Artificial intelligence (AI) has been around since the 1930s, but recent advances in the field of generative AI have the potential to be game-changing. These next-generation algorithms are being used to automate certain processes, which in turn make workers more productive. This can include summarizing emails and drafting responses, generating updates from meetings, creating slide shows from existing documents, or even writing and debugging computer code -- and new use cases are dropping every day.
We don't know for sure how much AI will ultimately be worth, but estimates are thought-provoking. Projections from Morgan Stanley and Goldman Sachs estimate the economic impact at $6 trillion and $7 trillion, respectively, by 2030.
Some of the most successful hedge fund billionaires are looking to capture their fair share of the profits wrought by the accelerating adoption of AI. Here are two AI-related stocks billionaires are buying hand over fist.
Image source: Getty Images.
Microsoft is ringing the AI cash register
Billionaire hedge fund manager and philanthropist David Tepper heads up Appaloosa Management -- the hedge fund he founded -- which has more than $5 billion in assets under management. Tepper made a name for himself by predicting the collapse of the housing market and the financial crisis in 2008. In a prescient move, he bet heavily on the recovery of distressed financial institutions, becoming the highest-earning hedge fund manager of 2009.
Appaloosa added to its already sizable stake in Microsoft (MSFT 0.60%), buying an additional 395,000 shares, increasing its stake by 32%. This brings its total holdings to 1.64 million Microsoft shares worth roughly $619 million (as of Monday's close) and represents more than 10% of Appaloosa's portfolio.
A couple of developments likely prompted Tepper to increase Appaloosa's stake in Microsoft. When the company announced the results for its fiscal 2024 first quarter (ended Sept. 30), revenue from Azure Cloud grew 29% year over year, with 3 percentage points of those gains coming from demand for AI services. This outpaced the growth of Amazon Web Services and Alphabet's (GOOGL 0.39%) (GOOG 0.20%) Google Cloud, which grew 12% and 22%, respectively. This shows Microsoft is gaining market share in the cloud infrastructure services space.
NASDAQ: MSFT
Key Data Points
Furthermore, the company announced pricing for its Microsoft 365 AI Copilot, charging $30 per user per month. While there's no way to know for sure how much revenue that will generate, the estimates are sizable. Evercore ISI analyst Kirk Materne suggests Microsoft's AI efforts could generate $100 billion in incremental revenue for the company by 2027. He isn't the only one who thinks so. Piper Sandler analysts suggest Copilot has "$100 billion-plus scale potential longer term."
Given recent developments, it's no surprise that Tepper was buying Microsoft stock hand over fist.
Alphabet will be a "dominant player in AI"
Billionaire hedge fund manager Bill Ackman made his name by taking big stakes in companies, then openly campaigning for change, making him one of the best-known activist investors. He manages Pershing Square Capital Management -- the hedge fund he founded -- which has roughly $10.5 billion in assets under management.
One of Ackman's most notable victories was taking a $60 million stake in troubled mall operator General Growth Properties -- a company running headlong toward bankruptcy -- and parlaying that into profits of $3.5 billion.
It shouldn't be surprising, then, that Ackman significantly increased his stake in Alphabet, buying an additional 2.17 million Class A shares, nearly doubling the total of to 4.35 million. When combined with the existing holdings of 9.38 million Class C shares, it brings its total stake to 13.73 million Alphabet shares worth nearly $1.89 billion (as of Monday's close) and representing more than 17% of Pershing Square's portfolio.
NASDAQ: GOOGL
Key Data Points
At CNBC's Delivering Alpha 2023 Conference in September, in response to a question about Alphabet's AI aspirations, Ackman explained the rationale for his AI-centric bet:
When you think about the enormous amounts of access to data that they have -- I refer to everything from search to the various products they offer to their customers, email and otherwise ... Data and the ability to legally extract and train [AI systems] on data is a really important competitive advantage ... [Alphabet] will be a dominant player in AI for the very, very long term.
Given that unequivocal statement, it's perfectly understandable why Ackman boosted his already sizable stake in Alphabet.
To be clear, Ackman likely also invested in Alphabet for the company's dominant search business (which controls 93% of the global market), its industry-leading online advertising and adtech business (with about 30% of the global digital advertising market), and its big three cloud infrastructure business. Alphabet's recent expansion of its AI expertise is merely icing on the proverbial cake.
