Billionaire Stanley Druckenmiller Sold 100% of Duquesne's Stakes in Nvidia and Palantir and Is Piling Into This Trillion-Dollar Artificial Intelligence (AI) Stock Instead

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Billionaire Stanley Druckenmiller Sold 100% of Duquesne's Stakes in Nvidia and Palantir and Is Piling Into This Trillion-Dollar Artificial Intelligence (AI) Stock Instead.

investing ideas :: 12hrs ago :: source - motley fool

By Adam Levy

Key Points

Druckenmiller was quick to see the growth opportunities for Nvidia and Palantir.
Valuation concerns ultimately led him to shed both stocks from his portfolio.
This trillion-dollar company offers a more compelling value with multiple avenues for AI growth.
10 stocks we like better than Microsoft ›

Stanley Druckenmiller was early to see the potential of the artificial intelligence (AI) trend that's powered the bull market for the last three years.

He acquired a small amount of Nvidia (NASDAQ: NVDA) in the third quarter of 2022 before massively increasing his stake in the chipmaker in the fourth quarter that year. At one point, it was his family office, Duquesne's, largest holding, but he fully disposed of the stock last year.

He was also early to buy into Palantir Technologies (NASDAQ: PLTR). He first bought shares at the start of 2021, making it one of his fund's largest holdings. But as the stock price has appreciated substantially since, the billionaire has completely shed the stock from his portfolio as of the end of 2024.

Just because Druckenmiller takes profits on a stock doesn't mean he won't find his way back to it eventually. In fact, the billionaire investor piled into a longtime favorite he keeps coming back to during the second quarter. It was once the largest position in Duquesne's portfolio, and it was one of his biggest purchases in the previous quarter.

Image source: Getty Images.

Taking profits on some of AI's biggest winners

Druckenmiller was early to recognize the potential for a company like Nvidia amid the growing demand for AI services like OpenAI's ChatGPT, but by mid-2024 he felt the market had caught up with him. "A lot of what we recognized has become recognized by the marketplace now," he said in an interview with CNBC.

With the rapid rise in Nvidia stock, Druckenmiller felt it had become relatively expensive compared to the growth opportunity ahead. Since that interview, share prices of Nvidia have doubled, and its forward P/E ratio has climbed above 40. It's unlikely he's about to jump back into the stock.

The same could be said about Palantir. Its P/E ratio went from expensive to astronomical since Druckenmiller decided shares were priced above fair value. Palantir now trades for 287 times forward earnings, up from about 118 times earnings expectations at the end of 2024.

While both Nvidia and Palantir are huge beneficiaries of the AI trend, which doesn't seem to be slowing down anytime soon, valuation is still a contributing factor to whether or not to hold those stocks. Druckenmiller has decided they're too expensive right now relative to other opportunities.

Druckenmiller still sees plenty of growth left for this AI leader

While Druckenmiller may have missed out on the continued growth of Nvidia and Palantir, he's not sitting out of AI entirely. While he's called AI "overheated" as far back as last May, there are still plenty of opportunities in the space. That includes Microsoft (NASDAQ: MSFT), which has already seen its stock price climb considerably on the strength of its cloud computing division and the overall impact of AI on its business.

Microsoft's Azure, its public cloud platform, saw its revenue growth accelerate this year, climbing 34% for the full year and exceeding $75 billion in revenue for the past 12 months. Those are phenomenal results, driven by the strength of its AI services in the cloud. It's growing revenue as quickly as possible (up 157% in the last quarter of calendar 2024), and management notes demand continues to outstrip supply.

Importantly, there's plenty of growth left for the cloud computing business. Remaining performance obligations (which also include its cloud-based enterprise software) climbed 37% last quarter, reaching $368 billion. Management expects to realize 35% of that within the next year.

Meanwhile, the enterprise software business remains a cash cow, fueling the spend needed to build more data centers. Revenue growth for Microsoft's Productivity and Business Processes segment climbed 16% last quarter.

Importantly, Microsoft's forward earnings multiple has remained roughly flat even as its stock price has climbed. While it trades at a premium to the overall market, it still looks attractive given the strength of its enterprise software business, which supports the strong growth of Azure. And if you compare the price to Nvidia or Palantir, it's an absolute bargain.

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Adam Levy has positions in Microsoft. The Motley Fool has positions in and recommends Microsoft, Nvidia, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

This article was originally published by The Motley Fool