Following the trades of billionaires is a smart investing strategy. While just thoughtlessly investing in the same stocks isn't a wise idea, it's good to see what trades they're making to ensure that you're not missing out on a megatrend. The biggest investment trend over the past few years has been artificial intelligence (AI), and billionaires are still piling money into this trend even after massive gains.
One billionaire that I follow is David Tepper, who runs Appaloosa Management. He has been a wildly successful investor over the long run, so seeing what stocks he's investing in is a smart idea. In the second quarter, Tepper added to his stakes of three genius AI stocks that have been long-term winners, showcasing that it's not too late to hop into the AI investment trend.
Which three did he buy? Amazon (AMZN +2.05%), Nvidia (NVDA +2.59%), and Taiwan Semiconductor (TSM +1.40%).
Image source: Getty Images.
The AI infrastructure buildout is far from over
Both Nvidia and Taiwan Semiconductor have long been at the top of the artificial intelligence investing world. They've also been wildly successful investments. Since the start of 2023, Nvidia's and Taiwan Semiconductor's stocks are up 1,100% and 270%, respectively. That's monster growth in just under three years, but Tepper is betting that there could be more of that moving forward.
NASDAQ: NVDA
Key Data Points
Although it seems like there isn't any more room for AI spending to increase, the AI hyperscalers continue finding change in the couch cushions to build out more AI computing capacity. In 2025, Nvidia expects AI data center capital expenditures from the AI hyperscalers to reach $600 billion. However, this figure is expected to reach $3 trillion to $4 trillion globally by 2030.
While that sounds like a massive increase, the AI hyperscalers are still growing at a rapid pace, so their resources will also expand. Investors need to consider how much China is spending on this trend as well. Lastly, regions like Europe have yet to adopt the AI trend fully, and this could be another huge area for growth.
Nvidia's graphics processing units (GPUs) are the computing unit of choice for AI models. They have the best ecosystems, as well as top computing power and flexibility. However, Nvidia doesn't manufacture the chips that go into them -- Taiwan Semiconductor does.
Taiwan Semi is the world's leading chip foundry. It makes chips for Nvidia and its competitors, like Advanced Micro Devices and Broadcom. Because Taiwan Semi is acting as a neutral party foundry, it can manufacture chips for competitors without any issues. This allows Taiwan Semi to benefit from all aspects of the AI race, as well as other trends like a smartphone refresh cycle and autonomous vehicles.
NYSE: TSM
Key Data Points
Taiwan Semiconductor is a genius investment, as it's a bet that we're going to use more chips and more advanced chips over the next few years, which seems like a no-brainer.
Amazon's cloud computing service is seeing strong growth
Amazon may seem like an odd inclusion in a list of AI stocks, but it's deeply involved in the computing buildout through its cloud computing wing, Amazon Web Services (AWS). Many clients don't want to build and maintain expensive AI computing equipment on-premises, so they rent it from a provider like AWS. This makes Amazon a key player in the AI race, and its stock price has reflected that.
Since the AI race began in 2023, Amazon's stock is up 158%, a strong run for a mature company. However, if current trends continue, I wouldn't be surprised if Amazon continues outperforming the market.
NASDAQ: AMZN
Key Data Points
Although most investors think of Amazon as an e-commerce company, it's truly a cloud computing company. In Q2, 53% of Amazon's operating profits came from AWS, despite it generating 18% of total revenue. With AWS growing at a faster pace than its commerce division, this will lead to AWS commanding a larger profit share, further increasing its value.
With many companies still working to launch AI workloads, the growth runway for AWS is massive. This makes it a smart buy, and David Tepper has positioned his hedge fund wisely by making Amazon its third-largest position at a 9.2% weighting.
