Popular hedge fund manager Bill Ackman revealed on Friday that his investment company, Pershing Square Inc. (PS), has taken a new stake in Microsoft (MSFT), noting that the tech giant has “a highly compelling valuation.” He further noted that the closed-end fund Pershing Square USA (PSUS) has also recently made Microsoft “a core holding” in its portfolio.
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Below are the reasons the prominent investor and his companies are making that bet:
- M365 and Azure businesses: Ackman pointed to the Microsoft 365 productivity suite and the Azure cloud service, describing them as “two of the most valuable franchises in enterprise technology.” Both account for about 70% of the tech giant’s revenue, he pointed out. He believes investors are underestimating the resilience of the M365 franchise, pointing out that they are integrated into the daily workflow of almost all large business organizations.
- Other portfolio businesses: Outside M365 and Azure, Microsoft also owns the professional networking platform LinkedIn, gaming platforms Xbox and Activision Blizzard, and Bing and Edge browsers for search and news advertising.
- Valuation and OpenAI: The Pershing Square CEO noted that Microsoft’s market value does not reflect its 27% stake in OpenAI, which could fetch Microsoft about $200 billion, or 7% of its market capitalization, based on the startup’s latest valuation. He sees Microsoft’s recent reset of its ties with OpenAI as “a deliberate pivot” to open up more AI models to its enterprise customers.
- R&D: Microsoft is prioritizing research and development, including in its own Copilot. Ackman expects this to result in “improved product velocity and greater customer adoption over time.”
- $190B Capex for 2026: Ackman believes Microsoft’s roughly $190 billion capital expenditure budget for this year is an investment to drive future revenue. This is particularly important as Microsoft spends about two-thirds of its capital on server and networking equipment.
Is Microsoft a Buy or Sell?
On Wall Street, Microsoft’s shares remain a Strong Buy based on analysts’ consensus rating. This breaks down into 33 Buys and two Holds issued by 35 analysts over the past three months.
In addition, the average MSFT price target of $559.98 suggests about 37% upside in the months ahead.
