The Divergent Trades on Microsoft

In a striking display of contrasting investment strategies, the Gates Foundation Trust recently disclosed the complete sale of its remaining 7.7 million shares of Microsoft during the first quarter of 2026. This exit, valued at roughly $3.2 billion, ends a decades-long holding in the company co-founded by Bill Gates. On the same day, Bill Ackman, founder and CEO of Pershing Square Capital Management, announced via X (formerly Twitter) a new multi-billion-dollar position in Microsoft. Pershing's subsequent 13F filing revealed approximately 5.65 million shares worth around $2.09 billion as of quarter-end. The timing and opposing directions of these trades have sparked debate: is the market mispricing Microsoft, or are these moves driven by unique institutional needs?

The Gates Foundation Exit: A Planned Wind-Down

The Gates Foundation's sale is not a reflection of bearish sentiment on Microsoft. Rather, it is a direct consequence of a strategic shift announced by Bill Gates in May 2025. At that time, Gates stated that the foundation would sunset its operations by 2045 and deploy roughly $200 billion toward charitable initiatives over the next two decades. To fund such an aggressive philanthropic push, the trust must liquidate assets. The 7.7 million-share sale represents the final tranche of a multi-year divestiture. At the end of the first quarter of 2025, the trust still held about 28.5 million shares; by year-end, that had been cut to 7.7 million, and now to zero. Gates himself emphasized the urgency of deploying resources: There are too many urgent problems to solve for me to hold onto resources that could be used to help people. Thus, the sale is purely a funding mechanism for large-scale charity, not an investment thesis on Microsoft. Investors should not interpret it as a bear signal.

Why Bill Ackman Is Doubling Down on Microsoft

In stark contrast, Bill Ackman’s Pershing Square initiated a substantial Microsoft position at a time when the stock had pulled back from its July 2025 all-time highs. The market had two primary concerns: slow Copilot adoption and massive capital expenditure on artificial intelligence. Copilot, Microsoft’s AI assistant for Office 365, has converted only about 15 million of the 450 million paid commercial seats into paying users. Independent research also showed Copilot’s market share in the AI assistant space dropped from 18.8% in July 2025 to 11.5% by January 2026. This prompted CEO Satya Nadella to reorganize the AI division and sideline a high-profile executive recruited for $650 million. Additionally, Microsoft’s capital expenditure for 2026 is projected at $190 billion, raising fear that AI spending may not generate adequate returns.

Ackman, however, sees these as temporary headwinds. He argues that the market undervalues the resilience of Microsoft’s core franchise: Microsoft 365 and Azure together generate roughly 70% of the company’s profits. M365 monthly ARPU is about $20, less than half what customers would pay for the underlying applications individually. This creates a powerful price-value proposition that ensures stickiness. Meanwhile, Azure revenue grew 39% in constant currency last quarter, and Microsoft’s AI business reached a $37 billion annualized run rate—up 123% year-over-year. Ackman characterizes the $190 billion capex as growth capex that should drive future revenue generation rather than a margin threat. He also highlights Microsoft’s approximately 27% economic stake in OpenAI, valued at roughly $200 billion in the latest funding round—equivalent to 7% of Microsoft’s market cap. This asset is not reflected in the current share price.

Pershing Square began accumulating Microsoft in February after the stock fell on disappointing fiscal Q2 2026 earnings. They continued buying through the downturn, ultimately acquiring shares at roughly 21 times forward earnings. Ackman noted that this multiple is broadly in line with the market multiple and well below Microsoft’s trading average over the last few years. The combination of a reasonable valuation, strong core business, and undervalued AI potential forms the bedrock of his bullish thesis.

The Alphabet Rotation: A Tactical Shift

Ackman funded the Microsoft purchase by selling Pershing Square’s long-standing position in Alphabet (Google). At the end of 2025, Pershing held over 6.1 million Alphabet Class C shares. By the close of the first quarter of 2026, that was slashed to about 312,000—a 95% reduction valued at approximately $1.64 billion. Class A holdings similarly fell from 678,000 to 32,000 shares. The remaining position was fully liquidated in the second quarter, according to a person familiar with the portfolio. Pershing had owned Alphabet for three years at an average cost of about $94 per share. When the 13F was filed, Class C shares traded near $392—roughly four times the cost basis. Ackman used X to explain: To be clear, our sale of $GOOG was not a bet against the company. We are very bullish long term on Alphabet. But at current valuations and in light of our finite capital base, we used $GOOG as a source of funds for $MSFT. This underscores that the move was a relative value decision, not a deterioration in Alphabet’s prospects. Ackman’s conviction in Microsoft’s near-term upside outweighed the continued potential of Alphabet, given the finite capital constraints of Pershing Square.

Implications for the Broader Market

The divergent moves by two prominent figures—Gates (selling) and Ackman (buying)—offer important lessons. First, not all stock sales by insiders or large holders are signals of corporate weakness. The Gates Foundation’s divestiture is a planned liquidation to fund philanthropy, not a commentary on Microsoft’s future. Second, Ackman’s aggressive purchase, funded by a massive trimming of Alphabet, suggests that he sees asymmetric upside in Microsoft relative to its mega-cap peers. He is betting that the market has overpenalized Microsoft for its AI capex and underestimated the stickiness of its enterprise ecosystem. The gap between 15 million paid Copilot users and 450 million commercial seats represents a massive addressable market that could unlock substantial revenue growth if adoption accelerates. Moreover, the OpenAI stake provides a hidden asset that could appreciate further as AI technologies mature.

For investors, the key takeaway is to understand the motivations behind large trades before reacting. The Gates sale is idiosyncratic and unrelated to investment fundamentals. Ackman’s purchase, in contrast, is a concentrated bet rooted in fundamental analysis of Microsoft’s competitive moats, AI strategy, and valuation. While mimicking billionaire investors can be risky, their reasoning provides a framework for evaluating the stock. Microsoft’s current multiple around 21x forward earnings, combined with its dominant position in cloud and AI, may offer a favorable risk-reward for long-term holders willing to endure near-term volatility from AI spending. The broader market’s focus on short-term Copilot adoption metrics might be overlooking the longer runway for both Azure and M365 growth. As Ackman noted, the market has mispriced the enterprise franchise against its AI uncertainty. Whether he is right will depend on how quickly Microsoft can convert its massive installed base into higher-margin AI services. But the thesis is clear, and the capital is committed.

Source:MSN News