Artificial intelligence (AI) has been a low-level investing trend for several years now, but recent advancements took the technology to a whole new level of interest in 2023. Generative AI -- so-called because it can generate its own original content -- garnered attention by demonstrating a growing number of use cases for these systems, including many new consumer and business applications. This leap forward in technology has enthralled investors, sparking a bull run on all things related to AI.
While estimates vary wildly, the current phase of AI development has real potential to be especially lucrative and far-reaching. Cathie Wood's Ark Investment Management has crunched the numbers and it estimates that AI software could represent a revenue opportunity of as much as $14 trillion by 2030. That estimate may be pie in the sky, but it helps illustrate the magnitude of the opportunity.
Some of Wall Street's most prominent hedge funds and billionaire investors are seizing the opportunity, snapping up shares of AI-related stocks, with an eye toward benefiting from the current AI boom. Let's look at two stocks that billionaires are buying hand over fist.
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1. Microsoft: Integrating AI into everything they do
Ray Dalio is something of a legend on Wall Street. The billionaire investor is best known for heading Bridgewater Associates -- which he founded from his apartment in 1975. It's now the world's largest hedge fund, with roughly $150 billion in funds under management. Not content with size alone, Dalio consistently ranks among the top hedge fund managers in terms of performance.
Bridgewater made a sizable bet on Microsoft (MSFT 0.37%) in the first quarter, increasing its stake by a whopping 1,422% and adding more than 240,000 shares worth more than $63 million.
The excitement surrounding OpenAI's ChatGPT was arguably the catalyst for the current AI gold rush, and Microsoft helped stoke the flames of excitement in this next generation of AI by buying a sizable stake in the company, with a cumulative investment of roughly $13 billion -- or roughly 45% of the start-up's $29 billion valuation.
Microsoft has since infused its Bing search engine with AI with the integration of ChatGPT-4, the latest version of the blockbuster chatbot. Furthermore, the technology has been deployed across a wide range of the company's products and services, including its Azure Cloud.
To be clear, there's no doubt Dalio's interest in Microsoft goes far beyond its AI aspirations. The company's expansive foothold in enterprise software, cloud computing, and personal computing provides numerous profitable foundational businesses and opportunity for growth -- while Microsoft works to tap into the vast potential AI represents.
Dalio isn't the only big holder of Microsoft stock. Bill Gates still has much of his personal wealth tied up in the company he founded, holding more than 39 million shares through the Bill & Melinda Gates Foundation, a stake currently worth nearly $13 billion.
2. Nvidia: Providing the engine that makes AI run
Ken Griffin, the billionaire CEO and founder of Citadel Advisors, is another Wall Street all-star. Most known for foretelling the 1987 stock market crash, Griffin continues to add to his legend. Just last year, Citadel became the most profitable hedge fund ever, generating $16 billion in gains in 2022.
It should be no surprise, then, that Citadel Advisors added to its sizable stake in Nvidia (NVDA -3.33%) in the first quarter, snapping up more than 1 million shares, an increase of more than 55%. That brings its total holdings to more than 2.96 million shares, currently worth more than $1.1 billion.
There's a compelling argument that the progression of AI wouldn't be where it is today if not for Nvidia. The company pioneered the graphics processing units that render lifelike images in video games. That technology was adapted to handle the unique needs of AI resulting from parallel processing -- or the ability to process a multitude of mathematical computations simultaneously.
Nvidia's GPUs not only run AI systems but also come packaged with software that makes the process much more efficient. That's why it's the processor of choice for researchers and businesses alike for training and running AI models. Don't take my word for it: By some estimates, Nvidia controls as much as 95% of the market for the processors used for machine learning, according to data from New Street Research.
Nvidia is also attractive because of its dominant position in the discrete desktop GPU market with an 85% share, as well as being a top provider of semiconductors used in cloud computing.
Griffin isn't the only one enamored with Nvidia. Philippe Laffont of Coatue Management is among the biggest acquirers of the stock, with total holdings of nearly 5 million shares, currently worth $1.9 billion.
