Billionaire Stan Druckenmiller is widely considered one of the greatest investors in American history. He made a name for himself in 1992 when he earned $1 billion betting against the British pound. Druckenmiller also ran Duquesne Capital Management between 1980 and 2010, a hedge fund that returned 30% annually over three decades without a single down year.
While Druckenmiller no longer manages money for clients, he does manage his own fortune through Duquesne Family Office, so investors can still follow his portfolio. Druckenmiller made the following trades during the first quarter.
- Sold 441,551 shares of Nvidia(NASDAQ: NVDA), reducing his position by 71%. Nvidia is still his seventh-largest position, accounting for 3.6% of his portfolio.
- Bought 26,150 shares of Microsoft(NASDAQ: MSFT), increasing his position by 2%. Microsoft is his second-largest position and accounts for 11% of his portfolio.
- Bought 194,067 shares of Arista Networks(NYSE: ANET), increasing his position by 83%. Arista is his 12th-largest position and accounts for 2.8% of his portfolio.
Investors should not interpret Druckenmiller's trades to mean Nvidia is a bad investment. The chipmaker still ranks among his largest holdings, but he did trim the position while adding to Microsoft and Arista. Here's what investors should know about those companies.
Microsoft: An IT leader monetizing AI across its software and cloud businesses
Microsoft reported strong financial results in the third quarter of fiscal 2024 (ended April 2024), beating expectations on the top and bottom lines. Revenue increased 17% to $61.9 billion, and generally accepted accounting principles (GAAP) net income jumped 20% to $2.94 per diluted share. Microsoft is a multifaceted business with products ranging from IT solutions to video games, but strength in enterprise software and cloud computing were driving forces behind its third-quarter results.
During the quarter, Microsoft continued leaning into artificial intelligence (AI) product development. The company introduced two copilots for its enterprise resource planning platform, Dynamics 365. Copilot for Service and Copilot for Sales improve customer service and sales agent productivity by drafting emails, summarizing information, and surfacing insights.
Those products join a growing portfolio of generative AI tools that augment core applications across the Microsoft 365 and Dynamics 365 platforms. Copilots are still in the early stages of monetization, but CEO Satya Nadella told analysts nearly 60% of Fortune 500 companies use at least one copilot product, and UBS analysts estimate the total addressable market at over $400 billion.
Meanwhile, Microsoft continued to take share in cloud computing due to its strength in data analytics and AI products like Azure OpenAI Service. More than 65% of Fortune 500 companies use Azure OpenAI Service, which lets developers fine-tune large language models from OpenAI (such as the models that power ChatGPT) and build generative AI applications. In total, Microsoft accounted for 25% of cloud infrastructure and platform services spending during the quarter, up from 23% in the prior year.
Going forward, Wall Street expects Microsoft to grow earnings at 14% annually over the next three to five years. That makes its current valuation of 36.8 times earnings look expensive, especially when the three-year average is 32.6 times. Personally, I would feel more comfortable buying Microsoft closer to 28 times earnings (i.e., two times the forecasted earnings growth rate), so I would keep the stock on my watchlist for now.
Arista Networks: The market leader in high-speed data center networking
Networking specialist Arista reported encouraging financial results in the first quarter, beating expectations on the top and bottom lines. Revenue increased 16% to $1.6 billion, and GAAP net income surged 44% to $1.99 per diluted share. Investors have good reason to believe that momentum will continue.
Arista provides switching and routing platforms that move information through enterprise and cloud data centers. The company also provides adjacent software for network telemetry, workflow automation, and security. Morgan Stanley sees Arista as the company best positioned to monetize AI networking, a market estimated to reach $25 billion by 2027.
Arista views its core innovation as the Extensible Operating System (EOS), the software that runs across all its switching and routing platforms. That single-system approach differentiates Arista from legacy vendors, like Cisco Systems, that use multiple operating systems, a strategy that increases the cost and complexity of network maintenance.
Arista has gained substantial market share in the broader data center switching space over the last decade. Since 2014, its market share has increased 22 percentage points to 30%, while Cisco's has declined 35 percentage points to 34%. More importantly, Arista is the market leader in high-speed data center switches (100G to 400G) -- with more than double the market share of Cisco -- and high-speed switches are crucial to AI workloads.
Going forward, Wall Street expects Arista to grow earnings per share at 19% annually over the next three to five years. In that context, its current valuation of 44.5 times earnings lands somewhere between reasonable and expensive. Personally, I would wait for a cheaper valuation before adding to my current position in Arista, but non-shareholders looking to diversify their AI exposure can consider buying a small position today.
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Trevor Jennewine has positions in Arista Networks and Nvidia. The Motley Fool has positions in and recommends Arista Networks, Cisco Systems, 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.
