Ken Griffin has carved out a place in Wall Street history. The billionaire investor made a name for himself for correctly predicting the 1987 stock market crash. He cemented his legend as the CEO and founder of Citadel Advisors. Under his watchful eye, it became the most successful hedge fund ever, defying the downturn and generating $16 billion in profits in 2022, marking the largest windfall in hedge fund history.
Griffin has also been outspoken about the impact of generative artificial intelligence (AI). "This branch of AI will be game-changing for the economy because it will take an enormous amount of work that's done today by people and do it in a distinctly different, highly automated, highly efficient way." The market is expected to be worth $1.3 trillion by 2032, according to Bloomberg Intelligence, but some estimates are much higher.
With that as a backdrop, investors won't be shocked to learn that despite a highly diversified portfolio containing thousands of holdings, Citadel's top five individual positions are AI stocks.
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1. Nvidia
It isn't surprising Nvidia (NVDA 6.18%) tops the list of Griffin's AI holdings. The company's graphics processing units (GPUs) were already the gold standard in many existing AI use cases. Nvidia dominates the GPU markets for data center and machine learning applications -- and pounced quickly on the generative AI opportunity.
However, demand has far outstripped supply, and despite triple-digit year-over-year growth in each of the past three quarters, the shortage of AI chips is expected to persist into 2025, which highlights the magnitude of the demand. Rivals are working furiously to develop worthy competitors, but Nvidia's history of heavy spending on research and development and consistent innovation has kept it two steps ahead of the competition.
Despite its dominance, Nvidia remains remarkably inexpensive, with a price/earnings-to-growth ratio (PEG ratio) of less than 1 -- the benchmark for an undervalued stock.
Griffin increased his stake by roughly 77% in the fourth quarter and now owns about 3.6 million shares of Nvidia stock worth $3.1 billion (as of market close on Tuesday).
2. Microsoft
Microsoft (MSFT 1.82%) quickly established itself as a leader in the AI space with a strategic investment in ChatGPT creator OpenAI and by integrating generative AI into a broad cross-section of its products and services.
The standard bearer of these efforts is Copilot, its AI-fueled suite of digital helpers, which could generate incremental revenue of as much as $100 billion by 2027, according to some analysts, but forecasts continue to climb. Furthermore, its AI efforts increased demand for its Azure Cloud, which continues to outpace rivals, and Microsoft attributed 6 percentage points of last quarter's growth to demand for AI.
The stock is selling for 34 times forward earnings, a slight premium to the broader market, but given Microsoft's growth potential, that's a steal relative to its opportunity.
Griffin decreased his stake by roughly 16% in the fourth quarter and now owns about 4.2 million shares of Microsoft stock worth $1.7 billion.
3. Advanced Micro Devices
While Nvidia is the undisputed leader in the AI chip market, Advanced Micro Devices (AMD 2.37%), also called AMD, is the Pepsi to Nvidia's Coke. The company developed a cult-like following for its gaming processors but, in recent years, has pivoted to embrace data centers and AI.
The Ryzen 7000 and 8000 series of processors are the fruits of these labors, the first CPUs to contain a dedicated onboard AI engine. Joining its AI chip lineup will be the MI300, which combines the capabilities of a CPU and a GPU "to accelerate AI workloads."
The increasing demand for AI has run up against supply constraints, so AMD is well positioned to provide a viable and less costly alternative. And with a PEG ratio of less than 1, it meets the criteria for an underpriced stock.
Griffin increased his stake in AMD by roughly 140% in the fourth quarter and now owns about 6 million shares of AMD stock worth $1.2 billion.
4. Meta
Meta Platforms (META 0.43%) has a long history of integrating AI across its social media platforms. These advanced algorithms not only surface relevant content but also more effectively target digital advertising.
Despite not having a cloud platform to sell its AI offerings, Meta came up with a brilliant workaround. The company has several versions of its Llama AI model, which can be found on all the major cloud infrastructure platforms, opening up a whole new revenue stream for Meta. The company also developed a comprehensive suite of AI-based tools for advertisers on its platform.
The ongoing rebound in the advertising market will also no doubt boost its fortunes. Meanwhile, at just 25 times forward earnings, Meta stock is a bargain.
Griffin increased his stake by roughly 127% in the fourth quarter and now owns about 2.5 million shares of Meta Platforms stock worth $1.2 billion.
5. Amazon
Amazon (AMZN 3.43%) also has solid track record of deploying AI across its operations, so it isn't surprising the company has jumped into generative AI with both feet. The company already uses AI to surface relevant products for shoppers, predict inventory levels, and schedule e-commerce deliveries, among other things. Most recently, Amazon began testing an AI tool designed to answer shoppers' product questions.
Amazon Web Services (AWS) offers a suite of in-demand generative AI models for cloud users via its Bedrock AI platform. The company has also developed in-house AI processors to provide cloud customers a variety of cost options to meet every budget.
The improving economy is boosting demand across Amazon's various businesses, and AI will add another arrow to its quiver. At less than 3 times forward sales, investors get all that potential at a discount.
Griffin increased his stake by roughly 227% in the fourth quarter and now owns about 6.2 million shares of Amazon stock worth $1.1 billion.
