TCI Sells Out and Turns Bearish, Ackman Goes Long: Why the Huge Divergence on Microsoft’s AI Prospects?

TradingKey - Regarding the impact of artificial intelligence on Microsoft ( MSFT )'s core business, two globally renowned fund managers recently initiated large-scale allocations in diametrically opposite directions, making the tech giant's long-term investment value a focal point of heated debate in capital markets.

Sir Christopher Hohn, founder of the UK hedge fund TCI, recently significantly reduced his stake in Microsoft, slashing its weighting in his portfolio from approximately 10% to 1%, representing a reduction of about $8 billion in position size. In his letter to investors, he warned that the rapid iteration of generative AI technology could pose a structural threat to Microsoft’s Office suite and Azure cloud services, undermining the sustainability of its traditional business model.

In stark contrast, Bill Ackman’s Pershing Square established a new core position of approximately $2.4 billion in Microsoft during the first quarter, which was confirmed in the latest 13F regulatory filing.

Ackman publicly responded to Hohn’s views on social media, stating that his judgment was flawed and detailing his investment logic. Entering at a forward P/E ratio of approximately 21x, he believes the ecosystem barriers Microsoft 365 has built for enterprises are extremely difficult to replicate; combined with Azure's strong growth momentum, he argued that market concerns are "entirely misplaced."

Microsoft’s stock price has retreated more than 26% from the all-time high set in July 2025. This correction primarily stems from investors' cautious assessment of the risk of AI technology displacement—the market has begun to re-examine whether Microsoft's massive capital expenditures in artificial intelligence can translate into matching commercial returns within a foreseeable cycle.

TCI Ends Decade-Long Microsoft Position

British hedge fund TCI has maintained a long-term position in Microsoft since the fourth quarter of 2017, reaping substantial returns as the stock price surged nearly 400% over an investment cycle spanning nearly a decade.

In a letter to investors, TCI founder Christopher Hohn highlighted two major concerns: first, the rapid iteration of AI technology is giving rise to new work models and productivity tools that could threaten Microsoft Office's market dominance; second, he questioned the growth potential of Azure, Microsoft's cloud platform, citing uncertainty regarding its future development.

Coincidentally, this reduction occurred as Microsoft’s share price fell more than 15% year-to-date, reflecting broader market skepticism regarding the company's AI commercialization process. Investors are increasingly worried about whether the massive AI costs Microsoft continues to incur can truly be converted into tangible commercial returns.

In sharp contrast to its divestment from Microsoft, TCI significantly increased its stake in Alphabet, raising its weight from 3% to 5% and making it the fund's largest technology holding.

Ackman's Long Thesis

Bill Ackman recently published a lengthy post on social media platforms, systematically addressing market concerns regarding Microsoft and confirming that his firm, Pershing Square, has established Microsoft as a core holding.

The renowned investor noted that following the stock price pullback triggered by Microsoft's second-quarter fiscal results, Pershing Square began building a position in February at an entry point of approximately 21 times forward earnings. This valuation level is roughly in line with the broader market but significantly below Microsoft's historical average, providing an allocation window with a margin of safety.

Ackman emphasized that Microsoft 365 (M365) boasts over 450 million active users, with Word, Excel, PowerPoint, Outlook, and Teams deeply embedded in the core workflows of large global enterprises. Leveraging decades of accumulated identity authentication, security compliance, and data governance systems, Microsoft has formed an "extremely difficult to replicate" ecological moat.

In terms of pricing strategy, the average monthly fee for M365 is approximately $20 per user—less than half the cost of enterprises purchasing similar tools separately. Combined with a profit structure where M365 and Azure cloud services together contribute about 70% of Microsoft's overall profit, this gives its business model strong risk resistance. Last quarter, M365 revenue grew 15% year-over-year on a constant-currency basis, validating the persistence of demand.

Ackman stated, "We are pleased to see Microsoft shifting R&D resources toward AI, especially the Copilot AI assistant embedded in M365, with CEO Satya Nadella personally driving its implementation. Over time, these investments will translate into faster product iteration speeds and higher customer penetration."

Regarding external concerns over Azure's growth prospects, Ackman believes the market's judgment is misplaced. He cited Azure's 39% constant-currency growth rate last quarter and Microsoft's plan to increase capital expenditures to $190 billion by 2026—two-thirds of which will be allocated to servers and network equipment to directly serve short-term revenue growth. Furthermore, Microsoft has provided guidance for a modest acceleration in growth for the second half of the year.

Addressing negative interpretations of Microsoft's adjusted partnership with OpenAI, he offered a completely opposite judgment. Relinquishing the exclusive right to sell OpenAI models is not a retreat, but a proactive shift toward a "multi-model open architecture" that better meets enterprise customers' needs for flexible AI deployment. Currently, over 10,000 companies utilize multi-model services on the Azure Foundry platform.

Ackman also pointed out a valuation logic overlooked by the market: Microsoft holds approximately 27% of the economic interest in OpenAI. Based on OpenAI's latest funding valuation, this is worth about $200 billion—representing 7% of Microsoft's current market capitalization—yet this value is not reflected in its 21x forward P/E ratio.

He compared this position-building to Pershing Square's previous entries into Alphabet ( GOOGL ), Amazon ( AMZN ), Meta ( META )—instances where the market also sold off sharply due to anxiety over AI capital expenditures, only for these assets to subsequently rebound.