The rise of artificial intelligence (AI) stocks has not escaped the attention of billionaires. As opportunities present themselves, investment disclosure requirements show that they have deployed significant amounts of capital into AI-related stocks like Nvidia.
This is an important point because some investors follow the lead of these high-profile investors and copy their trades in hopes of achieving similar results. While these billionaires buy stocks for many reasons that have nothing to do with the investment goals of their followers, their positions sometimes benefit average investors, especially if they pick solid stocks.
Let’s take a look at three billionaires and find out why they took positions in Ali Baba (NYSE: BABA), Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG)And Microsoft (NASDAQ: MSFT)The exercise could provide you with information that could be useful in your investment journey.
1. Alibaba
At first glance, investors may be surprised that Appaloosa Management, the fund run by billionaire David Tepper, took a position in Alibaba. In 2022, the stock was threatened with delisting when the Chinese company refused to allow the Securities and Exchange Commission (SEC) to view its internal financial audits due to its association with the Chinese Communist Party. Although the U.S. and China eventually resolved the issue, the fragile relationship between the two countries put enormous pressure on the stock.
As a result of the crisis, Alibaba’s stock price has fallen nearly 20% from its IPO price a decade ago. The drop comes as Alibaba’s net income has more than tripled during that period. Its price-to-earnings ratio briefly fell below single digits, and its current earnings multiple of 18 is well below that of any comparable conglomerate.
With the stock price heavily discounted, Tepper has increased the size of his Alibaba position by more than 11,000% over the past year. Markets may justify that move over time. The stock price has held steady so far this year, though it is down about 75% from its 2020 peak.
Still, if Alibaba can find a way to ease investors’ concerns, Tepper’s fund and those who invest with it could see a major payday as the stock finally prices in its growing profits.
2. Alphabet
Alphabet has been a leading AI innovator since it introduced the technology to its Google search platform in 2001. However, AI investors turned away from the stock when OpenAI introduced a significantly improved version of ChatGPT in early 2023, creating the impression that Google’s parent company was lagging behind.
Billionaire investors like Bill Ackman saw this as a buying opportunity, so much so that 13% of his Pershing Square portfolio is invested in the stock. As of the fourth quarter of 2022, Pershing Square did not own any Alphabet shares.
Buying when Pershing Square did may have been the right move. More recently, Alphabet responded by launching its own generative AI product, Google Gemini. The company also consolidated its AI research under the Google DeepMind umbrella. Given its $108 billion in cash, it will likely buy any AI innovation it can’t invent in-house.
Moreover, despite perceptions, the stock is up about 60% over the past year, and its price-to-earnings ratio of 29 makes it the least expensive company with a market cap above $2 trillion. This allows Alphabet to offer both safety and a higher probability of further gains.
3. Microsoft
The Microsoft opportunity was of particular interest to Stanley Druckenmiller, manager of the Duquesne Family Office fund, who noted that Microsoft CEO Satya Nadella had restored the tech giant to its position as a leader in cloud computing.
Today, being successful in the cloud means being a leader in AI. Druckenmiller started buying stocks at the bottom of the 2022 bear market and increased his purchases when Microsoft’s partnership with generative AI specialist OpenAI went public. He now represents about 11% of the Duquesne fund.
The company capitalized on the deal by integrating Bing search engine into ChatGPT to better compete with Google Search. It also launched Copilot, an AI-powered chatbot that combines ChatGPT’s extended language model and Microsoft’s tools to create custom deliverables using the user’s natural language.
Amid its innovations, Microsoft holds about $80 billion in cash, giving it plenty of room to maneuver. Indeed, optimism around AI has helped Microsoft stock climb nearly 40% over the past year.
With a price-to-earnings ratio of around 39, Microsoft has become a moderately valued AI stock, but given its resources and leadership in AI, the stock should continue to rise over time.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Microsoft, and Nvidia. The Motley Fool recommends Alibaba Group and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Missed Nvidia? Billionaires Are Buying These 3 Artificial Intelligence (AI) Stocks Like Crazy was originally published by The Motley Fool