Billionaire Money Managers Have a Clear Favorite Artificial Intelligence (AI) Stock -- and It's Not Nvidia or Palantir

Globe and Mail

3 days ago

Key Points
Quarterly Form 13Fs provide investors with an under-the-hood look at which stocks Wall Street's brightest asset managers have been buying and selling.
In spite of their outperformance, shares of Nvidia and Palantir have been sent to the chopping block by billionaire fund managers.
Meanwhile, one of Wall Street's most-influential businesses finds itself as the preferred artificial intelligence (AI) stock of multiple top-tier money managers.
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For the better part of the past three years, no trend has been a bigger headline-grabber on Wall Street than the evolution of artificial intelligence (AI). Software and systems empowered with AI solutions have the ability to change the corporate growth arc in America and around the world, which is why the analysts at PwC peg this global opportunity at a jaw-dropping $15.7 trillion by 2030.
But as we know from previous next-big-thing technologies, not every company will be or remain a winner. What's been particularly noteworthy about the rise of AI is how Wall Street's preeminent billionaire money managers have approached this opportunity.
Based on sheer performance, graphics processing unit (GPU) colossus Nvidia (NASDAQ: NVDA) and AI-data mining specialist Palantir Technologies (NASDAQ: PLTR) have been unstoppable. Since 2023 began, shares of Nvidia and Palantir have skyrocketed by roughly 1,150% and 2,810%!
However, quarterly Form 13F filings with the Securities and Exchange Commission show these two AI leaders aren't as popular as you might believe with billionaire fund managers. Instead, another market-leading business stands tall as the undisputed favorite AI stock on Wall Street.
Most billionaire investors have cashed in their chips with Nvidia and Palantir
A 13F allows investors to track which stocks Wall Street's smartest fund managers have been buying and selling. Coincidentally, the deadline to file 13Fs for the June-ended quarter is tomorrow, Aug. 14.
Based on 13Fs from previous quarters, billionaires have spoken loudly with their actions. Both Stanley Druckenmiller of Duquesne Family Office and Stephen Mandel of Lone Pine Capital completely exited their respective stakes in Nvidia, while billionaires David Tepper of Appaloosa and Philippe Laffont of Coatue Management disposed of the bulk of their shares.
It's a similar story for Palantir, with Druckenmiller sending all of his fund's shares to the chopping block.
Although both companies have exhibited phenomenal sales and profit growth, there are a couple of well-defined reasons for billionaire fund managers to be skeptical.
Arguably the biggest worry with the AI revolution is that history will repeat itself. Including the rise and proliferation of the internet, there hasn't been a game-changing innovation in over three decades that's avoided an early innings bubble-bursting event. Without fail, investors consistently overestimate the early stage utility and consumer/enterprise adoption of new technologies, which eventually leads to lofty expectations not being met. If an AI bubble were to form and burst, it would be terrible news for Nvidia and Palantir.
The other historical overhang for Nvidia and Palantir is their respective premium valuations. Though Nvidia's forward price-to-earnings (P/E) ratio isn't egregiously high, its trailing-12-month price-to-sales (P/S) ratio of more than 30 is in-line with other cutting-edge businesses that peaked during the dot-com era.
Palantir's premium is considerably higher than Nvidia's. Whereas most industry leaders top out at P/S ratios of 30 to 40, Palantir is tipping the scales at a P/S ratio of 137, as of the closing bell on Aug. 8. No megacap company has ever been able to sustain a premium of this magnitude, and Palantir, despite its irreplaceable Gotham and Foundry platforms, is unlikely to be the exception to this unwritten rule.
While billionaire fund managers have been content to reduce or remove Nvidia and Palantir stock from their portfolios, there's another industry-leading AI stock they're all in on.
This is the undisputed favorite AI stock of billionaire money managers
Among the dozens upon dozens of companies making AI a cornerstone of their future growth plans, none has been more sought after by billionaire investors than Meta Platforms (NASDAQ: META). Based on 13Fs filed in mid-May for trading activity that concluded March 31, four billionaire asset managers listed Meta as their fund's top holding:
Chase Coleman of Tiger Global Management: 16.18% of invested assets.
Terry Smith of Fundsmith: 10.19% of invested assets.
Philippe Laffont of Coatue Management: 9.55% of invested assets.
Stephen Mandel of Lone Pine Capital: 8.75% of invested assets.
In addition to being the No. 1 holding for four prominent fund managers, it's the third largest position, excluding put and call options, for Israel Englander of Millennium Management, the No. 6 holding for Steven Cohen's Point72 Asset Management (also excluding options), and the 10th biggest holding for Ken Fisher of Fisher Asset Management. In other words, there's no doubt whatsoever that Meta Platforms is the clear favorite AI stock of billionaire investors.
The interesting quirk about Meta is that, for the moment, it's almost exclusively an advertising-driven company. Through the first six months of 2025, just shy of 98% of its $89.8 billion in sales traced back to advertising on the company's social media sites, which include Facebook, Instagram, WhatsApp, Threads, and Facebook Messenger.
No social media company comes remotely close to the 3.48 billion daily active people Meta attracted to its family of apps in June. Businesses are willing to pay a premium to get their message(s) in front of users, and there's no better platform to do that with than Meta.
But advertising is also where artificial intelligence is laying its roots for Meta. Integrating generative AI solutions into its advertising platform is allowing businesses to tailor and create messages for specific users, with the ultimate goal of improving click-through rate. The fact that Meta Platforms absolutely blew Wall Street's consensus revenue forecast out of the water during the June-ended quarter is an indication that its investments in AI are paying off.
Looking a bit further down the line, Meta Platforms CEO Mark Zuckerberg aims to use AI as a tool to monetize the metaverse -- the 3D virtual world where users can interact with each other and their environment. Meta is positioning itself to be an on-ramp to the metaverse, and Zuckerberg has a lengthy track record of slow-stepping the monetization of new products and services until the time is right.
Another factor that's helping Meta succeed, and which may be coercing billionaire fund managers to pile in, is the company's enormous cash pile. It closed out the June quarter with a little over $47 billion in cash, cash equivalents, and marketable securities, and is pacing nearly $100 billion in net cash generation from operating activities for the full year. A sizable treasure chest allows Meta to take risks that few other companies can afford to.
Lastly, Meta's valuation remains reasonable. Even though its forward P/E of 25.8 is 22% above its average forward P/E over the trailing-five-year period, Meta has consistently blown past consensus earnings estimates and looks to maintain an annual sales growth rate of 15% or greater for the foreseeable future.
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