Billionaire Investor David Tepper Has 28% of His Portfolio Invested in 3 Brilliant AI Growth Stocks | The Motley Fool (2024)

Billionaire David Tepper runs Appaloosa Management, a hedge fund that has regularly outperformed industry peers and the broader stock market since it was founded in 1993. Indeed, Appaloosa beat the S&P 500 (SNPINDEX: ^GSPC) by 15 percentage points over the last three years. That suggests Tepper and his fund's investment choices are worth studying.

As of the September quarter, Tepper had 28.2% of his Appaloosa portfolio invested in just three artificial intelligence (AI) stocks: 8.8% in Nvidia (NVDA 0.27%), 9.4% in Amazon (AMZN -0.36%), and 10% in Microsoft (MSFT -0.54%). That level of asset allocation is a clear sign of high conviction.

Here's what investors should know about these three brilliant AI stocks.

1. Nvidia

Nvidia has a strong presence in two semiconductor markets: graphics chips for gaming and professional design and data center accelerators (graphics processing units or GPUs) for complex workloads like scientific computing and artificial intelligence (AI). Nvidia holds more than 95% market share in workstation graphics, and it holds 80% to 95% market share in AI computing.

Nvidia has extended its ability to monetize both markets with subscription software and cloud services. Omniverse is a virtual design and simulation platform for developing 3D and robotics applications, as well as training autonomous vehicles. DGX Cloud is an AI application development platform comprising infrastructure, software, and pre-trained machine learning models. Many investors mistakenly see Nvidia as nothing more than a chipmaker, but that description fails to account for its growing software and services business. CFRA analyst Angelo Zino says Nvidia's "software capabilities provide an incredible competitive moat."

In recent years, Nvidia has broadened its data center portfolio with networking platforms and central processing units (CPUs), both purpose-built for AI workloads. Networking revenue nearly tripled over the past year, and Nvidia is well positioned to take share in CPUs given that it holds 95% market share in data center GPUs.

Going forward, the graphics processor market is forecast to increase by 28% annually through 2030, while the AI market is forecast to increase by 37% annually during the same period. That gives Nvidia a good shot at annual sales growth exceeding 25% through the end of the decade. Even in that context, its current valuation of 30.4 times sales looks pricey, but I think patient investors willing to hold the stock for at least five years can buy a small position today.

2. Amazon

Amazon has a strong presence in three markets: e-commerce, digital advertising, and cloud computing. Specifically, it operates the largest online marketplace in North America and Western Europe as measured by sales volume. Amazon is also the largest retail advertiser in the U.S. and the third-largest ad tech company in the world. And Amazon Web Services (AWS) is the largest provider of cloud infrastructure and platform services.

That last point is particularly relevant. To quote Argus analyst Jim Kelleher, "As the leading provider of infrastructure-as-a-service and other cloud services, AWS is uniquely positioned in the burgeoning AI-as-a-service market." Indeed, the company is a recognized leader in cloud AI developer services, and its product pipeline is packed with AI innovations.

Amazon Bedrock became generally available in September. That service provides pre-trained machine learning models and development tools that help businesses build generative AI applications. More recently, the company announced Amazon Q, a generative AI business assistant that can create content and surface insights across data sources and enterprise systems like Microsoft SharePoint, Salesforce, and ServiceNow.

Going forward, retail e-commerce sales are forecast to increase by 8% annually through 2030, while the ad tech and cloud computing markets are forecast to expand by 14% annually during the same period. That gives Amazon a good shot at double-digit annual sales growth through the end of the decade, which makes its current valuation of 2.9 times sales look quite reasonable.

3. Microsoft

Microsoft has a strong presence in two markets: enterprise software and cloud computing. The company accounts for more than 16% of software-as-a-service spending, nearly double the market share of its closest competitor, due to its leadership position in office productivity and enterprise resource planning (ERP) software. Similarly, Microsoft Azure accounts for 23% of cloud infrastructure and platform services spending, second only to Amazon Web Services.

Microsoft is adding AI capabilities to its enterprise software to create new monetization opportunities. Microsoft 365 Copilot is a generative AI assistant that automates workflows across office productivity applications like Word, PowerPoint, and Excel. Similarly, Copilot for Dynamics 365 automates workflows across ERP applications for sales, marketing, customer service, and supply chain management.

Microsoft is also investing heavily in AI across its cloud computing business. Azure is the exclusive cloud provider for OpenAI, and it's the only cloud platform that provides access to pre-trained models from OpenAI, including the GPT models that power ChatGPT. Businesses can use those models to build custom generative AI applications. JPMorgan Chase analysts believe "Microsoft's investment into OpenAI, which started years ago, could potentially prove to be some of the best money ever spent."

Going forward, enterprise software-as-a-service and cloud computing sales are forecast to grow at 14% annually through 2030. That gives Microsoft a good shot at double-digit sales growth through the end of the decade. In that light, its current valuation of 13.3 times sales looks a bit pricey. I think patient investors can buy a small position today, but waiting for a cheaper price may be the most prudent course of action.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Trevor Jennewine has positions in Amazon and Nvidia. The Motley Fool has positions in and recommends Amazon, JPMorgan Chase, Microsoft, Nvidia, Salesforce, and ServiceNow. The Motley Fool has a disclosure policy.

I'm an enthusiast with a deep understanding of the financial markets and investment strategies. My experience includes closely monitoring hedge funds and their investment choices. Now, let's delve into the details of the article about David Tepper's hedge fund, Appaloosa Management, and its significant investments in three artificial intelligence (AI) stocks: Nvidia, Amazon, and Microsoft.

  1. Nvidia:

    • Nvidia dominates two semiconductor markets: graphics chips for gaming and professional design and data center accelerators (GPUs) for scientific computing and AI.
    • The company's market share in workstation graphics exceeds 95%, and it holds 80-95% in AI computing.
    • Nvidia's software capabilities, including platforms like Omniverse and DGX Cloud, contribute to a competitive advantage beyond chip manufacturing.
    • The forecast for the graphics processor market suggests a 28% annual increase through 2030, with the AI market expecting a 37% annual growth during the same period.
    • Despite a relatively high valuation, patient investors may find potential in Nvidia's growth, especially with its expanding data center portfolio.
  2. Amazon:

    • Amazon operates in three major markets: e-commerce, digital advertising, and cloud computing through Amazon Web Services (AWS).
    • AWS is a leading provider of cloud infrastructure, uniquely positioned in the AI-as-a-service market.
    • Amazon Bedrock, a service offering pre-trained machine learning models, and Amazon Q, a generative AI business assistant, showcase the company's commitment to AI innovation.
    • The forecast indicates an 8% annual increase in retail e-commerce sales and a 14% annual expansion in the ad tech and cloud computing markets through 2030.
    • Amazon's current valuation of 2.9 times sales seems reasonable considering the potential for double-digit annual sales growth.
  3. Microsoft:

    • Microsoft excels in enterprise software and cloud computing, with significant market shares in software-as-a-service and cloud infrastructure and platform services.
    • The company integrates AI capabilities into its software, as seen with Microsoft 365 Copilot automating workflows and Copilot for Dynamics 365 across ERP applications.
    • Azure, Microsoft's cloud platform, has an exclusive partnership with OpenAI, providing access to pre-trained models, including those powering ChatGPT.
    • Forecasted growth indicates a 14% annual increase in enterprise software-as-a-service and cloud computing sales through 2030.
    • While Microsoft's current valuation of 13.3 times sales might seem a bit high, patient investors may consider a small position, with the possibility of waiting for a more favorable price.

These insights provide a comprehensive overview of the AI-related investment choices made by Appaloosa Management and shed light on the potential growth trajectories of Nvidia, Amazon, and Microsoft in the evolving landscape of artificial intelligence.

Billionaire Investor David Tepper Has 28% of His Portfolio Invested in 3 Brilliant AI Growth Stocks | The Motley Fool (2024)

FAQs

Billionaire Investor David Tepper Has 28% of His Portfolio Invested in 3 Brilliant AI Growth Stocks | The Motley Fool? ›

As of the September quarter, Tepper

Tepper
David Alan Tepper (born September 11, 1957) is an American billionaire hedge fund manager. He is the owner of the Carolina Panthers of the National Football League (NFL) and Charlotte FC in Major League Soccer (MLS).
https://en.wikipedia.org › wiki › David_Tepper
had 28.2% of his Appaloosa portfolio invested in just three artificial intelligence (AI) stocks: 8.8% in Nvidia (NVDA -10.01%), 9.4% in Amazon (AMZN -2.56%), and 10% in Microsoft (MSFT -1.27%).

What is the best AI stock to buy today? ›

7 best-performing AI stocks
TickerCompanyPerformance (Year)
NVDANVIDIA Corp221.39%
SYMSymbotic Inc53.19%
UPSTUpstart Holdings Inc46.67%
PRCTProcept BioRobotics Corp41.03%
3 more rows
3 days ago

What are Motley Fool's 5 Top AI stocks you can buy right now? ›

See the 10 stocks

The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

What is the best AI stock to buy under $5? ›

What are the best AI stocks to buy now? Some of the best AI stocks that you can buy with less than $5 are Nerdy (NRDY), BigBear.ai Holdings (BBAI) and FiscalNote (NOTE). These stocks are poised to see considerable growth in the future.

What does David Tepper invest in? ›

The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Tesla, and Uber Technologies.

Which company is number 1 in AI? ›

Microsoft

Which AI stock has the most potential? ›

1. Nvidia. Nvidia (NVDA -3.87%) shares already have soared in the triple digits over the past year, but this top AI stock still may have plenty of room to run.

What are the top 3 AI stocks to buy now? ›

Compare the best AI companies
Company (Ticker)SectorMarket Cap
Nvidia (NVDA)Technology$2.20T
C3.ai (AI)Technology$2.74B
Meta Platforms (META)Communication services$1.31T
Data accurate as of April 15, 2024
2 more rows

What is the $3 AI wonder stock? ›

SoundHound AI (SOUN), formerly known as SoundHound, has been teased by a couple folks this year as a low-priced stock with AI exposure — Ross Givens pitched it as the “$3 AI Wonder Stock that Could Make You 75X Richer” in early May, and Jason Williams pitched that that buying the “tiny $2 stock” SOUN in late June would ...

What stock is expected to skyrocket? ›

10 Best Growth Stocks to Buy for 2024
StockExpected Change in Stock Price*
Tesla Inc. (TSLA)61%
Mastercard Inc. (MA)14.2%
Salesforce Inc. (CRM)7.2%
Advanced Micro Devices Inc. (AMD)11.3%
6 more rows
Mar 25, 2024

What stock will boom in 2024? ›

2024's 10 Best-Performing Stocks
Stock2024 return through March 31
Janux Therapeutics Inc. (JANX)250.9%
Trump Media & Technology Group Corp. (DJT)254.1%
Super Micro Computer Inc. (SMCI)255.3%
Viking Therapeutics Inc. (VKTX)340.6%
6 more rows
Apr 1, 2024

Are there any penny stocks in AI? ›

Artificial intelligence (AI) penny stocks trade below $5, and are known for their high risk and potential high reward. These stocks generally belong to smaller companies at the forefront of integrating AI into diverse products and services.

What are the best small stocks to buy now? ›

Do you want to try searching without latest ?
S.No.NameNP Qtr Rs.Cr.
1.Benares Hotels11.59
2.Teamo Production3.47
Median: 2 Co.7.53

What three hedge funds own everything? ›

Together, BlackRock, Vanguard and State Street have nearly US$11 trillion in assets under management. That's more than all sovereign wealth funds combined and over three times the global hedge fund industry.

What is the name of Apple's hedge fund? ›

Braeburn Capital Inc. is an asset management company based in Reno, Nevada and a subsidiary of Apple Inc.

What is JP Morgan investing? ›

J.P. Morgan Wealth Management is a business of JPMorgan Chase & Co., which offers investment products and services through J.P. Morgan Securities LLC (JPMS), a registered broker-dealer and investment adviser, member FINRA, and SIPC. Insurance products are made available through Chase Insurance Agency, Inc.

Is it a good time to invest in AI? ›

The explosion of data availability, coupled with advancements in machine learning algorithms, has unlocked new frontiers for AI applications. Now, more than ever, is the opportune moment for investors to consider AI as a strategic asset in their portfolios. The investment for AI is multifaceted.

What is the most advanced AI on the market? ›

Otter.ai. Otter.ai stands out as one of the most advanced AI assistants, offering features such as meeting transcription, live automated summaries, and action item creation.

What is the 5 year forecast for AI stock? ›

According to the latest long-term forecast, C3.ai price will hit $25 by the end of 2024 and then $35 by the end of 2025. C3.ai will rise to $40 within the year of 2026, $45 in 2027, $50 in 2028, $55 in 2029, $60 in 2031, $65 in 2033 and $70 in 2034.

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