TLDR
- Stanley Druckenmiller sold all his holdings in Nvidia and Palantir during 2024 due to high valuations, despite both stocks continuing to rise afterward.
- Microsoft became Druckenmiller’s major AI investment in Q2, returning to a stock he has held multiple times before.
- Microsoft reported Q1 earnings of $3.72 per share on $77.7 billion revenue, beating analyst expectations of $3.68 per share and $75.5 billion revenue.
- The company took a $3.1 billion accounting hit from its OpenAI investment, which now totals $13 billion with Microsoft holding 27% of OpenAI.
- Microsoft’s Azure revenue grew 40% while capital expenditures jumped 74% to $34.9 billion, with half spent on GPUs and CPUs.
Billionaire investor Stanley Druckenmiller has completely sold his stakes in Nvidia and Palantir Technologies. He moved into Microsoft instead, citing valuation concerns with the two AI stocks.
Druckenmiller first bought Nvidia in Q3 2022 before increasing his position in Q4 that year. The chipmaker became his family office Duquesne’s largest holding at one point. He sold all shares during 2024.
The billionaire also exited Palantir completely by the end of 2024. He first purchased the stock in early 2021. It became one of his fund’s largest positions.
In an interview with CNBC, Druckenmiller explained his reasoning. “A lot of what we recognized has become recognized by the marketplace now,” he said. He felt Nvidia had become expensive relative to growth opportunities.
Nvidia’s stock has doubled since that interview. The forward P/E ratio now exceeds 40. Palantir’s valuation climbed even higher, reaching 287 times forward earnings from 118 times at the end of 2024.
During Q2, Druckenmiller made Microsoft one of his biggest purchases. The tech giant was once his largest position. He has bought and sold the stock multiple times over the years.
Microsoft Reports Strong Earnings
Microsoft reported Q1 earnings that beat Wall Street expectations. The company posted $3.72 per share on revenue of $77.7 billion. Analysts expected $3.68 per share and $75.5 billion in revenue.
The stock dropped more than 2% after the announcement. Investors focused on rising capital expenditures despite the earnings beat.
Commercial cloud revenue reached $49.1 billion, up 26% year over year. Azure revenue grew 40% during the quarter. The Intelligent Cloud segment generated $30.9 billion in revenue against expectations of $30.2 billion.
Capital expenditures increased 74% to $34.9 billion. About half went toward GPUs and CPUs to meet Azure demand. The company is building out infrastructure for AI services.
OpenAI Investment Impact
Microsoft’s net income took a $3.1 billion hit during the quarter. The company attributed this to an equity method investment in OpenAI. The accounting adjustment reduced earnings per share by 41 cents.
Microsoft has invested $13 billion total in OpenAI. As of September, $11.6 billion had been funded. The timing matched OpenAI’s recapitalization as a public benefit corporation.
Microsoft now holds 27% of OpenAI valued at $135 billion. The new agreement changed partnership terms. Microsoft lost first right of refusal as OpenAI’s compute provider.
OpenAI committed to purchase $250 billion in Azure services. CEO Satya Nadella called it “one of the most successful partnerships and investments our industry has even seen.”
The companies have been partners since 2019. Their collaboration started before ChatGPT launched in late 2022. OpenAI can now use other cloud providers for additional capacity, including Oracle for Stargate Project data centers.
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