When choosing stocks, investors sometimes like to follow the example of billionaires -- often despite not knowing the motivations behind such holdings. But these investment titans may have purchased shares at a lower valuation. In other cases, they might be sitting on years of dividend gains that are less meaningful to an investor today.
Ultimately, billionaires have their own reasons for buying and holding specific stocks. Yet, some of the holdings -- especially if recently purchased -- could be appropriate for smaller investors. Let's take a look at three such stocks right now.
Alphabet
Amid rising interest in AI, Google parent Alphabet (GOOGL -0.78%) (GOOG -0.74%) has attracted the interest of billionaires such as Bill Ackman at Pershing Square Capital.
Indeed, the recent public interest in AI was driven primarily by other companies. When the public saw the capabilities of OpenAI's ChatGPT, investors turned on Alphabet on the assumption that the longtime AI leader had fallen behind its peers.
However, Alphabet has responded with its own generative AI product in Gemini. Moreover, it has long led the way in AI, having first introduced AI to its search engine in 2001. It became an AI-first company in 2016 and today drives AI innovation through Google DeepMind.
Furthermore, its $108 billion in liquidity gives it the resources necessary to stay on top. At a price-to-earnings (P/E) ratio, of 27, the stock also has the lowest earnings multiple among the tech megacaps, an attribute that likely attracted Ackman's attention and could bring higher returns as it catches up to its peers.
Alibaba
Another intriguing stock is Alibaba (BABA -0.36%), which drew the interest of billionaire David Tepper's Appaloosa Management. Although it is the leading e-commerce conglomerate in China, its stock has suffered amid political turmoil. Alibaba is an American Depositary Receipt rather than an actual stake in Alibaba.
Such arrangements are only cause for concern if its home country has deteriorating relations with the U.S. Unfortunately, this has been the case with Alibaba, and it has lost value since its 2014 initial public offering (IPO) as a result.
Still, the U.S. and China have much to lose if such an arrangement falters, making it more likely that Alibaba stock will survive.
Indeed, Alibaba's revenue has increased almost 18-fold since between fiscal 2014 and 2024. Plus, its stock has traded in a range for the last two years. With rising profits and a P/E ratio of just 17, it sells at a massive discount to similar businesses in other countries such as Amazon.
Ultimately, Alibaba is not suitable for risk-averse investors. Still, if one can stomach the political risk, the stock could become a tremendous opportunity to buy an e-commerce conglomerate at a huge discount.
Snowflake
Snowflake (SNOW 0.81%) may be one of the more surprising choices of billionaire Warren Buffett's Berkshire Hathaway as Buffett has often avoided IPO investments in the past.
Nonetheless, investors should watch Snowflake for its leadership in the data cloud market. Its product allows organizations to manage, store, and secure data in one central, cloud-based repository. So compelling is the software that Amazon has offered it to some of its cloud customers despite selling its own data cloud product.
Admittedly, investors had highly valued the stock before a slowing of earnings, and a sudden change at the CEO level rattled investors. However, in the first three months of fiscal 2025 (ended April 30), its net retention rate -- a measure of recurring revenue from existing customers -- stood at an impressive 128% as Snowflake's usage-based revenue model sometimes compels customers to spend more money on the platform.
Moreover, amid a falling stock price, its price-to-sales (P/S) ratio is at a record low of 14. Hence, buying in this period of relative struggle may pay off for investors as more customers benefit from its data cloud product.
