Stanley Druckenmiller, one of the most successful hedge fund managers in history, sold Microsoft and bought Amazon in the third quarter.
Billionaire Stanley Druckenmiller is a former hedge fund manager who earned about 30% annually for three decades without a single down year. He closed the hedge fund in 2010, but still manages his own wealth through Duquesne Family Office, meaning investors can still keep tabs on his portfolio.
Druckenmiller made some interesting transactions during the third quarter: he sold his entire stake in Microsoft (MSFT +0.72%) and started a position in Amazon (AMZN 2.31%)a stock that has risen 243,600% since its IPO nearly 30 years ago. The lesson: Even stocks that have appreciated significantly in the past can be wise investments in the present.
However, Druckenmiller made these transactions in the third quarter, which ended four months ago. Investors should not make decisions based on outdated information. Here’s a more current look at both stocks.
Image source: Getty Images.
Microsoft: Stanley Druckenmiller stock sold in third quarter
Microsoft’s financial results for the quarter ended in December beat estimates for both revenue and profit. Revenue rose 17% to $81 billion, driven by strong growth in software and cloud services sales, and non-GAAP (adjusted) net income increased 24% to $4.14 per diluted share.
Microsoft stock has fallen sharply since the company reported its financial results due to concerns over capital spending, which rose 66% during the quarter as the company continued to invest in artificial intelligence (AI) infrastructure. But the pullback creates an opportunity for investors.
Microsoft’s investment thesis revolves around its strength in enterprise software and cloud services. The enterprise software market is expected to grow 12% annually through 2030, while the cloud computing market is expected to grow 16% annually through 2033, according to Grand View Research.
AI is a central tenet of Microsoft’s growth strategy. The company has added generative AI co-pilots to its office productivity, enterprise resource planning and low-code development software. Paid Microsoft 365 Copilot seats grew 160% in the December quarter and daily active users increased tenfold.
Meanwhile, Microsoft Foundry is a cloud service that brings together the development tools and templates (including the OpenAI templates that power ChatGPT) needed to create and customize AI agents and applications. More than 80% of Fortune 500 companies use Foundry, and the number of customers spending $1 million per quarter increased by nearly 80% in the quarter ended December.
Microsoft stock is currently 24% below its high and looks much more attractive today than when Druckenmiller sold his position. Shares now trade at 27 times earnings, a reasonable valuation for a company whose adjusted earnings are expected to grow 15% annually through the fiscal year ending June 2027.
Today’s change
(0.72%) $2.98
Current price
$414.19
Key Data Points
Market capitalization
$3.1 billion
Daily scope
$409.24 -$419.80
52 week range
$344.79 -$555.45
Volume
57K
Average flight
28M
Gross margin
68.59%
Dividend yield
0.82%
Amazon: The title purchased by Stanley Druckenmiller in the third quarter
Amazon’s financial results for the quarter ended in September beat estimates in terms of both revenue and profit. Revenue rose 13% to $180 billion, driven by strong growth in advertising and cloud services sales, and non-GAAP operating profit rose 25% to $21.7 billion. “We continue to see strong momentum and growth within Amazon as AI drives significant improvements across all areas of our business,” said CEO Andy Jassy.
Amazon’s investment thesis revolves around its strength in online retail, digital advertising and cloud services. Retail e-commerce sales are expected to grow 12% annually through 2030, adtech spending is expected to grow 14% annually through 2030, and the cloud computing market is expected to grow 16% annually through 2033, according to Grand View Research.
Amazon has integrated AI into its core businesses to drive sales and operational efficiencies. Generative AI tools help the company forecast demand, build inventory, coordinate robots, optimize labor, and route last-mile deliveries. Amazon is also developing an AI framework that will allow warehouse workers to instruct robots in natural language.
In cloud computing, Amazon Web Services monetizes AI at every layer of the technology stack: custom chips and Nvidia GPUs at the infrastructure layer, services like Bedrock (generative AI) and SageMaker (machine learning) at the platform layer, and generative AI tools (like the Amazon Q Developer coding assistant) at the application level.
Amazon’s stock price averaged $220 in the third quarter (when Druckenmiller took the position). The stock is slightly more expensive today, but its valuation of 33 times earnings remains reasonable as earnings are expected to grow 15% annually through 2027. This is especially true since Amazon has beaten the consensus estimate by 23% on average over the past six quarters.
