Stanley Druckenmiller was one of the most successful hedge fund managers in American history, earning an annual return of 30% over a three-decade period. He closed his hedge fund years ago but now manages his own money through Duquesne Family Office. That means investors can still follow his trades.
Druckenmiller a few interesting capital allocation decisions in the fourth quarter. He sold his entire stake in Microsoft (MSFT +1.08%), which had been his largest holding just a year earlier. He also added to his position in MercadoLibre (MELI +2.91%), now his eighth largest holding. That stock has advanced 334% in the past five years.
Here's what investors should know.
NASDAQ: MSFT
Key Data Points
Microsoft: The stock Stanley Druckenmiller sold
Microsoft is the biggest enterprise software vendor and second biggest public cloud in the world as measured by revenue. The company has invested aggressively in artificial intelligence (AI) in the hopes of exploiting its strength in those markets. That includes a projected $80 billion in data center infrastructure this year alone, and a $13 billion investment in OpenAI.
That spending has undoubtedly been beneficial to some degree. The OpenAI deal has made Microsoft Azure the cloud platform of choice for generative AI services. Also, more than 85% of Fortune 500 companies use at least one AI product from Microsoft, and about 70% use Microsoft 365 Copilot, a conversational assistant that can automate tasks in office applications such as Word and Excel.
However, investors are still concerned about Microsoft's ability to turn AI products into profit. Gil Luria at D.A. Davidson told Barron's: "The big challenge for Microsoft over the last few quarters is that they continue to increase the rate of investment in capital expenditures while their revenue is decelerating. So, they're investing more and getting less return on that."
Also, DeepSeek recently trained large language models that rival those from OpenAI while reportedly spending much less money. That cuts both ways for Microsoft. It hurts because OpenAI may never be as profitable as initially expected, so Microsoft may not benefit from the profit-sharing agreement as much as anticipated. But it helps in the sense that cheaper models should ultimately increase demand for AI cloud services.
Wall Street expects Microsoft's earnings to increase at 13% annually through fiscal 2026, which ends in June 2026. That makes the current valuation of 30 times earnings look tolerable. Importantly, while the stock was more expensive in the fourth quarter when Druckenmiller sold, I would still wait for a slightly cheaper price. But investors eager to own shares could start with a very small position today.
NASDAQ: MELI
Key Data Points
MercadoLibre: The stock Stanley Druckenmiller bought
MercadoLibre operates the largest online marketplace in Latin America. It accounted for about 28% of regional retail e-commerce sales last year, and it's likely to account for 30% by 2026, according to eMarketer. Market share gains are evidence of a strong network effect, whereby the platform becomes increasingly attractive to consumers as more merchants participate and vice versa.
MercadoLibre also offers adjacent solutions for payments, fulfillment, and advertising to make its marketplace even more attractive to merchants. The company has the fastest and most extensive logistics network in Latin America, and it ranks as the largest retail advertiser. It also owns the largest fintech platform in Argentina, Chile, and Mexico, and the second largest in Brazil.
MercadoLibre reported strong financial results in the fourth quarter. Revenue increased 37% to $6.1 billion, reflecting sales growth in the commerce and fintech segments of 44% and 28%, respectively. Meanwhile, GAAP net income more than tripled. Investors have good reason to think MercadoLibre will continue to grow quickly in the future.
E-commerce will account for about 15% of total retail sales in Latin America this year, but it will account for nearly 30% of total retail sales in the U.S., according to management. As online retail becomes a larger portion of the total market, digital payments will also become more prevalent. Meanwhile, retail advertising spend in the region is forecast to more than triple in Latin America by 2028.
Wall Street expects MercadoLibre's earnings to increase at 32% annually through 2026. That consensus makes the current valuation of 54 times earnings look attractive, especially when the company topped the consensus earnings estimate by an average of 6% during the last six quarters. Patient investors should feel comfortable buying a position today.
