There is little doubt that one of the driving forces behind the ongoing market boom is the accelerated adoption of artificial intelligence (AI), and the textbook example of that shifting paradigm is Nvidia. The company’s graphics processing units (GPUs) provide the computing power needed for AI and have quickly become the gold standard. As a result, Nvidia continues to deliver record results quarter after quarter, sending its stock price soaring.
But some investors worry that the growing competition and high valuation of Nvidia’s stock are making it increasingly risky. So these investors are looking for other ways to profit from the AI revolution. One place to look for other ideas is among the holdings of successful hedge fund managers.
One such asset manager is Daniel Loeb. The billionaire runs Third Point, the hedge fund he founded in 1995. Loeb turned just $3.4 billion in seed money — raised from family and friends — into a financial empire with $12 billion in assets under management.
Loeb has left no doubt about the potential implications of AI, calling it “transformational” and ultimately causing “profound economic upheaval.” In fact, the famed investor is so bullish on AI that it’s the “key thesis for nearly half” of hedge funds’ stock holdings. Just four stocks make up his largest AI investments.
Artificial Intelligence Stock #1: Amazon — 11.4% of holdings
Third Point’s largest AI holding – and largest position overall – is Amazon (NASDAQ: AMZN)a stock he has held continuously since 2019. He notes that AI benefits established companies like Amazon “that are deploying their financial and intellectual war chests to win the AI arms race.”
He’s clearly done his homework. Amazon quickly positioned itself to capitalize on the AI opportunity, offering a list of the most sought-after AI models to its cloud customers while also creating its own, but that’s just the beginning. Amazon is using AI to identify and store inventory 75% faster while reducing order fulfillment times by 25%, boosting its traditional online retail business. The company is also using AI to better target its digital advertising audiences.
Loeb’s Amazon position remained unchanged in the second quarter, with a total stake of 5.1 million shares worth about $986 million and nearly 11% of Third Point’s portfolio. And at less than 3 times forward sales, Amazon is an attractively priced way to play the AI revolution.
As a longtime Amazon shareholder, I’m all for Loeb. Not only is Amazon the leading provider of e-commerce and cloud computing, but it’s also a growing player in digital advertising. Adding AI to the mix gives Amazon another way to win when the odds are already stacked in its favor.
Artificial Intelligence Share #2: Microsoft — 8.1% of holdings
Third Point’s second largest AI holding and third largest overall is Microsoft (NASDAQ: MSFT)Loeb considers the software giant one of the “best-run legacy” companies, which has “built tremendous competitive advantages” and is well positioned to benefit from AI adoption.
His logic is compelling. Like Amazon, Microsoft offers a wealth of AI models to cloud customers. But the company’s biggest AI opportunity is arguably Copilot, Microsoft’s suite of AI-powered digital assistants. Designed for a variety of industries and tasks, Copilot can streamline tasks and automate time-consuming chores, boosting productivity. Demand for Copilot has been robust, and it’s helped drive adoption of its cloud services, too. Microsoft noted that eight points of Azure Cloud growth came from AI services in the second quarter of the calendar year.
Third Point trimmed its position in Microsoft by about 11% in the second quarter, as the company looks to expand its exposure to other AI stocks (more on that later).
Microsoft shares are selling for a premium of 38 times earnings. However, the company’s strong legacy business and early positioning in AI show it deserves a premium.
I firmly believe that Microsoft has a long way to go. Generative AI will continue to evolve, and Copilot is an early mover in the space. When AI is added to the company’s existing business, it gives Microsoft an extraordinary competitive advantage — that’s why I own the shares.
Artificial Intelligence Share #3: Meta Platforms — 6.4% of holdings
Loeb’s third largest AI holding and fourth overall is Meta platforms (NASDAQ: META). Loeb hasn’t been as vocal about his position in the tech giant, but is likely bullish on the recovery in digital advertising, as targeted ads on its social media platforms generate 98% of its revenue. However, Meta has also made a surprise move to capitalize on AI, which likely influenced Loeb’s decision as well.
Meta entered the AI fray by quickly developing its Large Language Model Meta AI (LLaMA), an AI model that is supported by all major cloud platforms for a fee. This AI system is powered by a wealth of data from the billions of users on Facebook, Instagram, WhatsApp, Threads, and Messenger. AI is a new revenue stream for Meta, so we don’t yet know how lucrative it will ultimately be.
Third Point’s stake in Meta is 1.1 million shares worth about $555 million. Like Microsoft, Loeb trimmed his position by about 11% in the second quarter, likely to diversify his AI bets (more on that below).
The stock is currently selling for less than 27 times earnings, a discount compared to a multiple of 29 for the S&P 500 (SNP INDEX: ^GSPC).
I’m equally bullish on Meta Platforms. I think the company’s move to use its user data to create AI models was nothing short of brilliant. Add to that Meta’s ever-increasing advertising power and you have a recipe for long-term success.
Artificial Intelligence Stock #4: Apple — 4.7% of holdings
There was one notable addition to Third Point’s portfolio last quarter, namely that of Apple (NASDAQ: AAPL)Loeb took his loot, acquiring nearly 2 million shares of the iPhone maker for a stake worth about $411 million, representing nearly 5% of his portfolio.
Loeb noted that while some investors fear Apple could be “an AI loser,” he takes a different view. He cited the company’s 2.2 billion devices and wide selection of electronics as an advantage and believes “demand for AI could drive incremental improvement in Apple’s revenue and earnings over the next few years.” He further suggested that the company’s recently announced Apple Intelligence — a suite of AI-powered smartphone features — will drive “meaningful demand” from Apple’s installed base.
Investor sentiment has been weighing on Apple stock since early last year as some fear that AI has left the company behind, but I think that view is shortsighted. Apple has a long history of taking its time to put its unique stamp on its products and services, which has helped it become the most valuable public company in the world. Investors who dismiss Apple do so at their own peril.
The biggest chance?
I own all four of these AI-focused stocks and believe they are all worth owning. Two of them stand out, albeit for different reasons.
Since generative AI began in earnest early last year, Apple shares have only risen 62%, the lowest among our quartet of stocks. Investors are waiting to see what the iPhone maker will reveal during its next product update on Sept. 9. That could be the catalyst Apple needs to send its shares higher.
From a strict valuation perspective, Meta Platforms remains the most attractively priced, at less than 26 times earnings, compared to a multiple of 29 for the S&P 500.
That said, each of these stocks represents a compelling opportunity in the AI revolution.
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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. Danny Vena has positions in Amazon, Apple, Meta Platforms, Microsoft and Nvidia. The Motley Fool has positions in and recommends Amazon, Apple, 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 Has 31% of His $8.7 Billion Portfolio in Just 4 Unstoppable Artificial Intelligence (AI) Stocks Instead was originally published by The Motley Fool
