Stanley Druckenmiller is one of the world's most closely followed billionaire investors. He engineered George Soros' famous bet against the British pound in 1992 and generated an average annual return of 30% for his hedge fund, Duquesne Capital, for three decades after its inception in 1986.
Druckenmiller retired and closed his fund in 2010 but continues to manage $3.1 billion in assets through his own Duquesne Family Office. Many investors still keep a close eye on the firm's portfolio to see what Druckenmiller is bullish on.
As of this writing, two "Magnificent Seven" stocks -- Microsoft (MSFT 0.59%) and Nvidia (NVDA 1.27%) -- are among the Duquesne Family Office's top investments. Microsoft is its largest position and occupies 13.1% of its portfolio, while Nvidia ranks third at 9.8%. It's currently sitting on unrealized gains of 43% and 341%, respectively, on Microsoft and Nvidia.
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Why is Stanley Druckenmiller bullish on Microsoft?
Druckenmiller starting accumulating more shares of Microsoft at the beginning of 2023. Those purchases coincided with the explosive growth of its AI-oriented businesses.
Back when Satya Nadella took the helm as Microsoft's third CEO in 2014, he prioritized the expansion of its cloud and mobile businesses. Over the following decade, the company transformed many of its desktop-based applications into cloud-based services, expanded Azure into the world's second-largest cloud infrastructure platform, and rolled out more mobile applications for iOS and Android instead of trying to build its own mobile platform.
But over the past five years, Microsoft also ramped up its investments in OpenAI, the developer of generative AI tools like ChatGPT and DALL-E. It integrated those tools into its own cloud-based search, productivity, and infrastructure services.
Microsoft's integration of OpenAI's tools into Azure enabled it to grow much faster than its larger competitor, Amazon Web Services (AWS), over the past year. The integration of those generative AI tools into its Bing search engine and Office productivity software also threatened to disrupt Alphabet's Google's sprawling ecosystem of cloud-based search and productivity services. That's probably why Druckenmiller sold all of his shares of Amazon and Alphabet at the end of 2023 while buying more shares of Microsoft.
Analysts expect Microsoft's revenue and adjusted earnings per share (EPS) to grow 8% and 11%, respectively, in fiscal 2024 (which ends this June). For fiscal 2025, they expect the company's revenue and adjusted EPS to rise 14% and 15%, respectively. The stock isn't cheap at 31 times forward earnings, but it remains one of the most straightforward ways to invest in the booming AI services market.
Why is Stanley Druckenmiller bullish on Nvidia?
Druckenmiller also initiated a position in Nvidia in early 2023. During a conference that June, he declared that he could own Nvidia for "two or three more years" -- and maybe even longer -- as AI becomes as "innovative as the internet."
That statement isn't too surprising because Nvidia is the leading producer of high-end data center graphics processing units (GPUs) for processing complex AI tasks. The chipmaker generated a whopping 78% of its revenue from those data center GPUs in fiscal 2024 (which ended this January), and the market's demand is still outstripping its supply by a wide margin.
In fiscal 2024, Nvidia's revenue surged 126% as its adjusted EPS soared 288%. For fiscal 2025, analysts expect its revenue to rise 82% and 89%, respectively. Those are incredible growth rates for a stock that trades at 34 times forward earnings.
Nvidia could eventually face competition from cheaper data center GPU makers like AMD, first-party chips from data center giants like Microsoft, and other types of dedicated AI accelerator chips. But for now, it remains the leading supplier of picks and shovels for the AI gold rush -- and it could still have plenty of room to grow.
Druckenmiller notably reduced his stake in Nvidia in the second half of 2023, but he also bought more call options on the stock. Those moves suggest he's taking some profits after Nvidia's historic run but remains bullish on its long-term prospects.
Should you follow Druckenmiller's lead on these two AI stocks?
According to Fortune Business Insights, the generative AI market could grow at a compound annual growth rate (CAGR) of 40% from 2023 to 2030. That secular expansion could light a blazing fire under Microsoft's AI-powered cloud services and Nvidia's GPUs -- so it's smart to follow Druckenmiller's lead and buy these two high-flying Magnificent Seven stocks today.
