Bill Gates, the legendary founder of Microsoft (MSFT 1.60%), retired from his day-to-day obligations at the company back in 2008. But he's still one of the biggest owners of Microsoft stock through his Gates Foundation Trust. The trust is currently worth nearly $50 billion, with Microsoft as its biggest holding.
But here's the thing: The Gates Foundation Trust has been rapidly selling its Microsoft stock. Should this create panic among Microsoft stockholders, or even artificial intelligence (AI) investors in general? Here's what you need to know.
A Microsoft data center complex in the Netherlands. Image source: Getty Images.
Stocks like Microsoft are getting pretty expensive
The stock market in general is getting pretty expensive. The S&P 500, for example, trades above 30 times earnings, roughly double its long-term average valuation. But there's a good reason for today's high stock market prices. Rarely does a worldwide opportunity form that could generate huge growth potential that could persist for decades to come.
But that's exactly the opportunity that artificial intelligence (AI) could create. Most estimates call for 30% annual growth for the AI sector through 2033 and beyond. Trillions of dollars of value will essentially be created out of thin air. The companies that create this technology will benefit, but so will the suppliers to those companies, as well as the end users who achieve cost savings and efficiency gains.
Put simply, the market is expensive for a reason. Most of the stocks that have soared in price, leading to high market-wide valuations, are related to the AI sector. Microsoft is near the top of that list. Microsoft basically sells the picks and shovels for the AI gold rush. Its Azure cloud computing division helps developers and the companies they work for train and run AI models. The more AI advances, the heavier the demand becomes for Azure's services. There's a reason Microsoft is rushing to spend $80 billion on new data center infrastructure this year alone.
Right now, Microsoft stock trades at nearly 13 times sales. And while it has achieved that valuation a few times in recent years thanks to the AI craze, the last time Microsoft stock reached this high of a price-to-sales ratio was more than two decades ago, during the dot-com bubble. The promise of AI may warrant such a high valuation, but there's no doubt that Microsoft shares are expensive versus its long-term trading history.
But before you go thinking Gates is selling shares because of the company's lofty valuation, there's one other thing you should be aware of.
NASDAQ: MSFT
Key Data Points
The Gates Foundation Trust has been a longtime seller of Microsoft stock
It's important to understand that Gates doesn't control the day-to-day operation of his trust, even if he is in charge at the end of the day. An external team of portfolio managers at Cascade Investments runs the show. And the trust has been a net seller of Microsoft stock for a while, selling down its position every quarter since the end of 2023. It did, however, make a massive purchase in 2022, boosting its position by nearly 40 million shares. But previous to that, the trust had continued its tradition of selling Microsoft stock nearly every quarter.
In the end, we don't know exactly what Gates thinks about Microsoft's valuation, as his trust's stock sales may have been initiated by external portfolio managers. And the trust has been a net seller of Microsoft stock for years, apart from a massive bet initiated in the middle of 2022. So while Microsoft stock may be getting expensive because of the hype around AI, investors shouldn't read too much into the actions the Gates Foundation Trust is taking.
