Key Moments
- Mizuho TMT specialist Jordan Klein designates Microsoft as his top long software idea into year-end, driven by expectations for Azure growth potentially exceeding 50% as capacity expands.
- Klein cites Azure acceleration, removal of overhang from FY27 guidance, and Microsoft’s commitment to remaining free-cash-flow positive as core elements of his bullish thesis.
- Despite a broad software rally that he views as mechanically driven, Klein remains skeptical on crowded software names and sees Microsoft as offering a balanced “offense and defense” profile.
Microsoft Positioned as Preferred Long
Investing.com — Mizuho TMT specialist Jordan Klein is prioritizing Microsoft (NASDAQ:MSFT) as his top long in the software space into year-end, pointing to the possibility that Azure growth could exceed 50% as new capacity becomes available.
Klein’s positive stance on the stock rests on several key drivers occurring at the same time: an acceleration in Azure, the removal of FY27 guidance concerns that had weighed on sentiment, and management’s continued focus on staying free-cash-flow positive, which he characterizes as a “big deal.”
AI Upside Through OpenAI Partnership
On artificial intelligence, Klein emphasizes what he views as a favorable risk-reward dynamic stemming from Microsoft’s relationship with OpenAI. He writes: “If OAI does anything good, MSFT benefits. If MSFT able to do anything internally better in AI, MSFT benefits a lot.”
He also notes Microsoft’s position as a year-to-date underperformer within the Magnificent 7 group. In Klein’s view, the Magnificent 7 generally “acts better into yr end,” and Microsoft’s relative lag, paired with what he considers a reasonable valuation, makes it a more attractive setup than other, more heavily discussed software names.
Summarizing his view, Klein says that while Microsoft may not rank among the most “exciting long ideas right now, but it offers attractive combo of OFFENSE & DEFENSE that sets up well into an uncertain midterm election cycle with oil/Middle East risks remaining elevated.”
Market Context: Skepticism on the Software Rally
Klein’s endorsement of Microsoft arrives amid a sharp move higher across software, a rally he regards with caution. He argues that the recent strength appears driven more by flows than by a shift in underlying fundamentals.
“My buyside feedback past 2 weeks suggests moves like yesterday feel much more due to passive rotation and quant buying vs active buyers chasing with FOMO,” he wrote.
According to Klein, the current phase can be traced back to June, when long/short funds significantly increased positions in semiconductor names and turned to software as a short hedge to maintain portfolio balance.
“Software generally got way oversold in June as L/S funds wanted to chase or stay long Semis that went up every day and forced them to add short exposure to stay hedge. They clearly chose SOFTWARE for the short hedge.”
Fragile Sentiment and “All News Is Good News” Dynamic
Klein warns that software has slipped into an “‘all news is good news’ mentality,” which he characterizes as unstable. While he acknowledges that Q2 results were overall better than feared, he underscores that HubSpot and Monday.com did, in fact, miss expectations.
Buyside investors, he notes, are themselves perplexed by the breadth and intensity of the advance, raising questions about the magnitude of recent moves in several names.
| Software Names Cited by Klein | Context |
|---|---|
| Adobe | Investors questioning sharp price moves |
| Paycom | Part of the group with notable recent rallies |
| UiPath | Included among names with outsized moves |
| RingCentral | Highlighted in buyside questions on rally breadth |
| Atlassian | Another stock where investors are scrutinizing gains |
Crowded Trades and Diminishing Upside
On the more crowded segments of software, Klein believes the return potential is becoming less compelling. He points to infrastructure and cybersecurity names such as Snowflake, CrowdStrike, Cloudflare, Twilio, Datadog, and Palo Alto Networks as examples of stocks that remain heavily owned.
“I just do not see or hear about investors wanting to sell these names,” he writes, while cautioning that “the upside potential in some of these looks less exciting up here if you ask me.”
Klein also questions the durability of recent gains in ServiceNow and Oracle, referencing buyside feedback and prevailing sentiment as reasons for his hesitation on whether those moves can be sustained.
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