When you look at the top bets of some of the most prominent billionaire investors, there is a common theme that stands out. These professionals favor highly profitable companies that dominate their industries. Most importantly, they invest in stocks that are trading at reasonable valuations relative to future growth expectations.
Lone Pine Capital’s Stephen Mandel, Tiger Global Management’s Chase Coleman and Viking Global Investors’ Andreas Halvorsen have had successful investing careers, with net worths ranging from $2.5 billion to $7 billion, according to Forbes. Let’s take a look at these companies’ largest holdings as of the end of the second quarter and why investors can expect excellent returns from these stocks in the years ahead.
1. Taiwanese semiconductor production
Lone Pine Capital manages more than $16 billion in assets. Its largest holding at the end of the second quarter was leading chipmaker Taiwanese semiconductor production (NYSE:TSM)also known as TSMC.
TSMC is a widely used tech stock among the most successful investment companies. The company has a lucrative position as the world’s top chip foundry. It produces chips for Nvidia, Advanced micro devices, Inteland a large number of other semiconductor companies and has a share of more than 60% of the global foundry market.
TSMC offers investors broad access to the trends driving growth in the semiconductor industry, without the added risk of having to pick winners and losers from the Nvidias and Intels of the world.
TSMC’s advantages in advanced chip manufacturing make it well-positioned for growth as companies invest in high-performance chips to handle the demanding workloads of artificial intelligence (AI) training. Demand for high-performance chips drove revenue growth of 32% year-on-year in the most recent quarter, and that momentum is expected to continue through 2025.
Management expects strong results in the near term, driven by rising demand for chips for smartphones and AI. Strong revenue growth should boost profits, as TSMC generates a high operating margin of 45% on revenue. This will fund the company’s plan to spend at least $30 billion in capital expenditures this year to support long-term demand for advanced chip technologies.
Wall Street analysts expect the company’s earnings to grow at an annual rate of 26% over the next few years. Since the stock is likely to continue trading at its current forward price-to-earnings (P/E) ratio of 26, investors could earn a return equal to those estimates.
2. Meta-platforms
Meta platforms (NASDAQ: META) estimates that 3.2 billion people use its family of apps every day. This is a strong advantage in the digital advertising market, which is how the company makes money.
Chase Coleman’s Tiger Global Management has had a large stake in the social media leader since 2018. In the second quarter, the company held shares worth $3.7 billion, making it the company’s largest holding.
Meta AI is already having a big impact on the user experience on Facebook and Instagram. The company’s AI models improved the quality of recommendations, which can have a big impact on time spent on these platforms. As a result, ad impressions and price per ad increased 10% year-over-year in the quarter, leading to a strong 22% increase in revenue compared to the year ago quarter.
Strong revenue growth will give Meta more profit to reinvest in advanced AI models, keeping the positive growth cycle going. “We had a strong quarter, and Meta AI is on track to be the most widely used AI assistant in the world by the end of the year,” said CEO Mark Zuckerberg.
Meta is a highly profitable company, generating $51 billion in profits on $149 billion in revenue over the last four quarters. Management plans to spend between $37 billion and $40 billion on capital expenditures this year, with a significant increase expected in 2025. This spending will support AI research and other products for long-term growth.
Wall Street analysts expect Meta to post annual earnings growth of 17% over the next few years. Assuming the stock continues to trade at the same price/earnings ratio, that’s enough growth to double the stock’s value within the next five years.
3. Amazon
Amazon (NASDAQ: AMZN) is a powerful brand in e-commerce and the enterprise space with its Amazon Web Services (AWS) cloud computing business. It generates most of its $604 billion in revenue over the past 12 months from retail-related services, including advertising, but about two-thirds of its operating profit comes from cloud services.
Viking Global Investors owned $1.8 billion worth of Amazon stock in the second quarter, making it the company’s largest holding. The company significantly increased its stake in the quarter.
“We continue to make progress on a number of fronts, but perhaps most notably is the continued reacceleration of AWS growth,” CEO Andy Jassy said in the company’s second-quarter earnings report. Amazon benefits from companies migrating their on-premises data systems to the cloud, and a big driver of that migration in 2024 will be leveraging AI services.
AWS revenue grew 19% year-over-year in the most recent quarter, and Amazon should see this momentum continue. Amazon offers tools to help customers build their own AI applications with Amazon Bedrock, alongside its own AI chips like Trainium, to provide more cost-efficient computing power for AI training.
Amazon’s growing AI capabilities position the company well in a cloud market that’s expected to reach $774 billion, according to Statista. Wall Street analysts expect the company’s earnings to grow at a 23% annual rate. Investors should expect the stock to command a premium P/E multiple and reach new highs in the coming years.
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Randi Zuckerberg, former chief market development officer and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. John Ballard has positions in Advanced Micro Devices, Meta Platforms and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Meta Platforms, Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
3 Billionaire Stocks You Need to Buy Now was originally published by The Motley Fool
