Billionaire David Tepper is one of the most successful hedge fund managers on Wall Street. He founded Appaloosa Management in 1993 and eventually became a self-made billionaire. In recent years he has returned a large portion of his clients’ money, so Appaloosa is now primarily his own personal capital.
Because Appaloosa is technically an institutional investor investing on behalf of others, it must file Form 13F with the Securities and Exchange Commission quarterly if it has more than $100 million in assets. Appaloosa ended 2023 with $5.8 billion in assets under management.
Thanks to these public filings, we can get a glimpse into exactly how Tepper invests his money. And he’s betting big on three artificial intelligence (AI) stocks in 2024. Nearly a third of his portfolio is tied up in these companies.
Metaplatforms (11%)
Metaplatforms (NASDAQ: META) is the company behind the leading social media platforms Facebook and Instagram. The company boasts nearly 4 billion unique users across its suite of apps, which also includes WhatsApp and Messenger. It is also developing augmented and virtual reality technology within its Reality Labs division.
Meta has invested heavily in artificial intelligence in recent years. This is reflected in the huge capital expenditure (capex), which exceeded $28 billion last year. That’s down from the $32 billion it spent in 2022.
All that capital expenditure goes toward building data centers to train AI algorithms like the LLaMA large language model, which is now in its third iteration.
Meta uses its AI algorithms to improve content and ad recommendations within Facebook and Instagram’s Feed, Stories and Reels. Advances in AI have taken Reels from a hindrance to revenue performance to an additive process in a shorter time frame than management expected.
Additionally, Meta can apply its generative AI capabilities to the ad creation process, making it easier for marketers to test new ads on the platform and improve conversions. That increases the total number of advertisers and the amount they are willing to pay.
Meta shares started strong in 2024, soaring 42% higher. But they were arguably very undervalued before the company’s huge fourth-quarter earnings results and new dividend announcement.
With the stock currently trading at a price-to-earnings (P/E) ratio of around 24.5, the stock seems fairly valued. In fact, shares still have a lot of room to grow when you consider that analysts expect the company’s earnings to grow an average of 24.5% over the next five years, giving it a PEG ratio of 1.
Microsoft (11%)
Microsoft (NASDAQ: MSFT) jumped to the forefront of the AI ​​conversation when it added $10 billion to its investment in OpenAI in early 2023. It is now leveraging that position to boost its cloud computing and enterprise software businesses.
Microsoft Azure makes it easy to deploy AI applications using a growing number of major language models. Microsoft now has 53,000 Azure AI customers, an increase of more than 50% in the past twelve months.
As a result, its revenue has grown faster than its competitors in the space. Azure revenue rose 30% in Microsoft’s second quarter. For comparison, Amazon (NASDAQ: AMZN) And Alphabet saw their cloud computing segments grow by just 13% and 26% respectively. Granted, Amazon’s cloud business is larger than Microsoft’s, but Google Cloud remains the smallest of the three and is falling further behind.
Microsoft is also integrating generative AI capabilities into its enterprise software through its Copilot features. Developers can use the Github Copilot to help them code more efficiently. The company develops Copilot applications for sales, customer service, healthcare, retail and everyday productivity tasks in its Microsoft 365 suite. Because it leverages its existing user base of millions, it could sell a lot of Copilot subscriptions.
Microsoft stock isn’t cheap, but it could be worth the price. It trades at a price-to-earnings ratio of around 30.9. Although analysts see strong revenue growth and slight margin expansion over the next five years, they still only expect earnings growth of 15.4%.
But when you combine Microsoft’s strong cash position with the massive free cash flow that supports its dividend and buybacks, it may be worth following Tepper in some shares of the market’s most valuable company.
Amazon (10%)
Amazon is best known for its incredibly popular online marketplace, where Prime members can receive millions of items within 24 hours with just the click of a button. As the company continues to grow its share of the e-commerce market, its advertising and cloud computing businesses are sure to drive earnings growth in the coming years.
Amazon is the market leader in public cloud services. While Microsoft is making significant progress and recently chipped away at Amazon’s market share, the e-commerce leader is quickly righting itself. After Amazon Web Sales (AWS) slowed to 12% in mid-2023, the segment began to show signs of life, accelerating to 13% growth in the fourth quarter. That’s still far behind the competition, but Amazon is investing heavily to catch up in AI.
The company invested $4 billion in Anthropic, giving it greater access to its leading generative AI technology. Last year, it introduced Amazon Bedrock, making it easy for new and existing AWS customers to launch generative AI applications using a number of major language models.
It is also developing its own chips designed for training AI models and deploying them in applications. These chips are more energy efficient than general purpose graphics processing units (GPUs). Nvidiawhose prices have skyrocketed amid the AI ​​boom.
Management believes we are still in the early stages of the generative AI boom, so there is plenty of time to catch up. It’s investing with a long-term mindset, which has worked out well for Amazon in the past.
Amazon’s stock currently trades at a price-to-sales ratio of around 3.3. Thanks to the company’s double-digit revenue growth and rising margin expectations, investors will pay a fair price for the stock today. But if Amazon can regain market share in cloud computing, it could easily outperform the market.
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Suzanne Frey, a director at Alphabet, 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. 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. Adam Levy holds positions at Alphabet, Amazon, Meta Platforms and Microsoft. The Motley Fool holds positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Billionaire investor David Tepper has invested 32% of his portfolio in these 3 incredible artificial intelligence (AI) growth stocks, originally published by The Motley Fool
