The advent of artificial intelligence (AI) is having a profound impact on the technology landscape. Nowhere is that more apparent than the stunning rise of the "Magnificent Seven" stocks, a collection known for its strong ties to the technology. Since the dawn of AI early last year, each of these tech titans has outpaced the performance of the S&P 500, some by a wide margin. Billionaire investors have taken notice, and many hold positions in the Magnificent Seven stocks. But like all investors, they have different goals and take different paths to achieve them.
Among these closely watched billionaires is Philippe Laffont, who made a name for himself by building Coatue Management into the world's best-known tech-centric hedge fund, parlaying a $50 million investment in 1999 into $27 billion in assets under management.
Laffont's focus on the paradigm shifts in technology and the resulting secular tailwinds have served him well. "You don't need a thousand big ideas to do well in our business, you just need the one or two key ideas that then all the dominoes start falling from," said Laffont in an interview with the Financial Times.
That strategy was front and center for Laffont in the third quarter.
Image source: Getty Images.
On the chopping block
Laffont has dozens of holdings in all, but it's telling that 31% of his portfolio is made up of the Magnificent Seven stocks -- and many more have ties to AI.
However, the billionaire investor made some big moves during the quarter, selling some Magnificent Seven stocks while adding to others. Laffont sold more than 3.6 million shares of Nvidia (NVDA -2.09%) stock -- or 26% of Coatue's stake during the quarter but tells just part of the story.
As my colleague Sean Williams pointed out, Laffont has sold roughly 80% of his Nvidia stock over the past 18 months. However, thanks to the stock's meteoric rise, the total value of those holdings has only decreased by $152 million, currently clocking in at $1.23 billion and 4.5% of Coatue's portfolio -- and the fund's seventh largest holding.
Nvidia has been the poster child for AI. Sales of its graphics processing units (GPUs) have skyrocketed, sending the company's sales, profits, and stock price surging. It appears the culling of his Nvidia shares is not the result of some lack in confidence about the company's prospects but rather a bit of portfolio management.
The story has been much the same for Meta Platforms, another of Laffont's favorites. The billionaire investor sold more than 488,000 shares of the stock or roughly 12% of Coatue's stake. It's worth noting that Meta is still the fund's largest holding, with a total of 3.69 million shares worth $2.11 billion.
Meta has taken its place among the AI elite, developing one of technology's foremost AI models, which can be found on all the world's premier cloud services.
It's also worth noting that among the Magnificent Seven stocks, Nvidia and Meta have been the best performers over the past couple of years, up 889% and 366%, respectively (as of this writing).
So, the trimming of his positions isn't the result of a lack of faith in the companies, but rather allows him to invest in other compelling opportunities.
Adding to your winners
Sir Isaac Newton's third law of motion states (in part), "An object in motion tends to stay in motion unless acted upon by an outside force." Repurposed for investing, it can be distilled down to this: Winners tend to keep winning. If you believe -- as I do -- that this holds true, some of Laffont's purchases this quarter make plenty of sense.
He boosted Coatue's stake in Tesla (TSLA -4.95%), adding 596,000 shares, an increase of 36%. This brought his total stake in the electric vehicle maker to 2.23 million shares or 2.2% of Laffont's portfolio.
The move seems prescient, as Tesla stock has soared 30% in just six weeks. The Trump Administration is widely expected to ease regulations related to self-driving cars, a move that would likely benefit Tesla.
Laffont also boosted his stake in Alphabet (GOOGL -1.45%) (GOOG -1.55%), buying more than 917,000 Class A shares, an increase of 33%. He also added 46,000 Class C shares, up roughly 7.5%. In all, Coatue holds a total of more than 4.3 million Alphabet shares worth $721 million, or roughly 2.7% of the portfolio.
It doesn't take a detective to figure out why Laffont is loading up on Alphabet. Among the Magnificent Seven stocks, the Google parent has plenty of growth drivers and by far the most compelling valuation, selling for just 23 times earnings.
The billionaire investor increased his stake in Amazon (AMZN -1.45%), adding 496,000 shares, an increase of about 4.6%. This brings Laffont's total holdings to nearly 11.3 million shares worth $2.1 billion -- making it Coatue's second-largest holding.
Amazon is currently selling for roughly 3 times sales, making it the least expensive Magnificent Seven stock on a price-to-sales (P/S) basis. Add to that the company's industry-leading positions in cloud computing and e-commerce and its strong positions in AI and digital advertising, and Amazon has multiple ways to win.
Last but not least, there was a slight uptick in Laffont's stake in Microsoft (MSFT -1.73%), which rose by 151,000 shares, an increase of about 4%. That brought Coatue's stake to 3.85 million shares worth roughly $1.7 billion -- or roughly 6% of the portfolio and its fourth-largest position.
Microsoft is one of a few companies that is already profiting from AI, thanks to its Copilot suite of tools and the halo effect on the adoption of its Azure Cloud service. It also doesn't hurt that the stock is currently selling for just 27 times 2026 projected earnings, an attractive price relative to the opportunity.
Data by YCharts
Should you follow suit?
There are a number of compelling arguments behind each of Laffont's moves in the third quarter, but should investors follow suit? Much of that depends on what you believe about the future of AI.
Most estimates about the quickly evolving AI market start at about $1 trillion and go up from there. Each of the Magnificent Seven collective of companies is at the forefront of AI development -- each in its own way. If they can capture just a small part of the potential market opportunity represented by AI, it will likely result in a windfall for these companies -- and their shareholders.
I would respectfully submit that there are compelling reasons to own all these stocks, as outlined above. Those aren't just empty words, either. Roughly 35% of my own portfolio is made up of Magnificent Seven stocks. If AI continues to take hold, that percentage could eventually be much higher.
