There is no escape: the coming storm of artificial intelligence (AI) is only just beginning, and the standard-bearer of this paradigm shift is Nvidia (NASDAQ: NVDA)The company has become virtually unforgettable as a key player in the AI revolution thanks to its industry-leading graphics processing units (GPUs), which provide the computing power that AI relies on.
If you have any doubts, consider this: For the company’s fiscal 2025 first quarter (ended April 28), record revenue of $26 billion soared 262% year over year, while its diluted earnings per share (EPS) of $5.98 jumped 629%.
Yet as the AI revolution gathers momentum, some investors are questioning Nvidia’s staying power, worried about competition and a lofty valuation. As a result, some investors have already shunned the chipmaker in search of the “next big thing” in AI. A look at the holdings of a highly successful hedge fund manager might provide food for thought.
Billionaire Daniel Loeb is one such money manager, having made his name as CEO of Third Point, which he founded in 1995. From humble beginnings with just $3.4 million in seed capital, Loeb has grown his seed money into nearly $7.8 billion in assets under management.
He has been very clear about his view of AI’s potential. He believes it will be “transformative,” that it will serve as a catalyst for “profound economic disruption.” Loeb believes in AI so much that it is “the key element” of the thesis behind nearly half of the fund’s holdings.
Three of these constitute by far its largest AI holdings.
#1 AI Stock: Amazon – 11.8% of stakes
Third Point is heavily invested in Amazon (NASDAQ: AMZN)having held a stake in the e-commerce and cloud giant for years. Loebe raved about Amazon’s vast potential in a 2022 interview. At a time when the company was valued at about $1.6 trillion, Loeb believed Amazon had $1 trillion in “untapped value.” He argued that the online retail segment alone was worth more than $1 trillion, while its cloud infrastructure segment, Amazon Web Services (AWS), was worth $1.5 trillion.
Loeb recently suggested that the “most direct consequence” of rapid AI adoption is “an acceleration of cloud usage” for companies looking to leverage the large language models that form the basis of generative AI. This includes the big three cloud providers: Microsoft (NASDAQ: MSFT) Azure, AWS and AlphabetHe also believes that these cloud services are the “picks and shovels” of the AI gold rush and should benefit from it regardless of which products “win” the prize.
Loeb increased his stake in Amazon by about 21% in the first quarter, bringing his total stake to 5.1 million shares worth about $930 million and nearly 12% of Third Point’s portfolio. Moreover, at about three times the forward sale price, Amazon remains attractively priced.
Artificial Intelligence Stock #2: Microsoft – 9.5% stake
Microsoft (NASDAQ: MSFT) is widely credited with helping to kick off the mad rush toward AI adoption, as the company quickly responded by integrating AI into a wide range of its products and services.
The symbol of these efforts is Microsoft Copilot, the company’s AI-powered digital assistant. Copilot offers a suite of features that help streamline and automate time-consuming tasks, increasing productivity. Not only is demand for Copilot strong, but AI is also helping to grow Microsoft’s Azure cloud market share.
Although the company has so far remained tight-lipped about how much additional revenue Copilot generates, Loeb believes that “the Copilot software… could increase [Microsoft’s] revenues of up to $25 billion or more from software sales alone.
Third Point reduced its Microsoft position by about 12% in the first quarter, even as the total value of its position increased – thanks to a dividend payment and the stock’s 12% rise in the first quarter.
Microsoft stock currently trades at a premium of 36 times earnings. That said, the company is already an early beneficiary of the AI revolution and has positioned itself for further gains.
Artificial Intelligence Stock #3: Meta Platforms — 7.7% of stakes
The ongoing recovery in the digital advertising market has likely contributed to Loeb’s considerable position in Meta-platforms (NASDAQ:META)but the company has also established itself as an outsider in the AI field.
Meta has a long history of using AI to surface relevant content to users across its various social media platforms and target the advertising that generates 98% of the company’s revenue.
Meta’s current efforts are firmly focused on the future. The company recently launched the latest version of its Meta AI Extended Language Model (LLaMA), which is available on every major cloud infrastructure platform, for a fee to Meta to implement it.
With billions of daily users on its social media platforms, the company has a treasure trove of data to train its AI systems, which are gaining popularity. Plus, it’s a whole new revenue stream for Meta, though the impact on its bottom line is not yet clear.
Third Point took a position in Meta during the third quarter of 2023 and has increased its holdings each quarter since then, most recently increasing its position by 7%. This brings Third Point’s stake to 1.24 million shares worth $577 million and nearly 8% of the hedge fund’s holdings.
Loeb hasn’t said much about his Meta position, except to point out that it was the fund’s biggest winner in the first quarter. That said, Loeb focuses on “high-quality companies that are trading at reasonable valuations,” and Meta certainly fits that bill. The stock currently sells for less than 27 times earnings, a discount to the fund’s multiple of 29. S&P 500.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Danny Vena has positions in Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. 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.
Forget Nvidia: Billionaire Daniel Loeb Owns $2.2 Billion of These 3 Brilliant Artificial Intelligence (AI) Stocks Instead was originally published by The Motley Fool
