Artificial intelligence (AI) has been at the forefront of technological innovation for years, but in 2023, the technology has gone viral. Generative AI is next-level technology that can generate original content and has the potential to be deployed in a vast number of use cases -- ranging from consumer to business applications. Its potential has investors scrambling to buy the companies best positioned to profit from the technology, and with good reason.
The next stage of the AI revolution could be extremely lucrative. Conservative estimates from analysts at Goldman Sachs put the economic opportunity at $7 trillion annually by 2030, while Morgan Stanley pegs the potential at roughly $6 trillion. While no one knows for sure how far the impact of generative AI will reach, there's no denying the opportunity is significant.
Even some of Wall Street's most prominent hedge fund billionaires are scooping up shares of AI-related stocks, intent on capitalizing from the current AI boom. Let's look at two AI-related growth stocks that billionaires are buying hand over fist.
Image source: Getty Images.
1. Microsoft: Getting a jump on the competition
Ken Griffin has a long, distinguished career on Wall Street, rising to prominence for predicting the 1987 stock market crash. The billionaire CEO and founder of Citadel Advisors continues to earn the respect of his peers. Last year, Citadel became the most successful hedge fund ever, generating a windfall of $16 billion in profits in 2022 -- while most others suffered from the downturn.
It should come as no surprise that Citadel Advisors added to its already sizable stake in Microsoft (MSFT -0.10%) in the second quarter, snapping up more than 2 million additional shares, an increase of nearly 150%. That brings its total holdings to more than 3.41 million shares, worth more than $1.1 billion as of the market close on Monday.
Microsoft was among the first to recognize the revolutionary potential of OpenAI's ChatGPT and generative AI. The company arguably helped stoke the wildfire of interest in the technology by taking a $13 billion stake in OpenAI. With a valuation estimated at $29 billion, that amounts to a hefty 45% stake.
Microsoft took the very public step of integrating ChatGPT into its Bing search browser. Just last month, the company went further, introducing a host of products and services underpinned by generative AI functionality.
The most high-profile of these is Microsoft 365 Copilot, which the company says can "generate an update from the morning's meetings, emails, and chats to send to the team; get you up to speed on project developments from the last week; or create a SWOT analysis from internal files and data from the web." Microsoft said it will charge $30 per user per month, which will add an entirely new revenue stream.
Make no mistake: Griffin's reasons for boosting his Microsoft stake go far beyond AI. The company is an enterprise and consumer leader in software-as-a-service (SaaS) and is one of the big three in cloud computing, which he no doubt finds appealing. Microsoft's history of growth and stable businesses provide a strong backdrop while the billionaire waits for the vast opportunity of AI to play out.
2. Nvidia: Providing the computational horsepower
Billionaire philanthropist and hedge fund manager David Tepper has a long track record of success on Wall Street and is "arguably the greatest hedge fund manager of his generation," according to Forbes. He founded and heads up Appaloosa Management, which has $5.39 billion in assets under management. Tepper "has consistently outperformed his industry peers and the broader global markets since inception," according to his bio posted by Carnegie Mellon University, where he serves on the board of advisors.
Appaloosa added to its already sizable stake in Nvidia (NVDA -4.69%), buying an additional 870,000 shares in the second quarter and increasing its stake by 580%. This brings its total holdings to 1 million Nvidia shares worth more than $446 million (as of Monday's close) and representing more than 8% of Appaloosa's portfolio.
Nvidia is best known for the graphics processing units (GPUs) that render lifelike images in video games. However, the parallel processing capability -- which can run a vast number of mathematical calculations simultaneously -- helped Nvidia chips become the processor of choice for running massive generative AI algorithms. Nvidia is already the champ in machine learning -- an area of AI that developed self-improving algorithms -- with an estimated 95% market share, according to data provided by New Street Research.
While the significant potential for generative AI was no doubt a factor, Nvidia's industry leadership in gaming, cloud computing, and data centers were likely the primary reasons behind Tepper's decision to increase his stake, with the upside from AI merely a delightful bonus.
