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, which means investors can still keep tabs on his portfolio.
Druckenmiller made a few interesting trades during the third quarter: He sold his entire stake in Microsoft (MSFT +0.81%) and started a position in Amazon (AMZN 2.31%), a stock that has advanced 243,600% since its IPO nearly 30 years ago. The lesson: Even stocks that have appreciated significantly in the past can be smart investments in the present.
However, Druckenmiller made those trades in the third quarter, which ended four months ago. Investors shouldn't make decisions based on outdated information. Here's a more current look at both stocks.
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Microsoft: The stock Stanley Druckenmiller sold in the third quarter
Microsoft's financial results in the December-ended quarter beat estimates on the top and bottom lines. Revenue increased 17% to $81 billion, driven by strong sales growth in software and cloud services, 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 about capital expenditures, which increased 66% in the quarter as the company continued to invest in artificial intelligence (AI) infrastructure. But the drawdown creates an opportunity for investors.
The investment thesis for Microsoft revolves around its strength in enterprise software and cloud services. The enterprise software market is forecast to grow at 12% annually through 2030, while the cloud computing market is forecast to grow at 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 copilots to its office productivity, enterprise resource planning, and low-code development software. Paid Microsoft 365 Copilot seats increased 160% in the December quarter, and the number of daily active users increased tenfold.
Meanwhile, Microsoft Foundry is a cloud service that brings together developer tools and models (including OpenAI models that power ChatGPT) needed to build and customize AI agents and applications. More than 80% of the Fortune 500 uses Foundry, and the number of customers spending $1 million per quarter rose nearly 80% in the December-ended quarter.
Microsoft stock is currently 24% below its high, and it looks much more attractive today as compared to when Druckenmiller sold his position. Shares now trade at 27 times earnings, a sensible valuation for a company whose adjusted earnings are forecast to grow at 15% annually through the fiscal year ending in June 2027.
NASDAQ: MSFT
Key Data Points
Amazon: The stock Stanley Druckenmiller bought in the third quarter
Amazon's financial results in the September-ended quarter beat estimates on the top and bottom lines. Revenue increased 13% to $180 billion, driven by strong sales growth in advertising and cloud services, and non-GAAP operating income increased 25% to $21.7 billion. "We continue to see strong momentum and growth across Amazon as AI drives meaningful improvements in every corner of our business," said CEO Andy Jassy.
The investment thesis for Amazon revolves around its strength in online retail, digital advertising, and cloud services. Retail e-commerce sales are projected to increase at 12% annually through 2030, adtech spending is projected to increase at 14% annually through 2030, and the cloud computing market is forecast to expand at 16% annually through 2033, according to Grand View Research.
Amazon has integrated AI across its core businesses to drive sales and operational efficiency. Generative AI tools help the company forecast demand, place inventory, coordinate robots, optimize labor, and route last-mile deliveries. Amazon is also developing an AI framework that will let warehouse workers 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 coding assistant Amazon Q Developer) at the application layer.
Amazon's share price averaged $220 during the third quarter (when Druckenmiller started a position). The stock is slightly more expensive today, but its valuation of 33 times earnings is still reasonable when earnings are forecast to increase at 15% annually through 2027. That is especially true because Amazon beat the consensus estimate by an average of 23% in the last six quarters.
