Stan Druckenmiller ran the very 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% annually to clients, easily outperforming the S&P 500 (SNPINDEX: ^GSPC).
Today, Druckenmiller manages his personal wealth through Duquesne Family Office, and he remains an excellent case study for investors. Indeed, he achieved a 41% return during the three-year period that ended 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% in Coupang (NYSE: CPNG). Both stocks performed brilliantly over the past year, with Microsoft returning 31% and Coupang returning 36%, while the S&P 500 returned 26%.
Are they still worthwhile investments today?
Microsoft: Monetizing artificial intelligence with enterprise software and cloud computing
Microsoft is arguably the most indispensable IT vendor in the world. It accounted for 18% of enterprise software sales last year, and its market share is projected to exceed 21% by 2027. Critical 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 augment its core software products. For instance, Copilot for Finance draws on ERP data to simplify and automate tasks like financial analysis and account reconciliation. Similarly, Copilot for Microsoft 365 can draft text in Word, summarize conversations in Teams, and create slides in PowerPoint. Nearly 60% of the Fortune 500 use a Microsoft Copilot product, according to CEO Satya Nadella.
Beyond software, Microsoft Azure is gaining momentum in cloud infrastructure and platform services (CIPS) due primarily to demand for artificial intelligence solutions. Indeed, 65% of the Fortune 500 now use Azure OpenAI Service, a product that lets businesses fine-tune large language models from OpenAI and integrate them into generative AI applications. Azure accounted for 25% of CIPS spending in the most recent quarter, up from 23% in the previous year.
Microsoft reported encouraging financial results in the March quarter. Revenue increased 17% to $61.9 billion on strong growth in Office 365, Dynamics 365, and Azure. Meanwhile, GAAP net income increased 20% to $2.94 per diluted share. Notably, the recent acquisition of Activision boosted revenue growth by 4 points, but reduced earnings-per-share growth by about 2 points.
Going forward, Microsoft is well positioned to maintain its momentum as digital transformation drives adoption of software and cloud services, especially those related to artificial intelligence. Wall Street analysts anticipate earnings growth of 13.7% annually over the next three to five years. That makes its current valuation of 36.7 times earnings look somewhat expensive. Personally, I would 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 with restaurant delivery (Coupang Eats) and streaming content (Coupang Play). Those adjacencies reinforce the network effect inherent to its marketplace by pulling more merchants and consumers into its ecosystem.
Additionally, 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 geographies. “We’re still single-digit share of a massive retail opportunity in Korea and an even smaller share of Taiwan’s,” said CEO Bom Kim on the most recent earnings call.
Coupang reported mixed results in the first quarter. Revenue increased 23% to $7.1 billion on modest sales growth in its core e-commerce business and triple-digit sales growth in Developing Offerings, a product category that includes retail in Taiwan, Coupang Eats, Coupang Play, and fintech services. Less encouarging, GAAP net income declined to breakeven, down from $0.05 per diluted share in the prior year, due to costs associated with its acquisition of Farfetch.
However, even if Farftech is excluded from the calculus, GAAP net income was still flat at $0.05 per diluted share. That bottom-line sluggishness was driven 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 at 17% annually through 2026. That makes its current valuation of 1.5 times sales look reasonable, assuming Coupang can reaccelerate earnings growth. Personally, I would feel more comfortable buying shares once profitability is again trending in the right direction.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Coupang, and Microsoft. 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 20% of His Portfolio Invested in 2 Brilliant Stocks was originally published by The Motley Fool
Source: finance.yahoo.com