Artificial Intelligence (AI) was the word -- or “words” -- last year as investors piled into companies specializing in this hot technology. And for good reason. Today’s $200 billion AI market is forecast to reach a mind-blowing $1 trillion by the end of the decade, meaning companies and investors who get in early could score a major victory.
Why is AI stirring up such excitement? The technology has the potential to relieve humans of many tasks, helping people and companies gain in efficiency -- and it can even lead to the development of game-changing products such as high-performance autonomous vehicles and new life-saving drugs. In recent times, companies powering, selling, or using this technology have seen their stock prices surge, gaining in the triple-digits and powering the performance of all three benchmark indexes -- the S&P 500, the Nasdaq, and the Dow Jones Industrial Average. These indexes each climbed in the double-digits last year.
Considering all of this, it’s no surprise that the wealthiest investors have been buying shares of AI stocks like hotcakes. In fact, semiconductor stocks are among the most popular tech stocks owned by billionaires, research by The Motley Fool shows. And the wealthiest investors can’t get enough of the following AI player…
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A top holding in 10 funds
In a Motley Fool analysis of 16 hedge funds run by billionaires -- including David Shaw’s D.E. Shaw & Co., Paul Tudor Jones’ Tudor Investment Corp., and Bruce Kovner’s Caxton Associates -- Nvidia (NVDA -3.00%) is one of the most popular holdings. It appeared in the top 10 tech holdings of 10 of the funds last year. Other favorites included Alphabet, Meta Platforms, and Microsoft.
Why has Nvidia proven to be so popular among billionaires? Nvidia has something expert investors like, and that’s dominance it its field and a secure moat, or competitive advantage. Here are the details. This tech powerhouse makes the world’s fastest graphics processing units (GPUs), or chips that power key AI tasks like the training and inferencing of large language models (LLMs). This strength has made Nvidia the No. 1 designer of AI chips.
But Nvidia didn’t stop with GPUs. The company has built a vast range of AI products and services that have helped drive earnings to record levels. Nvidia’s revenue and profit have climbed in the triple digits in most of its recent quarters, and the company has maintained gross margin above 70%. This means it’s able to generate a high level of profit on sales. In the most recent quarter, revenue reached a record of $35 billion, driven by demand for the company’s AI innovations.
A focus on innovation
And speaking of innovation, this is what should keep Nvidia in its dominant position. The company has pledged to update its GPUs on an annual basis, and on top of that, it’s also gone all in on what should be the next wave of AI growth. And that’s software used to apply AI to real world situations.
One big example of this is agentic AI, or software that can consider complex problems, reason, find a solution, and apply it. Customers can use Nvidia technology to create AI agents adapted to their needs, for instance to handle customer service requests, helping them gain in efficiency.
All of this means that, even after Nvidia’s earnings and stock price gains last year, the growth story is far from over, and this company is well positioned to benefit from the next stage of AI development and use.
Of course, after Nvidia’s top performance, some billionaires have cut their positions to lock in gains, and Stanley Druckenmiller of the Duquesne Family Office even sold his entire stake. But it’s important to note Druckenmiller told Bloomberg in an interview that making that move was a “big mistake.” He called Nvidia a “wonderful company” and said he would consider buying the stock again at the right price.
So, though some have taken profits on Nvidia after its meteoric rise, it still remains an AI stock that’s much-loved by billionaire investors. And, in light of the points I’ve mentioned above, it could hold onto its spot in many of their portfolios this year and beyond as this high-growth AI story continues.
