Investors looking for ways to capitalize on the rapidly growing artificial intelligence (AI) industry may want to pay attention to the portfolio moves of some of the top names on Wall Street. Take David Tepper, the founder and president of Appaloosa Management, a hedge fund that has delivered excellent returns for decades. In the fourth quarter, the fund made some noteworthy sales and purchases.
For instance, it trimmed its stake in AI leader Nvidia by about 10.5% while at the same time boosting its stake by 28.8% in another leading AI company: Alphabet (GOOG 1.69%) (GOOGL 1.66%). Here's why it could be a good idea to, at the very least, follow Tepper's lead and invest in the Google parent.
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Alphabet has been on fire
Over the past five years, Alphabet's shares have climbed by 190%, compared to a 75.7% gain for the S&P 500. That strong outperformance is all the more impressive considering that the tech leader has faced some headwinds. When OpenAI launched ChatGPT, some investors feared that AI chatbots would cut into the overall use of Alphabet's Google search engine. Further, Alphabet was facing antitrust lawsuits that could have resulted in it being compelled to spin off key parts of its business. Yet it has navigated both obstacles.
AI turned out to be a strength, not a weakness, for Alphabet. It launched its own AI chatbot and added an AI mode and AI overviews to Google search. These efforts have helped it grow user engagement and strengthen the company's advertising business. Further, while Alphabet was found to have violated antitrust laws, it emerged from those court cases with relatively minimal penalties. Most importantly, it avoided the worst-case scenario of being ordered to divest its Chrome browser. Alphabet stock's ability to crush the market despite all these obstacles speaks volumes about the business.
NASDAQ: GOOGL
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What the future holds
The company still has plenty of growth opportunities. Its Gemini large language model is one of the leaders in the AI market. The company also has the third-largest market share in the cloud computing infrastructure space, and its cloud sales are growing much faster than the rest of the business. Then there is its growing streaming business through YouTube. And down the road, the tech company could capitalize on the adoption of self-driving cars, another industry where it has a leading position, in this case through its Waymo subsidiary.
Beyond all that, the tech leader has a growing portfolio of subscription services, all of which provide recurring, predictable sources of revenue. Although Alphabet's digital advertising business should remain its largest source of revenue for the foreseeable future, the rest of the company's business will help it diversify and reduce its exposure to potential headwinds affecting the ad market.
All of that adds up to a strong case for buying and holding Alphabet stock, as it seems to be one of the more attractive options for those looking to cash in on the AI trend.
