Keeping tabs on what billionaire hedge fund managers do is a great way to check your investment strategy. While blindly following them isn't advisable, seeing what they're doing and checking that against your own thoughts is a good way of seeing if you're on the same page, especially when there's a hot trend like artificial intelligence (AI).
The 13F filings for Q1 were recently released, revealing some common themes across hedge funds. While many stocks were bought, one is a clear favorite.
Alphabet was a common purchase among all three hedge funds
I'll focus on three hedge funds: Tiger Global Management, Soros Fund Management, and Bridgewater Associates. These funds are run by billionaires Chase Coleman, George Soros, and Ray Dalio, respectively. In Q1, all three of these funds had sizable purchases of Alphabet (GOOG +2.20%) (GOOGL +2.12%). For Bridgewater and Tiger, Alphabet was the most purchased stock in Q1.
NASDAQ: GOOGL
Key Data Points
This is a large nod of confidence to Alphabet, especially since many saw it struggle to roll out AI products initially. However, its Gemini generative AI technology has dramatically improved and is now starting to integrate AI into search results to summarize what you've searched for. Many investors have been waiting for Alphabet to announce this technology, and now that it has, it reinforces the fact that Alphabet is a top player in the tech world.
But that wasn't the only AI stock these hedge funds were buying.
Bridgewater also bought Nvidia (NVDA +1.31%) and Meta Platforms (META +0.91%). While Tiger Global didn't buy any of these stocks in Q1, it's already heavily exposed, as Meta and Nvidia make up nearly 20% and 5% of its portfolio, respectively. As a result, it shouldn't be surprising that Tiger didn't add any more of these stocks due to its hefty concentration already. Soros Fund Management doesn't own either of these companies, but it isn't as tech-heavy as the other two.
NASDAQ: META
Key Data Points
Meta is similar to Alphabet in that its primary business is advertising. So to improve its standing in this field, Meta has rolled out generative AI tools to advertisers, and is also starting to develop its own chips to process its AI workloads.
Nvidia hardly needs any introduction in the AI world, as its graphics processing units (GPUs) are at the core of training and processing AI models. Despite its massive rise already, Nvidia continues to see incredibly strong demand, which will continue until all AI infrastructure is built.
With billionaires buying these three stocks, investors might be prompted to buy them now. However, these stocks were purchased between the start of the year and March 31, so it has been nearly two months since this activity occurred. So are they still buys now?
Meta and Alphabet are still reasonably priced stocks
All three of these businesses are mature companies undergoing drastic changes. So I'll use their forward price-to-earnings (P/E) ratios to value them, because it considers the business shifts occurring.
GOOGL PE Ratio (Forward) data by YCharts
Nvidia trades at a healthy premium to Meta and Alphabet simply because it's rapidly growing and has the potential to do that for many years. This makes Nvidia one of the harder stocks to assess on the stock market.
Alphabet and Meta trade at much more reasonable valuations and only hold slight premiums to the broader S&P 500's forward P/E of 21.6.Still, each posted solid earnings growth in Q1 (Alphabet's earnings per share rose 62%, while Meta's rose 120%), so they are on the right track.
Of the three, Alphabet and Meta are probably the biggest no-brainer buys. They are executing at a high level and can be purchased at a reasonable price. Nvidia requires more work, and investors must understand the expectations built into the stock, as they are quite high. But it may still be a viable option for investors to scoop up.
