Is Billionaire Ken Griffin Privy to Info Wall Street Lacks? The CEO of Citadel Sells Off $750 Million in Microsoft Shares
While the spotlight mainly focuses on Nvidia, established tech titan Microsoft (MSFT 0.16%) is also a significant player in the realm of artificial intelligence (AI). The corporation maintains a close relationship with OpenAI, having invested massive amounts of money in its creation, the creator of ChatGPT.
Besides this significant investment, Microsoft's Azure Cloud is the preferred platform for ChatGPT's computational demands. Generative AI models like ChatGPT require substantial computational power, a resource that few companies can provide. Microsoft fits into this category.
Investors have generally held Microsoft in high regard over the past few years, although not to the same extent as some of its contemporaries. This favorable perception is largely due to its relationship with OpenAI and Azure's success. However, the leader of one of the most successful Wall Street hedge funds, Ken Griffin, divested nearly 70% of his stake in Microsoft this year.
Citadel's strategic moves
It's important to mention that despite Griffin's fund, Citadel, selling shares in the initial two quarters of 2024, it actually acquired shares in the last quarter. However, its third-quarter acquisition of approximately 20,000 shares is almost insignificant compared to the 3 million shares it disposed of in the first half of the year.
Griffin isn't just selling Microsoft shares; he's also offloading significant portions of his stakes in Amazon, Apple, Bank of America, and Walt Disney. Conversely, he bought nearly 5 million shares of Nvidia and 7 million shares of Citigroup.
Griffin is known for his active fund management strategy, and it's not uncommon for him to sell a significant position and then re-enter it a few quarters later. It's uncertain if Griffin has lost confidence in Microsoft's long-term potential or if he sees a more short-term opportunity. However, there are reasons to believe it could be the former.
Potential issues in Microsoft and OpenAI's relationship
OpenAI is not just a pioneer in modern AI; it's also unique for its transition from a non-profit to a hybrid entity, and now, to a fully for-profit organization. Microsoft invested billions during the hybrid stage, agreeing to a cap on its profits.
Now, OpenAI is seeking additional investment with the cap removed. Although Microsoft is involved, it's not the "lead investor," often granted the most favorable terms and influence. This reported disparity in partnership has reportedly created a rift and may lead to future legal conflicts.
This isn't ideal for Microsoft. Its perceived "golden goose" may not be as exclusive as some investors anticipated. The extent of OpenAI's independence remains to be seen, but Microsoft appears to be hedging its bets by recruiting talent from OpenAI's competitors for its in-house AI program.
Microsoft may face regulatory scrutiny
Last week, it was reported that the U.S. Federal Trade Commission (FTC) is planning to investigate "anti-competitive practices" at Microsoft, specifically its Azure Cloud. The FTC is examining allegations that Microsoft makes it challenging for customers to leave Azure by imposing harsh and unfair terms.
This isn't Microsoft's first brush with regulatory scrutiny, and it's not the only tech company currently attracting unfavorable regulatory attention. Keep an eye out for further developments.
Microsoft remains a strong company
Losing its close partnership with OpenAI would undoubtedly impact Microsoft, but its continued success in AI seems likely, given the strength of Azure.
Microsoft's growth rate isn't as robust as I'd like given the high price its stock is trading at (35 times earnings), but it's not out of line for the tech sector. Ultimately, I believe there are likely better opportunities in the market, but Microsoft can still be a valuable addition to a well-diversified portfolio.
Despite facing potential regulatory scrutiny and potential issues in its relationship with OpenAI, Microsoft's investment in AI, particularly its Azure Cloud, continues to be a significant advantage. With vast computational power, Microsoft can accommodate generative AI models like ChatGPT, making it an attractive choice for many investors. Furthermore, the company's diversification strategies, such as recruiting talent from competing AI firms, demonstrate its commitment to maintaining a strong position in the finance of technology.
