAPL and AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Andrea van Schalkwyk is a value investor who adheres to the principles of the renowned Warren Buffett and his mentor Benjamin Graham. He holds a Master of Engineering (MEng) from the University of Padua and an Executive MBA from the CUOA Business School.
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