Microsoft Stock vs. Meta Platforms Stock: Billionaires Are Buying One and Selling the Other

Hedge Fund Activity - Lone Pine Capital sold 364,426 shares of Microsoft, reducing the position by 18%, and bought 496,900 shares of Meta Platforms, increasing the position by 36%, making Meta the largest holding and Microsoft dropping from second to fifth [1] - Moore Capital Management sold 93,922 shares of Microsoft, cutting the stake by 70%, and bought 128,207 shares of Meta Platforms, increasing the position by 961%, making Meta the second-largest holding and Microsoft no longer in the top 50 [1] Microsoft - Microsoft's $13 billion investment in OpenAI is expected to result in a $1.5 billion drag on income in the current quarter, with the headwind likely to persist in the near term, but the company is entitled to a portion of OpenAI's earnings once profitability is reached [2] - Microsoft's AI business is expected to surpass an annual revenue run rate of $10 billion next quarter, four times faster than the cloud business reached the same milestone, with potential for AI revenue to grow tenfold to $100 billion annually in the future [3] - Microsoft reported Q1 fiscal 2025 revenue of $65 billion, up 16%, driven by strong momentum in enterprise software and cloud services, with GAAP net income increasing 10% to $3.30, but the stock declined due to concerns over aggressive AI investments and a 7% decline in free cash flow [10][12] - Microsoft trades at 36 times earnings, a premium to the five-year average of 33 times earnings, with a PEG ratio of 2.7, considered expensive as values above 2 are typically seen as overvalued [12] Meta Platforms - Meta Platforms reported Q3 revenue of $40 billion, up 19%, with operating margin expanding 3 percentage points and GAAP net income surging 37% to $6.03 per diluted share, despite the stock declining due to slower-than-expected active user growth [5] - Meta Platforms is the second-largest adtech company globally, projected to gain market share through 2026, and operates four of the seven most popular social media platforms, leveraging consumer data for targeted advertising [6][9] - Meta Platforms trades at 28 times earnings, a premium to the five-year average of 25.5 times earnings, but the valuation is attractive with expected earnings growth of 18% annually over the next three years, resulting in a PEG ratio of 1.6, making it cheaper than Microsoft [11] - Meta Platforms effectively uses AI to boost engagement, with AI-driven feed and video recommendations leading to an 8% increase in time spent on Facebook and a 6% increase on Instagram this year, and over a million brands using generative AI tools for ad content creation in the last month [13] Wall Street Sentiment - Wall Street is bullish on both Microsoft and Meta Platforms, with a consensus buy rating and median target prices implying at least 10% upside as of Dec 27, though hedge fund billionaires sold Microsoft and bought Meta Platforms in Q3, underperforming the S&P 500 over the last three years [8]