Artificial intelligence (AI) has been slowly gaining ground for decades, but recent advancements helped the technology reach trending status. Generative AI, which underpins next-generation chatbots, including ChatGPT, is now part of the public zeitgeist and investors see an opportunity for profits.

The next stage of AI expansion could be both far-reaching and lucrative. Analysts at Goldman Sachs peg the opportunity at $7 trillion by 2030, while Morgan Stanley analysts estimate it at roughly $6 trillion. While no one knows for sure how big AI will be, it's clear the opportunity is significant.

Even some of Wall Street's most notable hedge funds and billionaires are scooping up shares of AI-related stocks, intent on not missing out on the current AI boom. Let's look at two stocks billionaires are buying hand over fist.

A person with hand outstretched under a hologram with various AI icons.

Image source: AI.

1. Alphabet: An AI pioneer

Hedge fund manager and billionaire Bill Ackman made a name for himself by taking sizable stakes in companies and agitating for change, making him one of the most widely known activist investors. He manages Pershing Square Capital Management -- the hedge fund he founded -- which has over $10.2 billion in assets under management.

Ackman recently made a big bet on Alphabet (GOOGL -1.53%) (GOOG -1.59%), as Pershing acquired more than 10 million shares of the search giant's stock, worth more than $1.27 billion (as of Tuesday's market close) and representing more than 10.4% of his ultra-concentrated portfolio, which only holds the stocks of seven companies.

While it has a long history of using AI to power its search algorithms, Alphabet laid out its current plans for AI at the company's 2023 I/O developer conference last month, helping fuel the stock's recent run. Google announced that the most recent version of its Pathways Language Model (PaLM) had undergone rigorous training.

The training, which includes a multitude of languages and mathematical and scientific papers, gives it the ability to "understand, generate, and translate nuanced text -- including idioms, poems, and riddles," and pass "language proficiency exams at the mastery level."

To be clear, Ackman was just as likely attracted to Google's dominant search, which controls 93% of the global market; its industry leadership in ad tech, representing roughly 30% of the worldwide digital advertising market; and its top-three cloud infrastructure business, Google Cloud. However, by taking a sizable stake in Alphabet, he can bet on the recovery of the advertising market while potentially getting a lift from the company's AI exposure.

2. Uber: Driving ride-hailing forward

Billionaire hedge fund manager and philanthropist David Tepper has been called "one of the most successful investors of his generation." He's president of Appaloosa Management -- the hedge fund he founded, which has $1.85 billion in assets under management -- and "has consistently outperformed his industry peers and the broader global markets since inception," according to Carnegie Mellon University.

Appaloosa added to its already sizable investment in Uber Technologies (UBER 2.23%), buying an additional 4.8 million shares. This brings the total to 6 million shares worth more than $248 million (as of Tuesday's close) and representing more than 10% of Appaloosa's portfolio.

While Uber isn't a pure-play AI company, its ties to the technology are undeniable. The company's DeepETA AI is used to estimate arrival times for its ride-hailing customers. Uber also uses AI to underpin a wide range of business processes, including driver onboarding, route optimization, fraud detection, safety processes, and more.

Additionally, Uber is in the midst of rolling out robotaxis using self-driving car technology, which it hopes will eventually make up a sizable portion of its ride-hailing fleet. Most recently, the company has filed for a patent on AI technology that would help predict rider habits and better match drivers with riders.

In all likelihood, Tepper believes Uber stock is undervalued compared to its growing dominance -- controlling 74% of the U.S. rideshare market -- and its large and growing international opportunity. Furthermore, the company's consistent revenue growth, increasing rides, rising take rates, and resulting economies of scale are all fueling greater profitability.

The AI connection is likely just icing on the cake.