Billionaire Philippe Laffont runs Coatue Management, a hedge fund that outperformed the S&P 500 (^GSPC 1.25%) by 94 percentage points over the last three years. That makes him an excellent source of inspiration.
Laffont had nearly 18% of his portfolio invested in three artificial intelligence stocks (each worth well over $1 trillion) as of the third quarter: 7.3% in Meta Platforms (META 2.43%), 5.9% in Microsoft (MSFT 0.29%), and 4.7% in Amazon (AMZN 1.28%). He clearly has a great deal of confidence in those companies, and Wall Street anticipates substantial upside in all three stocks in the next year.
Here are the important details.
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Meta Platforms: 28% upside implied by the median target price
Meta has a strong presence in two industries: digital advertising and smart glasses. It owns three of the four most popular social media networks, which lets it collect user data and target media content. That advantage has made Meta the second-largest adtech company in the world. But the company also dominates the nascent smart glasses market.
Meta is using artificial intelligence (AI) -- from custom chips to proprietary large language models -- to improve user engagement and advertising conversions across its portfolio of industry-leading social media. It is also developing a superintelligence system to integrate with its smart glasses. CEO Mark Zuckerberg says glasses will be our "primary computing devices" in the future.
Wall Street expects Meta's earnings to increase at 17% annually over the next three years. That makes the current valuation of 29 times earnings look quite reasonable. Indeed, among 71 analysts, Meta has a median target price of $842 per share. That implies 28% upside from its current share price of $658.
Microsoft: 30% upside implied by the median target price
Microsoft has a strong competitive position in two markets: enterprise software and cloud computing. It is the largest enterprise software company in the world. While best known for its office productivity suite Microsoft 365, its portfolio also includes popular applications for business intelligence, cybersecurity, and enterprise resource planning. Meanwhile, Microsoft Azure is the second-largest cloud services provider.
Microsoft is monetizing AI across its software and cloud businesses. CEO Satya Nadella says customers are adopting Microsoft 365 Copilot (a generative AI assistant) faster than any new product. Additionally, its entire family of Copilot applications topped 150 million monthly active users in the quarter ended in September, up from 100 million in the quarter ended in June.
Microsoft Azure has gained about 3 percentage points of market share since the AI boom started, despite compute capacity constraints. However, the company is building out its data center capacity faster than any other cloud provider, according to Satya Nadella. Azure plans to double its data center footprint in the next two years.
Wall Street expects Microsoft's earnings to increase at 14% annually over the next three years. That makes the current valuation of 35 times earnings look somewhat expensive, though investors eager to own the stock could still buy a small position today. Among 62 analysts, Microsoft has a median target price of $631 per share. That implies 30% upside from its current share price of $485.
NASDAQ: AMZN
Key Data Points
Amazon: 32% upside implied by the median target price
Amazon has a strong competitive position in three industries: e-commerce, advertising, and cloud computing. It runs the largest online marketplace in North America and Western Europe. The company dominates retail media, one of the fastest-growing verticals in the broader digital advertising market. And Amazon Web Services (AWS) is the leader in cloud infrastructure and platform services.
In retail, Amazon has built an artificial intelligence shopping assistant called Rufus that is on pace to deliver $10 billion in sales in 2025. Shoppers who engage the conversational chatbot are 60% more likely to make a purchase. Amazon has also developed generative AI tools that improve inventory placement, robot productivity, and last-mile delivery.
Meanwhile, AWS is introducing artificial intelligence features at a rapid clip. In the last few months, the company added tools to Bedrock AgentCore that help developers build and deploy generative AI agents. AWS also added agents for software development, security fixes, and performance monitoring. And it expanded its portfolio of pre-trained models.
Wall Street expects Amazon's earnings to increase at 18% annually over the next three years. That makes the current valuation of 32 times earnings look reasonable. Indeed, among 73 analysts, Amazon has a median target price of $300 per share. That implies 32% upside from its current share price of $228.
