Tech Titans: A Tale of Two Stocks
Wall Street’s Favorites
Microsoft (NASDAQ: MSFT) and Meta Platforms (NASDAQ: META) are two of the most sought-after stocks on Wall Street, with a consensus rating of “buy” and median target prices implying at least 10% upside. However, two hedge fund billionaires, Stephen Mandel of Lone Pine Capital and Louis Bacon of Moore Capital Management, have made some intriguing moves in the third quarter.
Billionaires’ Bets
Mandel sold 364,426 shares of Microsoft, reducing his position by 18%, while buying 496,900 shares of Meta Platforms, increasing his stake by 36%. Bacon, on the other hand, sold 93,922 shares of Microsoft, cutting his stake by 70%, and bought 128,207 shares of Meta Platforms, increasing his position by 961%. These moves are noteworthy, but investors should exercise caution and not blindly follow these trades without doing their due diligence.
Microsoft’s Mixed Bag
Microsoft reported solid financial results for the first quarter of fiscal 2025, beating estimates on both the top and bottom lines. Revenue rose 16% to $65 billion, driven by strong demand for artificial intelligence (AI) products. However, the stock declined following the report due to concerns about the accounting of its $13 billion investment in OpenAI and aggressive spending on AI. Despite this, Brent Bracelin at Piper Sandler believes concerns about AI investments are overblown, citing the potential for AI revenue to grow tenfold to reach $100 billion annually in the future.
Meta Platforms’ Strength
Meta Platforms reported strong financial results in the third quarter, beating estimates on both the top and bottom lines. Revenue rose 19% to $40 billion, with operating margin expanding 3 percentage points and GAAP net income surging 37%. The stock declined following the report due to slower-than-expected growth in active users, but investors who sold may have missed the bigger picture. Meta Platforms operates four of the seven most popular social media platforms, giving it a significant competitive advantage in sourcing consumer data and targeting advertising content.
Valuation Check
Microsoft trades at 36 times earnings, a premium to its five-year average of 33 times earnings. Meanwhile, Meta Platforms trades at 28 times earnings, a premium to its five-year average of 25.5 times earnings. While both stocks are pricey, Meta Platforms’ valuation is more attractive, with a price-to-earnings-to-growth (PEG) ratio of 1.6 compared to Microsoft’s 2.7.
The Bottom Line
Prospective investors may want to wait for a better entry point before buying Microsoft stock. However, shareholders don’t necessarily need to trim their positions, provided they are comfortable with the possibility of a double-digit decline in price. Patient investors, on the other hand, may consider buying a small position in Meta Platforms today, with the potential to add more shares if the stock falls by 15% or so.
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