Peter Thiel's AI Gamble: What is his secret in closing all positions on Nvidia and betting on Microsoft?

Legendary Silicon Valley investor Peter Thiel's hedge fund Thiel Macro recently made a big move — closed all positions in Nvidia ( NVDA ) and went all in on Microsoft ( MSFT ).

This decision has caused a stir in the circles. You know, Microsoft's stock price has skyrocketed by 476,900% since its IPO in 1986, and it's still chasing now? What is Thiel betting on?

Nvidia: Is Its Moat Really As Strong As Fort Knox?

That's right, Nvidia's GPU chips are now the absolute dominant force in the AI space, capturing over 80% of the AI accelerator market. But the question arises—

The opponent is encroaching. AMD's MI350 chip performed well in the MLPerf tests, and the MI400 series is expected to launch next year. Even OpenAI plans to deploy the MI450 chip in 2026. This indicates that Nvidia's monopoly position is weakening.

What's even more heartbreaking is the wave of self-developed chips. Google, Amazon, Microsoft, Meta, and even OpenAI are all designing their own AI chips to break free from dependence on Nvidia. But there’s an invisible cost here—the CUDA ecosystem (pre-trained models, development frameworks, code libraries) that Nvidia has built up over 20 years cannot be replicated by anyone. Developing self-made chips means starting from scratch to create a toolchain, and in the end, it turns out to be more expensive than using Nvidia GPUs.

Analysts generally believe that even with increased competition, NVIDIA can maintain 70-90% of the market share. The AI accelerator market is still growing at an annual rate of 29%, and there will be incremental dividends until 2033. According to Wall Street, NVIDIA's EPS is expected to grow by 37% annually over the next three years, and the current 44 times PE is actually a bargain.

But Thiel still ran away. This may indicate that the big shots are aware of the valuation ceiling for Nvidia.

Microsoft: Why is he optimistic instead?

What is Thiel's logic? Microsoft is now the largest enterprise software company in the world and the second largest cloud computing player, is using AI to reshape the cake of these two markets.

The penetration speed of Copilot in Microsoft 365 surpasses any feature in history, with 90% of Fortune 500 companies using it. How long has it been online?

The growth rate of cloud computing business has dropped to 28%, which doesn't seem that attractive, but Microsoft is currently limited by data center capacity. The CEO stated – the infrastructure will be doubled in the next two years. Once the capacity is released, market share is sure to surge. Enterprise cloud spending is expected to increase by 20% annually, software spending by 12%, while Wall Street only estimates Microsoft's EPS to grow by 14% annually over the next 3 years – this forecast may be too conservative.

Microsoft now has a PE ratio of 34 times and a 3-year PEG ratio of 2.4. Although it's not cheap, it is lower than its 3-year average of 2.6 and 5-year average of 2.5. In other words, while entering now still requires paying a premium, the discount is larger than usual.

Underlying Logic: Power Shift in the AI Era

The truth behind Thiel's operation may be — AI chips have entered an oligopoly competition, and the growth ceiling is visible; but the AI application and service layer is still in the early stages of explosion, and money is still flowing in this direction.

The story of Nvidia has come to an end. Microsoft has just begun.

That said, it’s hard to say whether Thiel's timing is optimal. But at least he is betting on the direction—from the supply side to the demand side, from the tool layer to the application layer. In the wave of AI, this shift may be the real big opportunity.