Technology stocks have been in high demand over the past year or so, driving the tech-centric Nasdaq Composite to new heights. The rapid adoption of artificial intelligence (AI) is helping to lead that charge higher.
Like many investors, billionaires are intrigued by the potential to profit from these next-generation algorithms and have piled into AI stocks like there's no tomorrow. Recent research by The Motley Fool shines a light on the most popular technology stocks held by billionaire hedge fund managers.
It should come as a surprise to almost no one that Nvidia (NVDA +5.93%) is near the top of the list. The company's graphics processing units (GPUs) have been instrumental in facilitating AI processing, leading to triple-digit revenue and profit gains last year and headlines galore. What they might find surprising, however, is that two AI tech stocks are owned by more hedge funds, while another is neck and neck with Nvidia.
Let's look at the three tech stocks -- not named Nvidia -- that are most widely held by billionaire hedge fund managers.
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Billionaires' Favorite Tech Stocks
Researchers at The Motley Fool examined 16 hedge funds that are run by billionaires to ascertain what some of the wealthiest investors had in their portfolios. The data was obtained by reviewing each of the funds' fourth-quarter 2023 13F forms -- the quarterly report filed by institutional investment managers with the Securities and Exchange Commission (SEC) at the end of each quarter. The report discloses their portfolio holdings.
The study then compiled a list of the technology stocks that appeared in the top-10 holdings of more than one of the hedge funds reviewed. And the results were telling.
Alphabet: A top-10 holding of 11 hedge fund billionaires
Alphabet (GOOGL +2.53%) (GOOG +2.92%) topped the list, a top holding of 11 hedge fund billionaires:
- Renaissance Technologies (Jim Simons).
- Bridgewater Associates (Ray Dalio).
- BlueCrest Capital Management (Michael Platt).
- Millennium Management (Israel Englander).
- Tiger Global Management (Chase Coleman).
- E. Shaw & Co. (David Shaw).
- Two Sigma Investments (John Overdeck and David Siegel).
- The Children's Investment Fund (Christopher Hohn).
- Soros Fund Management (George Soros).
- Caxton Associates (Bruce Kovner).
- Viking Global Investors (Andreas Halvorsen).
NASDAQ: GOOGL
Key Data Points
The company's dominant Google Search gives it access to a vast treasure trove of data, which is needed to adequately train generative AI models. Its search business also forms the foundation for its industry-leading, digital-advertising business, capturing roughly 30% of the market last year.
Billionaire Bill Ackman, who is also a fan, detailed the reasoning behind Pershing Square Capital's large stake in Alphabet: "We continue to believe Google is one of the most advantaged and scaled players in AI with an unmatched business model." He went on to cite the stock's compelling valuation -- which is still attractive -- currently trading at less than 27 times trailing-12-month earnings, making it one of the best bargains among AI tech stocks.
Meta Platforms: A top-10 holding of 11 hedge fund billionaires
Meta Platforms (META +1.33%) (GOOG +2.92%) also topped the list, a top holding of 11 hedge fund billionaires:
- Citadel (Ken Griffin).
- Renaissance Technologies (Jim Simons).
- Bridgewater Associates (Ray Dalio).
- Millennium Management (Israel Englander).
- Tiger Global Management (Chase Coleman).
- E. Shaw & Co. (David Shaw).
- Tudor Investment Corp. (Paul Tudor Jones).
- Coatue Management (Philippe Laffont).
- Two Sigma Investments (John Overdeck and David Siegel).
- Caxton Associates (Bruce Kovner).
- Viking Global Investors (Andreas Halvorsen).
NASDAQ: META
Key Data Points
The company boasts the world's most widely used family of social media platforms. About 3.2 billion people visit one of its sites every day, and 4 billion stop by monthly. This provides the company with a large horde of data. Meta surprised tech aficionados by developing its own Large Language Model Meta AI (LLaMA), which is now available for hire on all the major cloud platforms, representing an entirely new revenue stream.
Its AI chops aside, Ray Dalio of Bridgewater Associates recently addressed some of the market's most popular tech stocks, saying he views "Alphabet and Meta as somewhat cheap." Dalio has a point, and that might help explain Meta's popularity among the billionaire set. Meta is currently selling for about 25 times forward earnings, a discount compared to a current multiple of 27 for the S&P 500.
Microsoft: A top-10 holding of 10 hedge fund billionaires
Microsoft (MSFT +0.66%) was tied with Nvidia, a top holding of 10 hedge fund billionaires:
- Citadel (Ken Griffin).
- Bridgewater Associates (Ray Dalio).
- Millennium Management (Israel Englander).
- Tiger Global Management (Chase Coleman).
- E. Shaw & Co. (David Shaw).
- Tudor Investment Corp. (Paul Tudor Jones).
- Coatue Management (Philippe Laffont).
- Two Sigma Investments (John Overdeck and David Siegel).
- The Children's Investment Fund (Christopher Hohn).
- Caxton Associates (Bruce Kovner).
NASDAQ: MSFT
Key Data Points
While Microsoft's software offerings and recurring revenue are no doubt appealing, the company has a big catalyst directly tied to AI -- namely, its generative AI-powered assistant, Copilot, a suite of helpers deeply integrated into the company's most popular products and services.
Copilot streamlines a growing list of otherwise time-consuming tasks, helping users to be more productive. In fact, the initial versions were so successful Microsoft is rolling out a number of job-specific Copilots geared toward the sales, customer service, and finance industries, which will likely enjoy similar success.
We don't yet know how much this program will add to Microsoft's sales, but the numbers will likely be significant. Billionaire Dan Loeb of Third Points suggests the introduction of Copilot "could increase [Microsoft's] revenues by as much as $25 billion or more on software sales alone." Evercore ISI analyst Kirk Materne is even more bullish, suggesting Microsoft's generative AI efforts could produce incremental revenue of $143 billion by 2027.
At 35 times forward earnings, Microsoft isn't nearly as cheap as the other two stocks in our trio, but consider this: The company already has a clear path to profit from AI, which could be lucrative.
