Billionaire Peter Thiel is an entrepreneur and venture capitalist co-founder Palantir Technologieswhere he is still chairman and owns a substantial stake in the company.
Thiel also manages a hedge fund (Thiel Macro) that executed a number of interesting transactions in the fourth quarter. The fund sold its positions Apple (NASDAQ: AAPL) And Microsoft (NASDAQ: MSFT)despite the fact that most Wall Street analysts think the stock is undervalued.
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Among 52 analysts, Apple has an average price target of $303 per share. That implies an upside of 11% from the current share price of $273.
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Among 60 analysts, Microsoft has an average price target of $600 per share. That implies an upside of 49% from the current share price of $402.
The fourth quarter ended about two months ago, so investors should reassess Apple and Microsoft before copying Thiel’s trades. Here you will find the most striking information.
Apple reported encouraging first-quarter financial results. Revenue rose 16% to $144 billion, driven by double-digit revenue growth in the iPhone and services segments. Demand for the iPhone 17 was particularly pronounced in Greater China, where sales rose 38%, the fastest growth in four years. Meanwhile, net income under generally accepted accounting principles (GAAP) rose 18% to $2.84 per diluted share.
The investment thesis revolves around the company’s strength in consumer electronics, especially its leadership in smartphones. With 2.5 billion active devices worldwide, Apple has a significant opportunity to expand its high-margin services business (advertising, payments, cloud storage and subscriptions). The company is also well positioned to monetize artificial intelligence (AI) at the consumer level.
Integrated generative AI (Apple Intelligence) features weren’t a major selling point for most iPhone buyers last quarter, but that could soon change. Apple recently said it would use this Alphabet‘s Gemini models to develop future AI features, including the long-awaited update to the personal assistant Siri, expected to launch later in 2026.
Here’s the big picture: Apple reported solid financial results, with particularly impressive numbers in the iPhone segment and the Greater China region. And the decision to build future AI features around Gemini models is a step forward for the company, as it finally allows Apple to monetize artificial intelligence in a meaningful way.
Why did Peter Thiel leave his position? I see two possible reasons. Margins on Apple products are likely to shrink in the coming quarters due to the sharply rising price of memory chips. Furthermore, the stock currently trades at 34 times earnings, a very expensive valuation for a company whose profits are expected to grow 11% per year over the next three years. I agree with Thiel’s decision to avoid Apple.
Microsoft reported strong financial results in the fiscal quarter ended in December. Revenue rose 17% to $81 billion thanks to solid momentum in commercial software, consumer software and cloud services. And non-GAAP net income rose 24% to $4.14 per diluted share. CFO Amy Hood said: “We exceeded expectations on revenue, operating income and earnings per share.”
The investment thesis for Microsoft focuses on the power of enterprise software and cloud computing. The company’s strategy to integrate AI assistants and agents into popular software products (low-code development, office productivity and enterprise resource planning) lays the foundation for accelerating revenue growth in the future. The number of paid Microsoft 365 Copilot licenses increased by 160% last quarter and the number of daily active users increased tenfold.
Meanwhile, Microsoft Azure has been steadily gaining market share in cloud infrastructure and platform services, and demand for computing capacity continued to outpace available supply last quarter. This also indicates strong future sales growth. In addition to my belief, Morgan StanleyThe latest CIO survey shows that Microsoft is most likely to gain market share in cloud computing and generative AI over the next three years.
Why did Thiel leave his position? Software stocks have come under pressure as investors fear AI code generation tools will disrupt the sector. Microsoft is also investing a lot of money in AI, and despite management touting Copilot’s adoption and strong demand for cloud services, some investors worry that Microsoft won’t earn a reasonable return on that invested capital.
However, I think these investors are missing the big picture. AI will almost certainly be the most transformative technology of the coming decades, and Microsoft will likely be one of the main beneficiaries, as its software products and cloud services are already integral to countless enterprises.
Furthermore, Microsoft currently trades at 26 times earnings, which is a fair valuation for a company whose earnings are expected to grow 15% annually through fiscal 2027 (which ends in June). Instead of selling this stock, investors should consider buying a small position today.
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Trevor Jennewine holds positions at Palantir Technologies. The Motley Fool holds positions in and recommends Alphabet, Apple, Microsoft and Palantir Technologies. The Motley Fool has a disclosure policy.
Palantir billionaire Peter Thiel sells two artificial intelligence (AI) stocks that Wall Street says are undervalued, originally published by The Motley Fool
