The Gates Foundation Just Sold All of Its Microsoft Stock. Is It Time to Panic?
Key Points
Microsoft stock has shown weakness over the past few quarters.
Microsoft's results have been nothing short of fantastic.
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Bill Gates and Paul Allen founded Microsoft (NASDAQ: MSFT) in 1975 and built one of the world's most dominant companies. While Microsoft has evolved throughout the years, Gates stayed involved until 2020, when he left the board of directors.
One of Gates' biggest legacies has been the Gates Foundation. This foundation has a trust that holds several major companies, but it made a jaw-dropping move during the first quarter: It sold all of its Microsoft stock.
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That obviously raises some red flags, but should investors start to panic?
Image source: Getty Images.
The fund is scheduled to shut down by 2045
One item to note is that the foundation is scheduled to shut down by 2045, so it must donate all of its funds by then. So, eventually, it will need to sell all of its holdings. While the fund completely sold out of Microsoft during Q1, it also sold other staples, like Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB).
As a result, the selling doesn't look so bad, but the timing certainly does. Microsoft has been struggling lately, and while most of the big tech companies have hit new all-time highs, Microsoft is down more than 20% from its recent highs. It has also reached a valuation low point that it hasn't seen in some time.
MSFT Price to CFO Per Share (TTM) data by YCharts
Using the cash from operations metric to value a stock is useful when a company is going through a heavy capital-investment cycle, like Microsoft is with artificial intelligence (AI). This metric measures how much cash a business can produce, and I think it's the perfect metric to use with big tech companies right now. From this measure, Microsoft hasn't been this cheap since 2019. That's a huge retraction, and if the Gates Foundation believes this is the new normal, it could be a smart move to sell.
However, I don't think that's the case.
Microsoft is in a great position to capitalize on the massive amount of AI spending going on, and its cloud computing platform, Azure, is becoming one of the best places to build and run AI models. This is already leading to strong short-term growth, and it will likely translate into major long-term growth as these massive capital investments turn into cash cows.
I think the Gates Foundation Trust selling Microsoft stock is more noise than signal, as Gates really has no involvement with the company. So, just because he founded Microsoft doesn't mean you need to follow his fund's move.
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Keithen Drury has positions in Microsoft. The Motley Fool has positions in and recommends Berkshire Hathaway and Microsoft. The Motley Fool has a disclosure policy.
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