TLDR
- Stanley Druckenmiller sold 100% of his Nvidia and Palantir stakes by end of 2024, citing excessive valuations in both AI stocks.
- The billionaire investor pivoted to Microsoft in Q2, making it one of his largest purchases for AI exposure.
- Microsoft posted Q1 earnings of $3.72 per share and $77.7 billion revenue, surpassing Wall Street predictions.
- A $3.1 billion accounting charge from Microsoft’s OpenAI investment reduced earnings per share by 41 cents this quarter.
- Microsoft’s Azure platform grew 40% as the company spent $34.9 billion on infrastructure, with half going to AI chips.
Stanley Druckenmiller has restructured his AI investments. The billionaire sold every share of Nvidia and Palantir from his portfolio. He replaced them with Microsoft stock.
Druckenmiller bought Nvidia in Q3 2022 before most investors caught on. He increased his position in Q4 2022. The stock became his family office’s top holding.
By 2024, he had sold everything. The same happened with Palantir. He bought that stock in early 2021 and made it a core position. He exited completely by December 2024.
His reasoning centered on price. Nvidia now trades over 40 times forward earnings. Palantir hit 287 times forward earnings. That compares to 118 times just months earlier.
“A lot of what we recognized has become recognized by the marketplace now,” Druckenmiller explained in a CNBC interview. The market caught up to his thesis. Prices climbed beyond what growth could justify.
Nvidia stock doubled after he sold. Palantir continued climbing too. Druckenmiller hasn’t indicated any plans to return. He called the AI sector “overheated” as early as May 2024.
Microsoft Delivers Strong Quarter
Microsoft became Druckenmiller’s choice for continued AI exposure. He made it one of his biggest Q2 stock purchases. The company was previously his largest holding at different points.
The tech giant reported Q1 results that topped expectations. Earnings reached $3.72 per share. Revenue hit $77.7 billion. Analysts predicted $3.68 per share and $75.5 billion revenue.
Shares dropped 2% after the report. Investors focused on spending rather than earnings. Capital expenditures rose 74% to $34.9 billion. About $17.5 billion went to GPUs and CPUs for data centers.
Commercial cloud revenue climbed to $49.1 billion, up 26% from last year. Azure revenue increased 40%. The Intelligent Cloud division brought in $30.9 billion against forecasts of $30.2 billion.
Management said AI service demand continues exceeding supply. These services grew 157% in late 2024. The company is racing to build capacity.
OpenAI Deal Reshapes Partnership
Microsoft recorded a $3.1 billion charge this quarter. The expense came from accounting for its OpenAI investment. Total investment now stands at $13 billion with $11.6 billion funded through September.
The charge coincided with OpenAI’s restructuring. The AI startup reorganized as a public benefit corporation. Microsoft now owns 27% valued at $135 billion.
The new agreement changed several terms. Microsoft lost exclusive rights as OpenAI’s compute provider. OpenAI can now use competitors like Oracle for its Stargate Project.
But Microsoft secured a major commitment. OpenAI agreed to purchase $250 billion in Azure services. CEO Satya Nadella praised the arrangement as “one of the most successful partnerships and investments our industry has even seen.”
The companies partnered in 2019, years before ChatGPT launched. Microsoft has integrated OpenAI models across its product line. But competition is emerging between the former exclusive partners.
Microsoft listed OpenAI as a competitor in its 2024 annual report. The filing named areas including AI services, search, and advertising. Microsoft also started testing its own AI model in August for potential Copilot enhancements.
Druckenmiller’s shift from Nvidia and Palantir to Microsoft reflects his focus on valuation. Microsoft offers AI growth through Azure and enterprise software. The stock trades at a premium but remains cheaper than alternatives.
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