Billionaire investor David Tepper invests 28% of his portfolio in 3 great AI growth stocks

Billionaire David Tepper runs Appaloosa Management, a hedge fund that has consistently outperformed its peers and the broader stock market since it was founded in 1993. In fact, Appaloosa is S&P500 (SNPINDEX: ^GSPC) It has increased by 15 percentage points over the past three years. This suggests that Mr. Tepper and his fund’s investment choices are worth studying.

As of the September quarter, Tepper had 28.2% of Appaloosa’s portfolio invested in just three artificial intelligence (AI) stocks. Nvidia (NVDA 4.17%)9.4% Amazon (AMZN 1.20%),Ten% microsoft (MSFT 1.22%). This level of asset allocation is a clear sign of high conviction.

Here’s what investors need to know about these three great AI stocks.

1. Nvidia

Nvidia has a strong presence in two semiconductor markets: graphics chips for gaming and professional design, and data center accelerators (graphics processing units, or GPUs) for complex workloads such as scientific computing and artificial intelligence (AI). It shows the feeling. Nvidia holds over 95% market share in workstation graphics and 80% to 95% market share in AI computing.

Nvidia has expanded its ability to monetize both markets with subscription software and cloud services. Omniverse is a virtual design and simulation platform for the development of 3D and robotics applications and self-driving vehicle training. DGX Cloud is an AI application development platform consisting of infrastructure, software, and pre-trained machine learning models. Many investors mistakenly view Nvidia as just a chipmaker, but that description doesn’t account for its growing software and services business. CFRA analyst Angelo Gino said NVIDIA’s “software capabilities give it an incredible competitive edge.”

In recent years, Nvidia has expanded its data center portfolio with networking platforms and central processing units (CPUs) purpose-built for AI workloads. Network revenue has nearly tripled in the past year, and Nvidia holds 95% market share in data center GPUs, making it well-positioned to gain share in CPUs. .

Going forward, the graphics processor market is expected to grow by 28% annually through 2030, and the AI ​​market is also expected to grow by 37% annually over the same period. This gives Nvidia a good chance of seeing annual sales growth exceeding his 25% until the end of his 20s. Even with that in mind, the current valuation of 30.4x sales looks expensive, but patient investors willing to hold the stock for at least five years can buy a small position today. think.

2.Amazon

Amazon has a strong presence in three markets: e-commerce, digital advertising, and cloud computing. Specifically, we operate the largest online marketplace in North America and Western Europe, as measured by sales volume. Amazon is the largest retail advertiser in the United States and the third largest ad tech company in the world. Amazon Web Services (AWS) is the largest provider of cloud infrastructure and platform services.

The last point is especially important. In the words of Argus analyst Jim Kelleher, “As a leading provider of infrastructure-as-a-service and other cloud services, AWS is uniquely positioned in the rapidly growing AI-as-a-service market.” , the company is recognized as a leader in cloud AI developer services, and its product pipeline is packed with AI innovations.

Amazon Bedrock was generally available in September. The service provides pre-trained machine learning models and development tools to help businesses build generative AI applications. Most recently, the company announced Amazon Q, a generative AI business assistant that can create content and uncover insights across data sources and enterprise systems such as Microsoft SharePoint. sales forceand ServiceNow.

Going forward, retail e-commerce sales are expected to grow by 8% annually through 2030, and the ad tech and cloud computing market is expected to expand by 14% annually over the same period. This puts Amazon on track for double-digit annual sales growth through the end of the decade, making its current valuation of 2.9x sales look quite reasonable.

3.Microsoft

Microsoft has a strong presence in two markets: enterprise software and cloud computing. The company’s leadership position in office productivity and enterprise resource planning (ERP) software accounts for more than 16% of software-as-a-service spending, nearly double the market share of its closest competitors. Similarly, Microsoft Azure accounts for 23% of cloud infrastructure and platform services spending, placing him in second place after Amazon Web Services.

Microsoft is adding AI capabilities to its enterprise software to create new monetization opportunities. Microsoft 365 Copilot is a generative AI assistant that automates workflows across office productivity applications such as Word, PowerPoint, and Excel. Similarly, Copilot for Dynamics 365 automates workflows across his ERP applications for sales, marketing, customer service, and supply chain management.

Microsoft is also investing heavily in AI across its cloud computing business. Azure is OpenAI’s exclusive cloud provider and the only cloud platform that provides access to OpenAI’s pre-trained models, including the GPT models that power ChatGPT. Companies can use these models to build custom generative AI applications. JP Morgan Chase Analysts believe that Microsoft’s investment in OpenAI, which began several years ago, could be some of the best money ever committed.

Looking ahead, enterprise Software-as-a-Service and cloud computing revenue is expected to grow at 14% annually through 2030. With this, Microsoft can expect his double-digit sales growth by the end of his 20th year. Considering this, the current valuation of 13.3 times sales seems a little expensive. We think patient investors can buy small positions today, but waiting for lower prices may be the wisest course of action.