Billionaire Stan Druckenmiller Has 21% of His Portfolio Invested in 2 “Magnificent Seven” Stocks

Stan Druckenmiller ran a really profitable hedge fund between 1981 and 2010. He by no means had a single dropping yr, and he returned a median of 30% yearly to purchasers. Only a few Wall Avenue cash managers have a monitor document half that good, and that makes Druckenmiller a superb case research for buyers.

Right now, he manages his multibillion-dollar fortune by the Duquesne Household Workplace. As of the quarter resulted in December, Druckenmiller had 21.1% of his portfolio invested in two “Magnificent Seven” shares. Nvidia (NASDAQ: NVDA) accounted for 9.1% and Microsoft (NASDAQ: MSFT) accounted for 12% of his invested belongings. The scale of these positions is a transparent signal of excessive conviction.

Are Nvidia and Microsoft nonetheless worthwhile investments?

1. Nvidia

Nvidia reported phenomenal monetary outcomes for the fourth quarter, crushing estimates on the highest and backside traces. Whole income soared 265% to $22.1 billion on triple-digit gross sales development within the knowledge middle {and professional} visualization segments. In the meantime, non-GAAP internet revenue skyrocketed 486% to $5.16 per diluted share as gross margin expanded greater than 10 proportion factors because of pricing energy and a scaling software program enterprise, which comes with even increased margins than Nvidia {hardware}.

The corporate is finest recognized for its graphics processing items (GPUs), that are the gold normal in dealing with laptop graphics and sophisticated knowledge middle workloads like synthetic intelligence (AI). Certainly, Nvidia holds a more-than-95% market share in workstation graphics, and an 80%-plus share in AI chips.

However the firm is actually formidable as a result of it has expanded into the adjoining knowledge middle markets of high-performance networking gear, central processing items (CPUs), subscription software program, and cloud providers — all purpose-built for AI.

CEO Jensen Huang highlighted that technique on the annual GPU Know-how Convention (GTC) the corporate hosted just lately. “Nvidia does not construct chips. Nvidia builds knowledge facilities,” Huang stated. He continued: “Nvidia’s alternative shouldn’t be the GPU alternative. Lots of people make GPUs. We’re pursuing the info middle market.”

Story continues

That technique not solely creates monetization prospects past GPUs, but additionally reduces friction for purchasers. As Huang defined, Nvidia primarily sells ready-made knowledge facilities purpose-built for powering AI workloads.

With that in thoughts, Nvidia values its addressable market at $1 trillion, and Wall Avenue expects the corporate to develop earnings per share by 35% yearly over the subsequent 5 years. Whereas spectacular, that consensus estimate nonetheless makes its present valuation of 77 instances earnings look fairly costly.

Personally, I’d watch for a less expensive entry level earlier than buying Nvidia inventory, and I say that as a present shareholder.

2. Microsoft

This tech large posted robust monetary outcomes for the second quarter, beating expectations on the highest and backside traces. Income elevated 18% to $62 billion on stable gross sales development in business software program and cloud computing providers. In the meantime, non-GAAP internet revenue jumped 26% to $2.93 per diluted share because of disciplined expense administration. Administration guided for 14% to fifteen% income development within the third quarter, and buyers can anticipate related outcomes sooner or later as the corporate leans into AI.

Microsoft dominates the software-as-a-service market due largely to success with its workplace productiveness (Microsoft 365), enterprise useful resource administration (Dynamics 365), and cybersecurity merchandise. The corporate has launched generative AI copilots that automate duties throughout these software program classes. As an illustration, Microsoft 365 Copilot can draft textual content in Phrase, create shows in PowerPoint, and analyze knowledge in Excel. Administration expects these generative AI copilots to contribute extra considerably to income sooner or later.

In the meantime, Microsoft can also be gaining market share in cloud computing. Its Azure unit accounted for twenty-four% of cloud infrastructure and platform providers spending within the fourth quarter, up practically 2 proportion factors from the prior yr. CEO Satya Nadella attributes these share good points to investments in AI, most notably its partnership with OpenAI. Particularly, Microsoft is the unique cloud supplier to OpenAI, and Azure prospects can construct customized generative AI purposes utilizing OpenAI massive language fashions like GPT-4, the cognitive engine behind ChatGPT Plus.

Going ahead, the software-as-a-service market is forecast to develop by 13.7% yearly, and the cloud computing market is projected to develop at a 14.1% annualized fee throughout the identical interval. That provides Microsoft a great shot at producing annual income development within the low teenagers by the tip of the last decade. Traders can anticipate barely quicker development on the underside line due share buybacks and continued concentrate on price management.

Certainly, Wall Avenue expects Microsoft to spice up its earnings per share by 16% yearly over the subsequent 5 years. However that consensus forecast makes the present valuation of practically 39 instances earnings look fairly costly. Microsoft is a wonderful firm with robust development prospects, however I’d be stunned to see this Magnificent Seven inventory beat the market over the subsequent 5 years from its present worth.

Do you have to make investments $1,000 in Nvidia proper now?

Before you purchase inventory in Nvidia, contemplate this:

The Motley Idiot Inventory Advisor analyst workforce simply recognized what they imagine are the 10 finest shares for buyers to purchase now… and Nvidia wasn’t one among them. The ten shares that made the reduce may produce monster returns within the coming years.

Inventory Advisor offers buyers with an easy-to-follow blueprint for fulfillment, together with steerage on constructing a portfolio, common updates from analysts, and two new inventory picks every month. The Inventory Advisor service has greater than tripled the return of S&P 500 since 2002*.

See the ten shares

*Inventory Advisor returns as of March 21, 2024

Trevor Jennewine has positions in Nvidia. The Motley Idiot has positions in and recommends Microsoft and Nvidia. The Motley Idiot recommends the next choices: lengthy January 2026 $395 calls on Microsoft and brief January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure coverage.

Billionaire Stan Druckenmiller Has 21% of His Portfolio Invested in 2 “Magnificent Seven” Shares was initially printed by The Motley Idiot