Back in 2021, nearly every growth stock in the S&P 500 absolutely boomed. Today, however, the situation is very different, despite the index hitting another all-time high this month.

Basically, if a stock isn’t related to semiconductors, space or energy, investors aren’t really interested. As such, top-class companies with long runways of growth are being shunned.

Here are two out-of-favour S&P 500 shares that Wall Street analysts reckon are undervalued. I think each one is worth considering today.

Down 23%

Let’s start with Microsoft (NASDAQ:MSFT), which has slumped 23% since October.

As the biggest software company in the world (Windows, Office, Teams, etc), investors fear its revenue streams could be vulnerable to rapid advances in AI.

Boiled down, this fear has three parts:

• New AI tools from Anthropic could limit pricing power.
• Microsoft 365 (M365) is primarily a seat-based (per-user) subscription model. If AI efficiencies lead to fewer employees, growth could slow.
• Microsoft’s huge investments in AI might not pay off long term.

Despite these risks, the stock looks cheap at just 21 times forward earnings. This is well below Microsoft’s average over the past few years.

Hedge fund manager Bill Ackman certainly sees value. In Q1, Ackman made the stock a core holding for Pershing Square, correctly pointing out that M365 is deeply embedded across millions of enterprises and is “nearly impossible to replicate” due to its identity, security and compliance infrastructure.

The company’s Azure platform is still the number two cloud player globally, while it also owns LinkedIn (1.3bn members), Xbox, and video games creator Activision Blizzard. So there’s a lot of product diversification here, as well as a 27% stake in ChatGPT maker OpenAI.

Meanwhile, Microsoft continues to spend billions on share buybacks every quarter, albeit at a slower rate than before. And finally, Wall Street analysts currently see solid value in the stock, assigning an average price of $559, which is 35% higher.

Down 26%

Next, we have Uber Technologies (NYSE:UBER), which has fallen 26% since November. This is another S&P 500 stock that a few prominent hedge fund whales bought in Q1.

• David Tepper’s Appaloosa Management boosted its Uber position by a massive 242%.
• Egerton Capital (John Armitage) increased its holding by 73%.
• Brad Gerstner’s Altimeter upped Uber to 10% of the portfolio.

What do they like here? Well, Uber continues to grow strongly, with trips increasing 20% to 3.6bn during Q1. Monthly active customers rose 17% to a massive 199m, while its Uber One membership reached 50m people.  

Also, the firm is firmly profitable nowadays. Net profit totalled $1.5bn in the quarter, up 39%, and free cash flow came in at $2.3bn.

As more customers and drivers join the platform, Uber’s network effect is getting stronger. It’s also expanding into travel bookings and continues to build out its high-margin digital ad business (both in-app and in-car ads).

Looking ahead, rising inflation is a risk to consumer spending, as is competition from Waymo and Tesla robotaxis. However, Uber is investing aggressively in dozens of self-driving firms, aiming to become the world’s largest facilitator of driverless trips in a few years’ time.

With the stock trading at 22 times forward earnings, and 43% below brokers’ average target, I reckon Uber is worth a look at $73.

Should you invest £5,000 in Microsoft right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Microsoft made the list?

Ben McPoland has positions in Pershing Square and Uber Technologies.