Reflecting on 2023, the ascent of generative artificial intelligence (AI) stands out. OpenAI’s ChatGPT, initially obscure, rapidly seized the attention of a whole generation of tech investors.
Moreover, the emergence of a select group of stocks, deemed the “Magnificent Seven,” has magnetized investor interest, outpacing the broader market by substantial margins:
- Nvidia: Up 239%
- Meta Platforms (NASDAQ: META): Up 194%
- Tesla: Up 102%
- Amazon: Up 81%
- Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG): Up 58%
- Microsoft (NASDAQ: MSFT): Up 57%
- Apple: Up 48%
It’s not surprising that the potential of generative AI threads these stocks together. However, unexpected is the unanimous Wall Street momentum to seize stocks poised to profit from AI.
Below, we delve into three stocks that hedge fund billionaires were avidly embracing as 2023 drew to a close.
Image source: Getty Images.
Position One: Microsoft
Renowned on Wall Street, Ken Griffin, famed for shorting stocks ahead of the 1987 market crash, reportedly intends to return $7 billion in profits to hedge fund investors after impressive 15% returns last year.
Citadel, with a vast $16 billion profit in 2022 hailed as “the biggest annual windfall on record,” heavily relied on a solid investment in Microsoft. The fund had amassed a significant 5 million shares of Microsoft stock, valued at roughly $1.87 billion, representing 1.7% of the fund.
It appears Griffin’s bet on Microsoft isn’t shortsighted. An advocate of AI, he disclosed using Microsoft’s Copilot, boosting his fund’s developers’ productivity by 10%, which equates to hiring an additional 150 people with 1,500 developers onboard. Microsoft’s Azure cloud revenue growth, accentuated by AI services, also corroborates the potential of AI in its fiscal 2024 first quarter, which ended on Sept. 30.
Position Two: Alphabet
Billionaire Bill Ackman, renowned for aggressive activist investments, holds Alphabet as the flagship of his highly concentrated $10 billion portfolio, constituting over 19% of Pershing Square’s holdings.
In a recent interview, Ackman attributed the allure of Alphabet to AI, insisting that fears of Alphabet lagging behind in AI unfairly deflated its stock. He accentuates the intrinsic worth of Alphabet’s industry-leading digital advertising business and touts its competitive edge or even leadership in AI technology compared to Microsoft.
Position Three: Meta Platforms
Perceptive billionaire Chase Coleman, a product of Julian Robertson Jr.’s Tiger Management tutelage, vaulted $25 million into more than $13 billion in assets under management for Tiger Global Management. An overwhelming 20% of the portfolio is invested in Meta Platforms, a stake valued at over $3 billion.
The Power of AI: Meta Platforms’ Ongoing Success
AI Intrigue in the Tech Sector
Coleman has voiced his intrigue about the potential of AI, suggesting that “Tech is interesting again.” He emphasizes the significance of AI, referring to it as “pretty interesting new technology.” His advice for investors in AI is to consider companies that invest in these technologies and how well they utilize them.
Meta Platforms’ AI Track Record
Meta Platforms has a distinguished track record in using AI, applying advanced algorithms for tasks such as tagging people in photos, surfacing relevant content, and targeting advertising across its array of social media platforms. Additionally, the company has capitalized on its AI expertise to develop generative AI models accessible across major cloud infrastructure services for a fee.
Success in Online Advertising
The ongoing rebound in online advertising has already driven an upturn in Meta’s results, indicating a trend likely to persist in the coming times.
Considerations Before Investing in Microsoft
Before investing in Microsoft, it’s imperative to consider the insights from the Motley Fool Stock Advisor analyst team, which recently pinpointed potential stocks for investors to buy. Interestingly, Microsoft didn’t make the cut among the 10 best stocks suggested by the analyst team, raising an incentive for potential investors to explore alternative options.
The successful track record of the Stock Advisor service in outperforming the S&P 500 since 2002 adds weight to their recommendations, offering investors a compelling blueprint for success, including regular analyst updates and two new stock picks each month.
Additionally, it’s important to note that John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, and Randi Zuckerberg, a former director of market development at Facebook, are also a part of the board. These associations reflect a potential bias and should be considered carefully.