Billionaire Stan Druckenmiller Has 21% of His Portfolio Invested in 2 "Magnificent Seven" Stocks
Stan Druckenmiller ran a very successful hedge fund between 1981 and 2010. He never had a single losing year, and he returned an average of 30% annually to clients. Very few Wall Street money managers have a track record half that good, and that makes Druckenmiller an excellent case study for investors.
Today, he manages his multibillion-dollar fortune through the Duquesne Family Office. As of the quarter ended in December, Druckenmiller had 21.1% of his portfolio invested in two "Magnificent Seven" stocks. Nvidia (NASDAQ: NVDA) accounted for 9.1% and Microsoft (NASDAQ: MSFT) accounted for 12% of his invested assets. The size of those positions is a clear sign of high conviction.
Are Nvidia and Microsoft still worthwhile investments?
1. Nvidia
Nvidia reported phenomenal financial results for the fourth quarter, crushing estimates on the top and bottom lines. Total revenue soared 265% to $22.1 billion on triple-digit sales growth in the data center and professional visualization segments. Meanwhile, non-GAAP net income skyrocketed 486% to $5.16 per diluted share as gross margin expanded more than 10 percentage points due to pricing power and a scaling software business, which comes with even higher margins than Nvidia hardware.
The company is best known for its graphics processing units (GPUs), which are the gold standard in handling computer graphics and complex data center workloads like artificial intelligence (AI). Indeed, Nvidia holds a more-than-95% market share in workstation graphics, and an 80%-plus share in AI chips.
But the company is truly formidable because it has expanded into the adjacent data center markets of high-performance networking equipment, central processing units (CPUs), subscription software, and cloud services -- all purpose-built for AI.
CEO Jensen Huang highlighted that strategy at the annual GPU Technology Conference (GTC) the company hosted recently. "Nvidia doesn't build chips. Nvidia builds data centers," Huang said. He continued: "Nvidia's opportunity is not the GPU opportunity. A lot of people make GPUs. We're pursuing the data center market."
That strategy not only creates monetization possibilities beyond GPUs, but also reduces friction for customers. As Huang explained, Nvidia essentially sells ready-made data centers purpose-built for powering AI workloads.
With that in mind, Nvidia values its addressable market at $1 trillion, and Wall Street expects the company to grow earnings per share by 35% annually over the next five years. While impressive, that consensus estimate still makes its current valuation of 77 times earnings look quite expensive.
Personally, I would wait for a much cheaper entry point before purchasing Nvidia stock, and I say that as a current shareholder.
2. Microsoft
This tech giant posted strong financial results for the second quarter, beating expectations on the top and bottom lines. Revenue increased 18% to $62 billion on solid sales growth in commercial software and cloud computing services. Meanwhile, non-GAAP net income jumped 26% to $2.93 per diluted share due to disciplined expense management. Management guided for 14% to 15% revenue growth in the third quarter, and investors can expect similar results in the future as the company leans into AI.
Microsoft dominates the software-as-a-service market due in large part to success with its office productivity (Microsoft 365), enterprise resource management (Dynamics 365), and cybersecurity products. The company has introduced generative AI copilots that automate tasks across those software categories. For instance, Microsoft 365 Copilot can draft text in Word, create presentations in PowerPoint, and analyze data in Excel. Management expects those generative AI copilots to contribute more significantly to revenue in the future.
Meanwhile, Microsoft is also gaining market share in cloud computing. Its Azure unit accounted for 24% of cloud infrastructure and platform services spending in the fourth quarter, up nearly 2 percentage points from the prior year. CEO Satya Nadella attributes those share gains to investments in AI, most notably its partnership with OpenAI. Specifically, Microsoft is the exclusive cloud provider to OpenAI, and Azure customers can build custom generative AI applications using OpenAI large language models like GPT-4, the cognitive engine behind ChatGPT Plus.
Going forward, the software-as-a-service market is forecast to grow by 13.7% annually, and the cloud computing market is projected to expand at a 14.1% annualized rate during the same period. That gives Microsoft a good shot at generating annual revenue growth in the low teens through the end of the decade. Investors can expect slightly faster growth on the bottom line due share buybacks and continued focus on cost control.
Indeed, Wall Street expects Microsoft to boost its earnings per share by 16% annually over the next five years. But that consensus forecast makes the current valuation of nearly 39 times earnings look quite expensive. Microsoft is an excellent company with strong growth prospects, but I would be surprised to see this Magnificent Seven stock beat the market over the next five years from its current price.
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Trevor Jennewine has positions in Nvidia. The Motley Fool has positions in and recommends Microsoft and Nvidia. 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.
Billionaire Stan Druckenmiller Has 21% of His Portfolio Invested in 2 "Magnificent Seven" Stocks was originally published by The Motley Fool
