This year has served as a clear reminder that the stock market doesn't move up in a straight line. Since hitting their respective all-time highs between November and January, the broad-based S&P 500 and tech-centric Nasdaq Composite both entered a bear market with peak declines of 24% and 34%. The S&P 500's year-to-date performance through June 2022 was its worst first-half return since 1970!
Yet in spite of this turmoil, successful money managers haven't been fazed one bit. We know this thanks to required quarterly 13F filings with the Securities and Exchange Commission (SEC). A 13F allows investors an under-the-hood look at what fund managers with at least $100 million in assets under management (AUM) were buying, selling, and holding in the recently ended quarter.
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It was a particularly active quarter for billionaires who chose to pile into a number of highly innovative (and generally beaten-down) growth stocks. What follows are four remarkable growth stocks that billionaires simply can't stop buying.
Upstart Holdings
The first phenomenal growth stock that's attracted the attention of at least one billionaire money manager is cloud-based lending platform Upstart Holdings (UPST 2.76%). Billionaire Philippe Laffont of Coatue Management gobbled up more than 2.36 million shares of Upstart during the second quarter, making it a top-30 position for the hedge fund giant.
What makes Upstart such an intriguing company is its artificial intelligence (AI)-driven platform. Relying on machine learning for loan vetting has resulted in nearly three-quarters of all loan applications being approved digitally. This saves time and considerable cost for the company's nearly six dozen lending partners.
Equally important is the fact that Upstart's approvals have led to a broader swath of consumers being approved. In general, Upstart-vetted applicants have lower credit scores but have generated similar credit profiles (i.e., delinquency rates) as traditionally vetted applicants with higher average credit scores. The takeaway? Upstart can bring a larger pool of applicants to lenders without increasing their credit risk.
The big question mark for Upstart is how it'll fare during an economic downturn with interest rates skyrocketing. Since it hasn't exactly weathered a true recession or lasting downturn, and lending institutions are clearly becoming pickier about the loans they'll take on, Upstart's share price has taken a big hit.
However, with Upstart demonstrating that it can be quite profitable during long-winded periods of expansion, and the company moving its AI-driven loan-vetting solutions into larger markets, such as auto and small business loans, the sky could be the limit for patient investors.
Meta Platforms
The second remarkable growth stock that billionaires piled into during Q2 is social media company Meta Platforms (META 0.43%). In particular, billionaire Ken Griffin's Citadel Advisors was a big buyer. All told, Citadel purchased more than 4 million shares, which increased its stake to approximately 4.58 million shares.
One of the biggest reasons to believe in Meta is the company's leading social media assets. Facebook, WhatsApp, Instagram, and Facebook Messenger have consistently been among the world's most downloaded apps. What's more, these sites collectively drew in 3.65 billion monthly active users during Q2. That's more than half the world's adult population. It's easy to see Meta commanding substantial ad-pricing power during long periods of economic expansion.
But the future for Meta lies with the metaverse -- the next iteration of the internet which'll allow connected users to interact with each other and their environment in a 3D virtual world. The infrastructure for the metaverse is going to take years to build out. However, the thinking is that Meta could be a key on-ramp to this $30 trillion opportunity.
Although ad spending is challenged at the moment, Meta is cheaper than it's ever been as a publicly traded company. Taking into account its storied history of double-digit annual growth, a forward price-to-earnings ratio of 15, and its more than $40 billion in cash, cash equivalents, and marketable securities, a strong case can be made that Ken Griffin is a genius.
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CrowdStrike Holdings
A third supercharged growth stock that billionaires clearly can't stop buying is cybersecurity company CrowdStrike Holdings (CRWD 2.03%). Billionaire Steven Cohen of Point72 Asset Management oversaw the purchase of more than 819,000 shares of CrowdStrike during Q2. This increased Point72's position to around 955,000 shares and made CrowdStrike its 14th largest holding.
Cohen's attraction to CrowdStrike might be as simple as the defensive nature of the cybersecurity industry. No matter how well or poorly the U.S. economy and stock market perform, hackers and robots don't take time off from trying to steal enterprise and consumer data. This creates a rock-solid demand base for cybersecurity providers like CrowdStrike.
Then again, Cohen might prefer CrowdStrike for its best-of-breed end-user protection. Falcon, as the company's security platform is known, is driven by AI. Overseeing approximately 1 trillion events daily allows Falcon to grow exponentially better at identifying and responding to potential threats, compared to on-premises security solutions.
But the most impressive aspect of CrowdStrike might just be what happens when it lands a customer. In a little over five years, the percentage of clients who've purchased four or more cloud-module subscriptions has catapulted from 9% to 71%. Furthermore, even though CrowdStrike isn't the cheapest option, its gross retention rate has hovered near 98% for the past four years. While adding new customers is great -- and is something CrowdStrike doesn't struggle to do -- the company's subscription gross margin is benefiting most from existing customers spending more.
Shopify
The fourth and final remarkable growth stock that billionaires can't stop buying is cloud-based e-commerce platform Shopify (SHOP 1.11%). Billionaire Jim Simons of Renaissance Technologies oversaw the purchase of a whopping 14.04 million shares of Shopify during Q2. This vaulted the company all the way to Renaissance's No. 26 holding, as of the end of June.
For Simons, Shopify's e-commerce potential is probably the biggest draw. Last year, Shopify announced that it had a $153 billion addressable market solely from small businesses. This doesn't even account for the larger businesses that have begun latching onto Shopify via subscription. With Shopify generating $6 billion in sales last year, it's still just scratching the tip of the iceberg with regard to its e-commerce potential.
Another reason for Simons to be excited about Shopify is the company's innovative capacity. For instance, in 2021 it introduced Shop Pay -- a buy-now, pay-later (BNPL) solution that should help the company's merchants grow. Ultimately, Shopify does better when its merchants do well. As small businesses grow, they're more likely to upgrade to a higher-margin (i.e., pricier) subscription service.
The biggest hurdle for Shopify to overcome is going to be its valuation. Shopify is a retail-dependent company. Back-to-back quarters of gross domestic-product declines for the U.S. economy -- as well as historically high inflation adversely impacting the lowest-earning decile -- spell potential trouble for enterprise and consumer spending. While the future does look bright for e-commerce spending, the next six months to a year could prove quite bumpy for Renaissance's new investment.
