Bill Gates' net worth currently stands at $130 billion. That's enough to make him the sixth-wealthiest individual in the world. Gates would rank even higher on the list had he not donated $59 billion through the years to the Bill and Melinda Gates Foundation.
This charitable organization could give us some insight into which stocks Gates likes these days. The billionaire has nearly 35% of the Gates Foundation's portfolio invested in two artificial intelligence (AI) stocks.
Gates' unsurprising top AI stock
You probably won't be surprised in the least by Gates' top AI stock. Almost 34% of the Gates Foundation Trust's portfolio is invested in Microsoft (MSFT +0.61%).
The billionaire co-founded the technology company and served as its CEO for 25 years. He helped make Microsoft successful -- and Microsoft helped make him successful, as well.
NASDAQ: MSFT
Key Data Points
Much of Microsoft's recent success is due to its AI initiatives. The company has integrated OpenAI's groundbreaking GPT-4 large language model throughout its product lineup. The company is also a major investor in OpenAI.
Current Microsoft CEO Satya Nadella noted in the company's fiscal 2024 Q2 earnings call that over half of the Fortune 500 companies use the Azure AI cloud platform. Microsoft is also attracting AI start-ups, including Perplexity and SymphonyAI.
Microsoft's GitHub Copilot is the world's most widely deployed AI tool for developers. Its Copilot technology has also been embedded into the Windows operating system, the Microsoft 365 cloud platform. Nadella said that the company's research showed that using generative AI tools can improve worker productivity by as much as 70%.
Another AI stock with a twist
Less than 0.6% of the Gates Foundation Trust's portfolio is invested in Schrödinger (SDGR 0.61%). That nonetheless makes Gates' charitable organization the second-largest owner of Schrödinger, with a stake of over 11%.
NASDAQ: SDGR
Key Data Points
When an analyst spoke to CFO Geoffrey Porges last year, the analyst referred to Schrödinger as an AI company. Porges quickly corrected him. Schrödinger views itself as a software company focused on drug development and materials science -- which it is.
However, many people outside the company think of Schrödinger as an AI stock for good reason. A branch of AI called machine learning is at the center of the company's software platform. Schrödinger uses machine learning to predict molecular structures.
Schrödinger's drug pipeline includes two proprietary programs in early stage clinical testing plus several others in discovery and preclinical testing. In addition, the company has partnered with big drugmakers such as Bristol Myers Squibb and Eli Lilly, as well as smaller biotechs, such as Nimbus Therapeutics and Structure Therapeutics.
Are these AI stocks no-brainer buys?
Wall Street likes both AI stocks. Of the 34 analysts surveyed by LSEG in March, 27 rate Microsoft as a buy or strong buy. The average 12-month price target for the tech giant reflects an upside potential of 7%. The consensus price target for Schrödinger is 45% higher than the current share price.
But are Microsoft and Schrödinger no-brainer buys? I don't think so.
Valuation is a concern with both of these stocks. Microsoft trades at more than 31x forward earnings. Schrödinger isn't profitable yet, but its price-to-sales ratio is nearly 9.2x -- a high multiple.
That said, Microsoft is a good stock for long-term investors to buy and hold, despite its premium valuation. I'm not as sold on Schrödinger at this point, however. I'd prefer to see how the company's candidates fare in further clinical testing.
