Warren Buffett's longtime business partner Charlie Munger once told a guest at their annual shareholder meeting that one of the best ways to find great investment ideas is "looking at things that other smart people are buying."
One of the smartest investors you could follow is Seth Klarman. He runs the private investment partnership Baupost Group and follows a similar investment ethos as Warren Buffett and Munger. He even edited Benjamin Graham's Security Analysis textbook for its seventh edition, the same book Buffett used at Columbia Business School.
Thankfully, it's easy to see what Klarman's been buying and selling to get ideas. Baupost is required to file Form 13-F with the SEC every quarter, disclosing its portfolio holdings. The most recent update shows that he sold shares of Alphabet (GOOG 1.69%) (GOOGL 1.66%) and made a big bet on another artificial intelligence (AI) stock instead.
Image source: Getty Images.
The contrarian bet on artificial intelligence
Klarman first initiated a position in Alphabet at the start of the COVID-19 pandemic. The company's dominant position and strong free cash flow probably gave him confidence in the stock despite the immediate economic uncertainty. He gave the investment a big boost in early 2023, as fears that AI chatbots such as ChatGPT would replace Google weighed on the stock.
While Klarman has trimmed his stake in the company since early 2023, he took another 41% of his remaining stake off the table last quarter. But there are good reasons why. After years of trading at a relatively low valuation to other AI stocks, Alphabet saw its shares soar in the fourth quarter following a flurry of promising developments.
The remedies required for its antitrust case were more lenient than expected. Alphabet's Gemini large language models have leaped to the forefront of frontier models. Its core Search business has shown accelerating revenue growth. And its cloud computing business is growing quickly with strong operating leverage, boosting its bottom line. What's more, its AI accelerator chips have gained significant traction with Google Cloud customers. Anthropic ordered over $20 billion worth of the chips for its own data centers, presenting another growth opportunity for the tech giant.
NASDAQ: GOOG
Key Data Points
As a result, Alphabet's forward P/E ratio climbed from around 20 at the end of August to around 30 by December. It's no surprise Klarman took some money off the table at that price. It's worth noting that Alphabet remained a top-10 position in Baupost's portfolio as of the end of the fourth quarter. Without the sale, however, the stock would've been its largest position.
Instead, Klarman took the capital raised from the Alphabet sale and put it toward another tech stock that offers excellent value right now.
A big new investment for Baupost
While Klarman continued to trim his position in Alphabet, he turned his attention to another stock he's shown interest in over the past few years: Amazon (AMZN 1.47%). While Baupost has held positions in Amazon in the past, Klarman is showing significant conviction in the company right now. He invested nearly half a billion dollars in the stock in the fourth quarter, accounting for 9.3% of the total portfolio at the end of the period, making it the investment group's second largest position.
While Alphabet shares climbed almost 65% from the start of 2025 to the end of the year, Amazon shares traded just 5% higher than they did at the start of the year. The company's cloud computing business has been growing more slowly than competitors, including Alphabet, and many investors may fear that it has lost a step amid the big AI revolution. It's worth pointing out, however, that as the leader in cloud computing, Amazon is growing its business off a much larger revenue base than the competition.
Klarman may have seen the market's pessimism as an opportunity. With shares trailing the overall market gains, the valuation looked attractive near the end of 2025.
NASDAQ: AMZN
Key Data Points
Amazon was already showing progress in accelerating Amazon Web Services in its third-quarter earnings report released last October, with plans to increase spending as demand for its AI services outstripped supply. That trend continued in the fourth quarter, with AWS revenue growing 24% year over year. Analysts now expect strong earnings per share acceleration in 2027 as it capitalizes on the cloud computing opportunity. That said, Amazon is spending heavily to spur that revenue acceleration, planning $200 billion in capital expenditures for 2026.
But long-term investors may still have an opportunity to buy Amazon. The stock now trades below its price in the fourth quarter when Klarman established the new position. With the potential for 20% earnings growth in 2027 and beyond, its 22 times earnings multiple relative to analysts' 2027 earnings expectations looks very attractive. It's not too late to take one of Klarman's biggest investment ideas from 2025 and put it in your portfolio for 2026 and beyond.
