Summary
The Gates Foundation, a well-funded charitable organization established by billionaire Bill Gates, holds a substantial amount of Microsoft shares, with about 25% of its total worth tied up in the company. This significant investment is not surprising, given that Bill Gates co-founded Microsoft and has consistently ranked among the world's richest individuals. The foundation's holdings provide insight into what one of the world's brightest minds considers top stock picks, and it has identified Microsoft as a stellar performer in recent years.
The Foundation's Investment in Microsoft
The Gates Foundation Trust, one of the world's most well-funded foundations, holds a substantial number of Microsoft shares. This significant investment is not surprising, given that Bill Gates co-founded Microsoft in the mid-1970s and has consistently ranked among the world's richest individuals. By examining its holdings, investors can gain insight into what one of the world's brightest minds considers top stock picks.
Microsoft is the foundation's top holding, with about 25% of its total worth tied up in the company. This concentrated bet on Microsoft has worked out well with the company's recent success. The foundation's investment in Microsoft provides a unique perspective on the company's growth and potential for future success.
Microsoft's Role as an AI Facilitator
Microsoft has emerged as a top player in the artificial intelligence (AI) space, offering many of the leading generative AI models on its cloud computing platform, Azure. Developers can choose from OpenAI's ChatGPT, Meta Platforms' Llama, DeepSeek's R1, or xAI's Grok, a company founded by Elon Musk. By offering a wide range of generative AI models, Microsoft is not locking its clients into a single provider.
This has made Azure a top choice for building AI models on, which is why it has outgrown its peers in recent quarters. We will get an update on how the other cloud computing providers – namely Alphabet's Google Cloud and Amazon's Amazon Web Services (AWS) – are performing in the next few weeks. However, I would be shocked if Azure is not growing quicker than they are.
Microsoft's Stock Performance
Microsoft's stock has started to look a bit pricey for its growth. If Microsoft derived all of its revenue from Azure, I would be a buyer at nearly any price. However, Microsoft has other product lines that are not growing as quickly, which slows the company's overall growth pace.
In its latest period – the third quarter of fiscal 2025 – overall revenue rose to $70.1 billion at a 13% pace. While Microsoft does not break out the revenue generated by Azure, we know from prior information that it accounts for over half of the Intelligent Cloud division, which brought in $26.8 billion during Q3 (ending March 31). They do provide Azure's growth rate, which was Microsoft's top-performing division in Q3, rising 33% year over year.
Microsoft's diluted earnings per share also rose an impressive 18%, but is that fast enough to justify its valuation? Microsoft trades at nearly 40 times trailing earnings, which is a very expensive price tag and exceeds its recent highs reached during the AI arms race period.
Valuation and Growth Comparison
Wall Street analysts project $15.14 in earnings per share for fiscal 2026 (ending June 30, 2026), which indicates the stock trades at 33.7 times forward earnings. That's still a high valuation, and investors need to start being a bit cautious when stocks reach that level, especially when they're growing at Microsoft's pace.
Yes, Microsoft is growing faster than the market, but it's not growing as fast as some of its peers. Take Meta Platforms, for example. It trades at 28 times trailing earnings and grew revenue at a 16% pace during its last quarter with 36% earnings-per-share growth. That's a cheaper stock growing faster, which should cause Microsoft investors to question whether it's the best big tech stock to be in right now.
Numerous other big tech stocks have better growth numbers and cheaper valuations than Microsoft. Although it's a dominant company, it's starting to look a bit expensive compared to its peers.
Conclusion
The Gates Foundation's significant investment in Microsoft provides insight into what one of the world's brightest minds considers top stock picks. However, with the stock trading at nearly 40 times trailing earnings and growth not as fast as some of its peers, investors need to be cautious when considering buying Microsoft stock. While it's a dominant company, it's starting to look a bit expensive compared to its peers.
Investors should carefully consider the valuation and growth prospects before making any investment decisions. With numerous other big tech stocks having better growth numbers and cheaper valuations, it's essential to evaluate all options before choosing where to invest.