Wall Street’s top billionaire money managers picked their favorite AI stocks for the new year, and Nvidia wasn’t chosen.
Over the past two years, no trend has been more encouraging for Wall Street than the rise of artificial intelligence (AI). The ability of AI-driven software and systems to become more proficient at their tasks and evolve to learn new jobs without the need for human intervention gives this technology a virtually unlimited long-term ceiling. You can
Although growth estimates vary widely, PwC analysts believe the addressable AI market will be worth $15.7 trillion by 2030. According to PwC’s prize sizing, productivity gains will boost global gross domestic product by $6.6 trillion, with consumption side effects adding another $9.1 trillion. .
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This better-than-expected performance and high ceiling for artificial intelligence is not lost on Wall Street and its powerful investors. Thanks to the quarterly filing of Form 13F, investors can track which AI stocks top money managers are buying and selling.
Based on the latest 13F round, which covers trading activity through the end of September, there are three AI stocks that the billionaire asset manager clearly wants to own heading into 2025.
broadcom
As we head into the new year, the first AI stock that billionaires can’t get enough of is networking solutions specialist Broadcom. (AVGO -1.59%). Based on the 13F for the quarter ended September, the buyers were billionaires Philippe Lafont of Cortue Management (purchased 1,488,666 shares) and Stanley Druckenmiller of Duquesne Family Office (purchased 239,980 shares).
Just like Nvidia (NVDA -2.33%) Broadcom has become the undisputed top option as a supplier of graphics processing units (GPUs) for companies looking to build AI-powered data centers, and Broadcom is the leading provider of networking solutions within those data centers. . The company’s Jericho3-AI fabric can connect up to 32,000 GPUs. This is essential to maximize GPU computing power and reduce tail latency.
Additionally, Broadcom is ideally positioned to benefit from enterprise demand for custom AI chips. CEO Hock Tan said the company’s AI revenue could jump from $12.2 billion in fiscal year 2024 (year ending November 3) to $60 billion to $90 billion by fiscal year 2027. I think there is. Demand from the company’s top hyperscale customers should drive this growth.
Perhaps the most attractive aspect of Broadcom for Mr. Laffont and Mr. Druckenmiller is that it is much more than just an AI stock. The company is a leading supplier of wireless chips and accessories used in smartphones, provides a laundry list of optical sensors to the industrial sector, and has a range of cybersecurity solutions. If an AI bubble forms, Broadcom would be far better placed than Nvidia to weather the storm.
The big question for these two billionaires is: Can Broadcom sustain its multi-trillion dollar valuation? While sustainable double-digit growth seems likely, Broadcom’s price-to-sales multiple is well above its historical average. The company’s stock price may remain depressed until its valuation becomes more convincing.
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taiwan semiconductor manufacturing
The second AI stock billionaire money managers can’t stop buying heading into 2025 is Taiwan Semiconductor Manufacturing, one of the world’s leading chip manufacturers. (TSM -1.45%). In the third quarter, billionaire Chase Coleman of Tiger Global Management acquired 564,090 shares, and Duquesne Corp. chief Stanley Druckenmiller acquired 57,355 shares.
Taiwan Semi is expected to significantly increase GPU production from major players in the AI industry, including NVIDIA. Based on recently updated targets following Donald Trump’s victory in November, Taiwan Semi will increase its monthly chip-on-wafer-on-substrate (CoWoS) production capacity to 35,000 units in 2024 and 35,000 units in 2025. The company aims to sell 75,000 units in 2020 and 135,000 units in 2026. CoWoS is a must-have. Used to package high-bandwidth memory to support AI-powered data centers.
Taiwan Semiconductor Manufacturing should also continue to benefit from a long backlog of AI chips. As long as the AI-GPU shortage continues, the company’s operating cash flow will continue to be very predictable.
The big question billionaires Coleman and Druckenmiller must ask themselves is: How much of an impact will President Trump’s trade policies have on their companies? The president-elect’s America First policy and expected reliance on tariffs could lead to challenges for Taiwan Semi, which has 80% to 90% of its production capacity in Taiwan. Restrictions on exports of AI chips and equipment to China introduced by the Biden administration may also pose a challenge.
Like Broadcom, Taiwan Semiconductor Manufacturing is no longer the incredible fundamental bargain it was for years. The company’s price-earnings ratio (P/S) is 45% higher than the average P/S value over the past five years, and its forward price-earnings ratio (P/E) of 23 times is the highest since 2020. There is. This is a somewhat bullish evaluation for an industry that experiences strong business cycles.
Amazon
E-commerce giant Amazon is the third artificial intelligence stock named the billionaire investor’s must-buy ahead of the new year. (AMZN -0.86%). Four billionaires were buyers in the quarter that ended in September (number of shares purchased in parentheses).
Stephen Mandel of Lone Pine Capital (1,033,987 shares) Philippe Laffont of Coatue Management (496,218 shares) Larry Robbins of Glenview Capital Management (125,000 shares) Chase Coleman of Tiger Global Management (94,408 shares)
Amazon’s AI relationships are primarily usage-based. Amazon Web Services (AWS) is the world’s leading cloud services infrastructure platform and a leading developer of generative AI solutions. Generative AI on AWS helps enterprises build AI applications, deploy virtual chatbots and AI assistants, and build and run language models at scale.
Of Amazon’s many business segments, none is more important to its cash flow generation and profits than AWS. In the first nine months of 2024, AWS accounted for 17.5% of Amazon’s net sales but almost 62% of its operating profit. The huge benefits typically associated with cloud subscriptions can play a key role in improving a company’s cash flow over the long term.
Amazon is also developing its own AI chips known as Trainium2 and Inferentia. Amazon already uses Nvidia’s top-of-the-line GPUs, and while its chips are unlikely to match Nvidia in terms of computing speed, Trainium2 and Inferentia are significantly cheaper than Nvidia’s popular hardware. It should be easy to obtain.
Like Broadcom and Taiwan Semi, the biggest concern for Mandel, Laffont, Robbins and Coleman is whether Amazon’s stock remains cheap after hitting all-time highs. While traditional fundamental tools such as the P/E ratio suggest Amazon is more than adequately valued, the company’s price-to-cash flow ratio suggests there is still room for upside. Amazon’s estimated 2025 cash flow of 16 times is still significantly lower than the 23-37 times cash flow multiples that investors regularly paid for the company’s stock throughout the 2010s.
