While artificial intelligence (AI) has been quietly making headway for decades, recent advances in the field have captured the public spotlight. The debut of next-generation chatbots, including ChatGPT, has resulted in a mad dash by businesses to realize the productivity gains made possible by generative AI. Investors, seeing the resulting frenzy, sense the opportunity to turn a profit and are scrambling to take advantage of the current AI gold rush.
The next stage of AI adoption could be incredibly lucrative and widespread. Cathie Wood's Ark Investment Management has crunched the numbers and estimates that AI software could represent a $14 trillion revenue opportunity by 2030. More conservative estimates from Morgan Stanley and Goldman Sachs peg the opportunity at $6 trillion and $7 trillion, respectively, by the end of the decade. Whatever the case, the opportunity is vast.
Even some of Wall Street's most notable billionaire investors are scooping up shares of AI-centric stocks, reluctant to miss out on the current AI revolution. Let's look at two stocks that billionaires have been buying hand over fist.
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Meta Platforms is harnessing AI across its ecosystem
Philippe Laffont made his name by building Coatue Management into the world's best-known tech-centric hedge fund, parlaying a $50 million investment in 1999 into $15 billion in assets under management.
Laffont focuses on tectonic shifts and the resulting secular tailwinds that change the technology landscape. "You don't need a thousand big ideas to do well in our business; you just need the one or two key ideas that then all the dominoes start falling from," said Laffont in an interview with Financial Times.
One need only look at Laffont's largest holding to see one of his key ideas. In the first quarter, Coatue Management more than doubled its position in Meta Platforms (META +6.64%). The billionaire added another 4.3 million shares of Meta stock to his position, bringing the total to more than 8 million shares, currently worth $2.37 billion and representing more than 11% of his portfolio.
NASDAQ: META
Key Data Points
Investors might not immediately identify Meta as an AI stock, but consider its history. The company has long used AI algorithms to tag photographs, surface relevant content for users, and more effectively target the digital ads that generate the lion's share of its revenue. Yet, it's Meta's future AI potential that's most intriguing.
CEO Mark Zuckerberg addressed the issue at a company meeting early last month. "In the last year, we've seen some really incredible breakthroughs -- qualitative breakthroughs -- on generative AI and that gives us the opportunity to now go take that technology, push it forward, and build it into every single one of our products," Zuckerberg said. While we don't know exactly what that will entail, it's clear the company plans to continue infusing its offerings with AI.
Furthermore, with a rebound in the ad market beginning to play out, Laffont no doubt sees an opportunity to profit from the limited view of short-sighted investors. Additional gains resulting from AI are likely just a delightful bonus.
AI already underpins Alphabet's technology
While he may not be a household name, Chase Coleman is well known on Wall Street. At just 24 years old and with seed money from his legendary mentor and hedge fund manager, Julian Robertson, Jr., Coleman founded Tiger Global Management. He turned his starting capital of $25 million into roughly $11 billion in assets under management.
In 2020, Coleman earned the distinction as the top-earning hedge fund manager of the year, sporting gains of 48%, triple the 16% gains of the S&P 500. Forbes currently ranks him as the 247th richest person in the world, worth an estimated $8.5 billion.
Tiger Global Management recently added to its already sizable position in Alphabet (GOOG +4.95%) (GOOGL +5.10%), more than doubling its holdings. The billionaire added another 4.6 million shares of Alphabet stock to his position, bringing the stake to more than 8.3 million shares, currently worth more than $1 billion and representing nearly 8% of his portfolio.
NASDAQ: GOOGL
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Coleman believes big tech companies have the most to gain from the AI boom but urged patience. "Think about it in terms of companies investing in ... [AI] and how well they use it," Coleman said. "It's going to be gradual. Be patient."
Alphabet has long used AI to underpin the company's search technology and direct its advertising; breakthroughs in the most recent version of its Pathways Language Model (PaLM) represent the next generation of its AI efforts. The company said the training included a host of languages, as well as mathematical and scientific papers, which provide the system with the ability to "understand, generate, and translate nuanced text -- including idioms, poems, and riddles" and pass "language proficiency exams at the mastery level."
While AI was certainly part of the attraction, one of the biggest draws was likely Google's dominant search engine, which controls 93% of the global market. This fuels the company's clear lead in digital advertising, with a dominant 30% share of the worldwide market. Then there's Google Cloud, the company's cloud infrastructure business, which is the fastest-growing of the "big three," according to data provided by Canalys.
However, by significantly increasing his stake in Alphabet, Coleman is most likely betting on a broad recovery of the advertising market. The exposure to AI is likely just icing on the cake.
