Stan Druckenmiller led the highly successful hedge fund Duquesne Capital Management between 1981 and 2010. He never had a single losing year and his hedge fund returned an average of 30% to its clients annually, easily outperforming the others. S&P500 (SNPINDEX: ^GSPC).
Today, Druckenmiller manages his personal wealth through Duquesne Family Office, and he remains an excellent case study for investors. In fact, he returned 41% during the three-year period ending March 31, crushing the 32% return in the S&P 500.
As of the first quarter, Druckenmiller had 20.1% of his portfolio invested in just two stocks: 11% in Microsoft (NASDAQ: MSFT) and 9.1% indoors Coupang (NYSE: CPNG). Both stocks have performed very well over the past year, with Microsoft returning 31% and Coupang 36%, while the S&P 500 returned 26%.
Are they still worth investing in today?
Microsoft: Making money with artificial intelligence with business software and cloud computing
Microsoft is perhaps the most indispensable IT supplier in the world. It accounted for 18% of enterprise software revenue last year and its market share is expected to exceed 21% by 2027. Essential software products include Office 365 for business productivity and Dynamics 365 for enterprise resource planning (ERP), as well as Power Platform for analytics and automation.
Microsoft has built generative artificial intelligence (AI) assistants that extend its core software products. For example, Copilot for Finance uses ERP data to simplify and automate tasks such as financial analysis and account reconciliation. Similarly, Copilot for Microsoft 365 can compose text in Word, summarize conversations in Teams, and create slides in PowerPoint. According to CEO Satya Nadella, nearly 60% of the Fortune 500 use a Microsoft Copilot product.
Beyond software, Microsoft Azure is gaining momentum in the cloud infrastructure and platform services (CIPS) space, mainly due to demand for artificial intelligence solutions. 65% of the Fortune 500 now use Azure OpenAI Service, a product that helps companies refine and integrate large OpenAI language models into generative AI applications. Azure accounted for 25% of CIPS spend in the most recent quarter, up from 23% in the previous year.
Microsoft reported encouraging financial results in the March quarter. Revenue rose 17% to $61.9 billion thanks to strong growth in Office 365, Dynamics 365 and Azure. Meanwhile, GAAP net income rose 20% to $2.94 per diluted share. Notably, the recent acquisition of Activision increased revenue growth by 4 points, but reduced EPS growth by about 2 points.
Going forward, Microsoft is well positioned to maintain its momentum as digital transformation drives the adoption of software and cloud services, especially those related to artificial intelligence. Wall Street analysts expect earnings growth of 13.7% per year over the next three to five years. That makes the current valuation of 36.7 times earnings look a bit expensive. Personally, I’d wait for a slightly cheaper multiple – closer to 30 times earnings – before buying this stock.
Coupang: The market leader in e-commerce in South Korea
Coupang operates the most popular online marketplace in South Korea as measured by monthly visitors. It also supports merchants with advertising, fintech and logistics services, and engages consumers in restaurant delivery (Coupang Eats) and content streaming (Coupang Play). This proximity strengthens the network effect inherent in the market, by attracting more merchants and consumers to the ecosystem.
In addition, Coupang has expanded its retail and logistics footprint into Taiwan, the thirteenth largest economy in the world. Management sees plenty of room for growth in both regions. “We still have a single-digit share of a huge retail opportunity in Korea and an even smaller share in Taiwan,” CEO Bom Kim said on the most recent earnings call.
Coupang reported mixed results in the first quarter. Revenue rose 23% to $7.1 billion thanks to modest sales growth in its core e-commerce business and triple-digit sales growth in Developing Offers, a product category that includes Taiwan retail, Coupang Eats, Coupang Play and fintech services . Less encouragingly, GAAP net income fell to breakeven, down from $0.05 per diluted share last year, due to costs related to the Farfetch acquisition.
But even excluding Farftech, GAAP net income was still flat at $0.05 per diluted share. This bottom line sluggishness was caused by Coupang’s aggressive investments in logistics infrastructure and WOW membership benefits, a loyalty program similar to Amazon Prime.
Going forward, Wall Street expects the company to grow revenue by 17% annually through 2026. That makes the current valuation of 1.5 times sales reasonable, assuming Coupang can accelerate earnings growth again. Personally, I would feel more comfortable buying shares once profitability returns in the right direction.
Should You Invest $1,000 in Microsoft Now?
Before you buy shares in Microsoft, consider the following:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Microsoft wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $740,688!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns June 3, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Trevor Jennevine has positions at Amazon. The Motley Fool holds and recommends positions in Amazon, Coupang, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Billionaire Stan Druckenmiller has invested 20% of his portfolio in two brilliant stocks, originally published by The Motley Fool
