The buzz about artificial intelligence (AI) on Wall Street and Main Street continues to grow. The incredible rise of Nvidia, whose revenue has catapulted from $17 billion in 2021 to $96 billion over the past 12 months, helped push the major stock market indexes to record highs.
NVDA Revenue (TTM) data by YCharts
Meanwhile, OpenAI's release of ChatGPT spurred a race by big tech companies to create increasingly sophisticated generative AI technology. According to estimates by the firm Next Move Strategy Consulting, the full AI market could be worth more than $1.8 trillion by the end of the decade.
Statista.
With hundreds of companies competing for chunks of this market, choosing which to invest in can be challenging. Examining what billionaires' hedge funds are investing in can be illuminating. Investment managers who control over $100 million must file 13F forms with the Securities and Exchange Commission 45 days after each quarter ends, revealing all of their stock sales and purchases they made in that quarter. The latest filings just dropped last week. Here's one stock that was a particularly popular purchase by those highly experienced Wall Street professionals.
Alphabet's AI future
Alphabet (GOOGL -1.45%) (GOOG -1.55%), Microsoft, Meta Platforms, and Amazon are expected to invest a combined $189 billion in AI infrastructure in 2024. Google DeepMind is Alphabet's team dedicated to AI research and development. Gemini -- its answer to ChatGPT -- has been integrated into Google Search, and was just released as an iPhone app.
Alphabet is also reportedly developing a bot called Project Jarvis that will automate tasks like research, shopping, or booking trips through Google Chrome. Plus, according to Technology Magazine, 60% of generative AI start-ups use Google Cloud.
Tudor Investment, which manages more than $27 billion, increased its stake in Alphabet by 461% in the third quarter to 543,600 shares worth in the neighborhood of $95 million as of Monday morning. That investment is still less than 1% of the fund's total assets, but it was a significant increase nonetheless. Viking Global Investors also manages over $27 billion and initiated a new position in Alphabet in Q3 to the tune of 1.3 million shares (worth around $227 million).
Meanwhile, Bridgewater Associates ($17.6 billion under management) owned more than 4 million shares of Alphabet, and Tiger Global ($23.4 billion managed) owned more than 10 million shares. It's important to note that these were the stock positions they owned as of Sept. 30. Matters may have changed in the meantime.
One reason for their decisions to buy Alphabet stock may be the company's recent impressive results. Revenue grew 15% year over year in Q3 to $88 billion, while operating income rose 34% to $28.5 billion. Meanwhile, cash generated from operations was $31 billion for the quarter and $86 billion year to date. This provides it with the critical capacity to continue investing in infrastructure, as well as to make dividend payments and buy back stock.
Alphabet stock currently trades at about 23 times earnings, which is slightly lower than its five-year average of 26 and lower than the valuations of big tech players like Microsoft and Meta.
GOOGL PE Ratio data by YCharts.
The fact that numerous billionaires are taking big stakes in Alphabet adds to its credibility as an investment. And the company's investments in AI, financial results, and valuation make Alphabet a compelling long-term investment opportunity.
