Billionaire Stanley Druckenmiller is a former hedge fund manager best known for betting against the British pound in 1992. He managed George Soros' Quantum Fund at the time, and the pair reportedly pocketed a $1 billion profit on the transactions. Meanwhile, Druckenmiller ran his own hedge fund between 1981 and 2010, returning an average of 30% annually for clients.
Today, he manages his personal fortune through the Duquesne Family Office, which still makes a compelling case study. Druckenmiller had 39% of his $2.8 billion portfolio invested in just three stocks as of September: 14% in Nvidia (NVDA 6.18%), 13% in Coupang (CPNG -0.52%), and 12% in Microsoft (MSFT 1.82%). That level of asset allocation signals high conviction.
Here's what investors should know about those three stocks.
1. Nvidia
Nvidia graphics processing units (GPUs) dominate the market for data center accelerators, especially where artificial intelligence (AI) workloads are concerned. Analysts estimate the company accounts for 80% to 95% of chips used in AI computing. That positioning has been a substantial catalyst over the past year. Businesses are eager to experiment with generative AI, and Nvidia is "best positioned" to monetize the technology, according to KeyBanc analyst John Vinh.
However, what makes Nvidia truly formidable is its full-stack strategy. The company offers solutions at every layer of the AI stack: infrastructure, software, and services. In recent years, its data center hardware portfolio has expanded to include networking equipment and central processing units. The former is a $10 billion business, and the latter is "ramping into a new multibillion-dollar product line next year," according to CEO Jensen Huang.
Additionally, Nvidia AI Enterprise is a suite of subscription software that streamlines the development of AI applications across various end markets, including manufacturing, logistics, healthcare, and customer service. And DGX Cloud is a platform that brings together GPU-accelerated infrastructure, AI Enterprise software, and pre-trained machine learning models. With those tools, Nvidia democratizes AI for businesses of all sizes.
Argus analysts praised DGX Cloud, saying, "Nvidia stands out, in our view, not only because it participates in so many parts of the dynamic AI economy, but because it has synthesized its offerings into a first-of-its-kind AI-as-a-service delivered through the cloud." That affords the company an incredible competitive advantage.
Going forward, the market for AI hardware, software, and services is forecast to expand at 37% annually through 2030. Nvidia could theoretically achieve similar results during that period. In fact, Wall Street expects the company to grow revenue at 40% annually over the next five years. In that context, its current valuation of 33.9 times sales still seems a bit pricey. It may be prudent to keep this company on a watchlist for now. That said, investors set on owning shares should start with a very small position -- no more than 1% of their portfolios.
2. Coupang
Coupang operates the largest e-commerce marketplace in South Korea, a region where Statista Market Insights estimates online retail sales will compound at 3% annually through 2028. To cement its leadership position, the company has introduced consumer-facing services like restaurant delivery (Coupang Eats), streaming content (Coupang Play), and fintech services (Coupang Pay). It has also added merchant-facing services for fulfillment, logistics, and advertising. Those adjacencies pull users into its ecosystem, strengthening the network effect.
Coupang hopes to replicate its success in Taiwan. The company launched its Rocket Delivery service in the Taiwanese market in late 2022, and it recently opened its second fulfillment center in the region. Management says its delivery service scaled quickly during its first year (more quickly than it did when it first launched in Korea). Additionally, as of the third quarter, management said Coupang was on pace to be the most downloaded app in the Taiwanese market in 2023.
Wall Street expects the company to increase sales by 12% annually over the next five years. There is undoubtedly risk baked into that figure, especially geopolitical tension in Taiwan and the capital requirements associated with operating a logistics network. But the stock trades at 1.1 times sales, a discount to the historical average of 2 times sales, and a reasonable price to pay for investors comfortable with the risks I just mentioned.
3. Microsoft
Microsoft has a prolific presence in enterprise software and cloud computing, so much so that its products and services can reasonably be described as the cornerstone of many organizations. Microsoft has twice as much software-as-a-service (SaaS) market share as its closest competitor, due in large part to strength in office productivity and enterprise resource planning software.
Additionally, Microsoft Azure is the second-largest provider of cloud infrastructure and platform services behind Amazon Web Services (AWS). However, its market share has increased by four percentage points over the last three years to reach 23%, but AWS has remained flat at 32%. Microsoft could continue to gain share as investments in AI bear fruit.
Specifically, Azure has a partnership with OpenAI that positions Microsoft as the exclusive cloud provider to OpenAI and affords Azure customers exclusive access to the latest GPT large language models, the cognitive engines behind ChatGPT. Additionally, CEO Satya Nadella believes Azure offers the "best AI infrastructure for both training and inference."
Going forward, the enterprise SaaS and cloud computing markets are projected to compound at roughly 14% annually through 2030. That puts Microsoft on a glide path to double-digit sales growth through the end of the decade. In that context, its current valuation of 13.8 times sales is tolerable. Personally, I think other AI stocks offer more upside, but I would not fault investors for taking a small position in Microsoft today.
