Billionaire Chase Coleman has been investing in the high-flying tech sector for decades. He started working under investing legend Julian Robertson and his fund Tiger Management, making Coleman a so-called Tiger cub as one of the former Tiger Management employees that would go on to launch their own hedge funds.
Today, Coleman runs Tiger Global Management, a hedge fund and venture capital firm. At the end of the third quarter, the fund held 45 stocks valued at roughly $23.4 billion. Coleman clearly prioritizes fast-growing tech and artificial intelligence (AI) stocks, which is why 45% of Tiger Global's equities portfolio is invested in just five AI stocks.
Betting big on the "Magnificent Seven"
Coleman studied the fundamentals of investing under Robertson, learning to buy undervalued companies and to short overvalued ones. Coleman saw just how impactful the internet could be early on, making early venture investments in Facebook, LinkedIn, and several Chinese companies.
It's hard to know how much he follows some of these strategies today. Clearly, Coleman still is a fervent believer in the tech sector and likely views AI to be in a similar place as the internet was at the turn of the 21st century.
Whether he views these AI companies as over- or undervalued is up for interpretation. Some think AI is just getting started and its market potential will only grow from here. Others believe most "Magnificent Seven" stocks trade at nosebleed valuations.
Regardless, Coleman and Tiger Global are betting big that these stocks can continue to run. Here is where Tiger Global's ownership stood in five Magnificent Seven stocks at the end of the third quarter. Positions are expressed as a percentage of the total equities portfolio:
Meta Platforms (META 2.08%) -- 18%
Microsoft (MSFT -3.71%) -- 9.8%
Alphabet (GOOGL -2.87%) -- 7.3%
Amazon (AMZN -1.06%) -- 5.1%
Nvidia (NVDA -17.61%) -- 5%
Coleman does not speak to the media a lot, but in April 2023 while speaking at an annual luncheon, he told investors to buy the FAANG stocks, an acronym previously used to describe the large tech players like Meta and Amazon.
This was after tech had just gotten crushed in 2022. Coleman described the setup as more of a value play, saying that while the FAANG stocks struggled at the time, AI could be an opportunity for them.
"Think about it in terms of companies investing in these technologies, and how well they use it," he said, referring to Amazon's use of ChatGPT for shopping as an example. "It's going to be gradual. Be patient."
Lately, most analysts and investors seemed to be aligned with his view on Meta. The company is coming off a great year in 2024 and analysts actually see real utility of AI in Meta's business for things like content and ad creation and analytics. Understanding how much current utility some of these companies can reap from AI has been one of the big debates in the market.
Should you follow Coleman's lead?
Coleman clearly knows how to identify tech trends, so he very well could be right in assuming that the Magnificent Seven will continue to move higher. A big part of it comes down to understanding how big the market could be and when AI will materially start to impact these businesses.
Looking at valuations, there is definitely differentiation among the Magnificent Seven, with stocks like Meta and Alphabet trading at about 22 to 25 times forward earnings, while others like Tesla trade at 126 times.
AAPL PE ratio (forward), data by YCharts; PE = price to earnings.
I am concerned that all of the Magnificent Seven stocks could be overvalued, but if I did have to pick two, Meta and Alphabet are the more compelling ideas for me right now. They trade the cheapest of the Magnificent Seven, and Meta seems to have some real utility with AI that could materially affect revenue sooner than others.
Alphabet is struggling with an overhang from a U.S. Department of Justice (DOJ) lawsuit that alleges the company used monopolistic practices to control the digital ad market. The DOJ also asked a court to require Google to sell its Chrome browser, a move that would have a material effect on the company if it came to fruition.
However, this seems unlikely, especially with President Trump's administration expected to take more of a deregulatory approach, so investors might soon begin to push past some of the negative headlines regarding the lawsuit.
