Billionaire hedge fund manager Philippe Laffont recently made headlines by adding to his firm’s positions in Amazon and Microsoft during the second quarter. Amazon ranks as Laffont’s second-largest holding, while Microsoft holds the fifth spot in his portfolio.
Let’s explore the factors that attracted Laffont to these “Magnificent Seven” stocks and whether investors should follow suit.
Cloud Computing Leaders
Amazon’s AWS and Microsoft’s Azure reign supreme as the top players in the cloud computing domain. AWS commands a 32% market share, with Azure following closely at 23%. The unyielding allure of cloud computing stems from its fixed-cost nature, where size and scale govern success – an attribute these tech giants undoubtedly possess.
The surge in cloud computing owes much to the proliferation of AI services and the persistent migration of computing operations from on-premise servers to the cloud. Companies turn to cloud service providers to develop AI applications, leveraging the tools provided by these tech titans to catalyze their AI endeavors. Noteworthy is Microsoft’s remarkable growth, with Azure realizing a 29% year-over-year surge last quarter and a 60% uptick in AI customers. Similarly, Amazon’s AWS demonstrated an uptick in growth, escalating to nearly 19% last quarter from 17% in Q1, fueled by sustained capital expenditure outlays to satiate escalating demands.
Dominant Positions in Core Markets
Amazon claims the throne in e-commerce, boasting a substantial 40% market share. The company continues its upward trajectory, with North American sales registering a 9% annual increase, and international sales climbing 10% on a constant currency basis. Microsoft, an industry stalwart in productivity software and personal computer operating systems, sustains its legacy across decades. The integration of AI copilots within its Microsoft 365 software platform has been a game-changer, enhancing Word, Excel, and PowerPoint operations with AI-powered functionalities.
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Both Stocks Present Attractive Valuations
Despite not dwelling in the bargain bin, neither Amazon nor Microsoft commands exorbitant valuations. Microsoft sports a slightly lower forward price-to-earnings (P/E) ratio of under 28, whereas Amazon stands at 31 based on analyst forecasts for the forthcoming year.
AMZN PE Ratio (Forward 1y) data by YCharts
These equitable valuations for two industry behemoths, poised for sustained growth, underpin their attractiveness. Both companies’ embracement of AI elucidates them as enduring AI champions. Microsoft’s pioneering strides in AI, with investments in OpenAI, resonate loudly; meanwhile, Amazon’s proclivity to invest in long-term success echoes volumes.
Hence, aligning with billionaire Laffont’s investment strategy and incorporating these two Magnificent Seven stocks as core assets promises long-term gains for investors.
Is Microsoft a Wise Investment?
Prior to diving into Microsoft’s stocks, pause for a moment:
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