Key Points
Microsoft (MSFT) shares surged on Friday after hedge fund manager Bill Ackman’s Pershing Square Capital Management announced a significant core position while exiting its investment in Alphabet.
In an 887-word social media post on Friday morning, Ackman elaborated on his investment rationale, stating that Microsoft’s current valuation is "extremely attractive," as the stock has fallen 13% year-to-date and is down 22% from its all-time high.
Diverging Views Among Hedge Funds
Ackman’s optimism is not universally shared. TCI Fund Management, led by Chris Hohn, which was considered one of the world’s most successful hedge funds last year, quietly liquidated most of its $8 billion Microsoft position, which it had held for a decade.
TCI explained its reasoning to investors: "We reduced our investment in Microsoft due to the uncertainty surrounding its future competitive position brought about by the rapid development of AI."
This has led to two respected investment firms arriving at starkly different investment decisions in the same market environment, leaving financial analysts eager to see which perspective proves more accurate.
Copilot Penetration and AI Investment Returns
In terms of operational performance, Microsoft reported an adjusted earnings per share of $4.27 and revenue of $82.9 billion in its fiscal third-quarter report, exceeding analysts’ expectations of $4.05 per share and $81.4 billion in revenue. The expansion of Azure cloud services reached 40%.
Microsoft’s infrastructure investments have risen from $24 billion in fiscal 2021 to $88 billion in fiscal 2025, with spending expected to reach $190 billion this year. These investments are facing increasing scrutiny as the market debates whether AI investments translate into measurable customer returns.
However, The Wall Street Journal noted that some customers are confused by Microsoft’s diverse AI product names, with some preferring Google’s Gemini alternative. Microsoft recently reorganized its AI department's leadership structure.
Judson Althoff, who took over business operations in October, commented on this: "These issues do not concern me because I believe the market is still working to understand AI."
This week, a research paper released by Microsoft Research added complexity to the optimism surrounding AI, stating that large language models "introduce sparse but severe errors that can quietly undermine documents over long interactions."
All three researchers of this paper are affiliated with Microsoft Research.