The field of artificial intelligence (AI) is booming, with many companies actively trying to make waves in this market. The most successful will reap enormous financial rewards for themselves and their shareholders, but what will they be? Seeking inspiration from Wall Street’s most famous and successful money managers can be helpful when choosing promising AI stocks. One of them is David Tepper, the billionaire founder of Appaloosa Management.
The hedge fund owns several AI stocks worth serious consideration for investors, including Amazon(NASDAQ: AMZN) And Metaplatforms(NASDAQ: META). These two made up approximately 14% of the fund’s portfolio as of the third quarter. Here’s why both companies are worth investing in.
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Amazon’s operations span several industries, including video and music streaming, e-commerce and advertising, healthcare, grocery, and of course cloud computing. The tech giant offers a range of AI-related services through its cloud computing arm, Amazon Web Services (AWS). This also applies to the large language model, Bedrock; an AI assistant called Amazon Q; and much, much more than that. Cloud computing has been Amazon’s most profitable segment for some time.
AI is already helping to improve this. In the third quarter, Amazon’s revenue rose 11% year over year to $158.9 billion. AWS revenue rose 19% year over year to $27.5 billion. Despite generating only 17% of Amazon’s revenue, AWS was responsible for 60% of its operating revenue. According to management, AWS has grown significantly over the past four quarters, with the company’s AI business posting year-over-year revenue increases of triple-digit percentages.
But there is still a huge runway for growth here. This may well be the beginning of this AI revolution. It could be a tailwind for Amazon in the coming years, similar to how AWS, first launched in 2006, is now the company’s most profitable segment. However, thanks to Amazon’s diversified business, it’s not just an AI play. Some investors worry that pure AI companies will take a significant hit once the sector’s growth inevitably slows.
Amazon is well equipped to tackle this potential problem. Here’s another important aspect of Amazon’s success: the company has a strong competitive advantage. To name just two, AWS benefits from switching costs, while its core e-commerce business exhibits strong network effects. There will always be competition, but a company with a competitive advantage as strong as Amazon should continue to perform well regardless.
So, given its booming AWS unit, several capabilities in other segments, and its moat, Amazon is an excellent stock to capitalize on AI.
Meta Platforms generates almost all its revenue from advertisements. AI has a direct impact on its business as the company uses AI-powered algorithms to drive more traffic and engagement on its websites.
Partly thanks to this strategy, Reels, or short videos, have become much more popular on Facebook and Instagram in recent years. It has allowed Meta Platforms to compete with the high-flying TikTok. Meta Platforms has also released generative AI tools to help companies create ads that can be launched on their websites, an approach that is getting results.
Meta Platforms’ AI-related work also includes the major language model Llama and the virtual assistant MetaAI, which now has more than 500 million active users. Meta Platforms’ AI involvement and financial results have helped push the stock much higher this year as it continues to post strong financial results. The company’s third-quarter revenue rose 19% year over year to $40.6 billion. Meta’s net income was $15.7 billion, up 35% from the same period last year.
Meta Platforms plans to double down. The company predicted that it would invest even more in AI-related infrastructure next year.
Although the market was initially not too happy with this news, in my opinion it could be a good move. Meta Platforms ended the third quarter with 3.29 billion daily active users, up 5% year over year. With a huge ecosystem and a network effect on some of its websites and apps (particularly Facebook and Instagram), Meta Platforms can look for endless ways to monetize its users. The return on these investments could be more than worth it. And that’s before you consider other growing revenue streams for metaplatforms, like paid messaging on WhatsApp.
In short, there is still plenty of growth fuel left for Meta Platforms, with AI leading the way. The tech giant represents a great way to make money from this increasingly important industry.
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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 spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Prosper Junior Bakiny has positions in Amazon and Meta Platforms. The Motley Fool holds and recommends positions in Amazon and Meta Platforms. The Motley Fool has a disclosure policy.
Billionaire David Tepper has invested 14% of his portfolio in these two brilliant artificial intelligence (AI) stocks was originally published by The Motley Fool
