Renowned billionaire investor Stanley Druckenmiller, famed for orchestrating George Soros’ historic bet against the British pound in 1992, boasts a storied career. His hedge fund, Duquesne Capital, delivered an impressive average annual return of 30% over three decades since its inception in 1986.
Though Druckenmiller retired and closed Duquesne Capital in 2010, he continues to manage assets totaling $3.1 billion through his own Duquesne Family Office. Investors keenly monitor the firm’s portfolio for insights into Druckenmiller’s bullish sentiments.
As of the latest data, two standout “Magnificent Seven” stocks—Microsoft (NASDAQ: MSFT) and Nvidia (NASDAQ: NVDA)—are prominent holdings in the Duquesne Family Office portfolio. Microsoft claims the top position, constituting 13.1% of the portfolio, while Nvidia ranks third with a 9.8% allocation. Impressively, the office has accrued unrealized gains of 43% and 341% on its Microsoft and Nvidia holdings, respectively.
Why is Stanley Druckenmiller bullish on Microsoft?
Druckenmiller began increasing his holdings in Microsoft at the onset of 2023, aligning with the meteoric expansion of its AI-focused endeavors.
Under Satya Nadella’s leadership as Microsoft’s third CEO starting in 2014, the company prioritized bolstering its cloud and mobile divisions. Over the ensuing decade, Microsoft underwent a significant transformation, transitioning many desktop applications into cloud-based services, elevating Azure into the world’s second-largest cloud infrastructure platform, and pivoting towards developing more mobile applications for iOS and Android rather than cultivating its own mobile platform.
During the last five years, Microsoft significantly augmented its investments in OpenAI, the creator of generative AI tools like ChatGPT and DALL-E. Integrating these tools into its cloud-based search, productivity, and infrastructure services fueled accelerated growth compared to its primary rival, Amazon Web Services (AWS), over the preceding year. Moreover, Microsoft’s incorporation of these generative AI tools into its Bing search engine and Office productivity software posed a potential disruption to Alphabet’s Google and its extensive ecosystem of cloud-based search and productivity services. This strategic shift likely influenced Druckenmiller’s decision to divest all shares of Amazon and Alphabet at the close of 2023 while increasing his stake in Microsoft.
Analysts anticipate Microsoft’s revenue and adjusted earnings per share (EPS) to climb by 8% and 11%, respectively, in fiscal 2024, concluding this June. Projections for fiscal 2025 suggest a robust growth trajectory, with anticipated revenue and adjusted EPS increases of 14% and 15%, respectively. While the stock may not be considered cheap, trading at 31 times forward earnings, it remains one of the most direct avenues for investors to capitalize on the flourishing AI services market.
Why is Stanley Druckenmiller bullish on Nvidia?
Druckenmiller initiated a position in Nvidia at the beginning of 2023 and expressed a bullish sentiment during a conference in June, suggesting he could hold onto Nvidia for the foreseeable future, emphasizing the growing significance of AI akin to the internet’s innovation.
This inclination isn’t surprising considering Nvidia’s status as the foremost producer of high-end data center graphics processing units (GPUs) essential for tackling intricate AI tasks. With a staggering 78% of its revenue derived from data center GPUs in fiscal 2024 (concluding this January), Nvidia continues to witness robust demand outstripping its supply.
In fiscal 2024, Nvidia experienced a remarkable 126% revenue surge alongside a staggering 288% increase in adjusted EPS. Analysts project further impressive growth, with anticipated revenue increases of 82% and 89% for fiscal 2025. Despite trading at 34 times forward earnings, these extraordinary growth rates underscore Nvidia’s dominant position in the AI hardware market.
While potential competition from cheaper data center GPU manufacturers like AMD and proprietary chips from tech giants remains a consideration, Nvidia currently reigns supreme as the primary supplier for the AI gold rush, with ample growth prospects ahead.
Druckenmiller notably scaled back his Nvidia holdings in the latter half of 2023 but increased his exposure through additional call options, indicating a profit-taking stance while maintaining optimism about its long-term trajectory.
Considering the projected exponential growth of the generative AI market, forecasted to achieve a compound annual growth rate (CAGR) of 40% from 2023 to 2030 according to Fortune Business Insights, investing in Microsoft and Nvidia aligns with Druckenmiller’s strategy and presents compelling opportunities for investors to capitalize on this burgeoning sector.
