Key Takeaways
- Pershing Square Capital Management revealed it acquired Microsoft shares while completely exiting its Alphabet holdings last quarter
- Bill Ackman described Microsoft’s valuation as “highly compelling” following significant market pullbacks
- Shares climbed as high as 4.1% Friday, settling around 3.7% higher by midday ET, even as the S&P 500 dropped 1.2%
- In contrast, TCI Fund Management liquidated the majority of its $8 billion Microsoft position, expressing concerns about AI competition
- Azure cloud services expanded 40% in the latest quarter; Microsoft now counts 20 million paid Copilot subscribers from approximately 450 million business users
Microsoft (MSFT) shares rallied Friday following the revelation that billionaire hedge fund manager Bill Ackman’s Pershing Square Capital Management established the tech giant as a “core holding” — simultaneously eliminating its entire Alphabet stake.
Shares traded 3.76% higher at $424.81 by midday ET. The stock peaked at $426.44 during the session, representing a 4.1% intraday gain. Meanwhile, broader indices moved in the opposite direction, with the S&P 500 declining 1.2% and the Nasdaq falling 1.4%.
In an 887-word social media post Friday morning, Ackman outlined his rationale, describing Microsoft’s current valuation as “highly compelling” after sustained selling pressure pushed the stock down 13% year-to-date in 2026 and 22% below its peak.
The investment represents a complete portfolio rotation — Pershing liquidated its Alphabet position entirely to finance the Microsoft acquisition. Ackman highlighted the company’s cloud infrastructure operations and market leadership in productivity software as fundamental drivers behind the decision.
Contrasting Strategies From Top Hedge Funds
Ackman’s enthusiasm isn’t universally shared. TCI Fund Management, led by Chris Hohn and recognized as one of 2025’s most successful hedge funds, discreetly liquidated the bulk of its $8 billion Microsoft holding — a position maintained for ten years.
TCI explained its rationale to investors directly: “We reduced our investment in Microsoft because the rapid progress in AI introduces uncertainty over Microsoft’s competitive position in the future.”
This presents a striking divergence: two highly respected investment firms analyzing the same corporation and arriving at completely opposing conclusions. Market observers are eager to determine which perspective proves correct.
Microsoft CEO Satya Nadella appeared in an Oakland courtroom this week, providing testimony in Elon Musk’s litigation against OpenAI. Microsoft has committed approximately $12 billion to OpenAI across seven years and currently maintains a 27% ownership stake valued at around $230 billion. Musk’s lawsuit aims to dismantle this partnership, creating genuine strategic implications for Microsoft’s AI initiatives.
Copilot Deployment and Capital Investment Concerns
Regarding financial performance, Microsoft delivered adjusted earnings of $4.27 per share on $82.9 billion in revenue for its fiscal third quarter — surpassing analyst expectations of $4.05 per share on $81.4 billion. Azure cloud expansion reached 40%.
Microsoft’s capital expenditures have surged from $24 billion in fiscal 2021 to $88 billion in fiscal 2025, with projections of $190 billion for the current calendar year. This spending level faces increasing examination as doubts emerge regarding whether AI investments are translating into tangible customer benefits.
The company reports 20 million paid subscribers for its premium Copilot AI product, representing a fraction of approximately 450 million total enterprise users. Tigress Financial Partners maintains a Buy rating with a $680 price target — significantly above current levels — pointing to triple-digit annual growth in paid Copilot subscriptions.
However, the Wall Street Journal documented customer confusion surrounding Microsoft’s diverse AI product lineup, with some users preferring Google’s Gemini alternative. Microsoft recently reorganized its AI division leadership.
Judson Althoff, who assumed responsibility for commercial operations in October, dismissed the concerns: “They don’t concern me, because I think the market is still trying to figure out AI.”
A research paper released by Microsoft Research this week introduced complications to the AI optimism, determining that large language models “introduce sparse but severe errors that silently corrupt documents, compounding over long interaction.”
The paper’s three authors are affiliated with Microsoft Research.
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