Billionaire Philippe Laffont Has 37% of His $25.7 Billion Portfolio Invested in 5 Unstoppable Artificial Intelligence (AI) Stocks

There’s no doubt that artificial intelligence (AI) has been the driving force behind the current market rally – and with good reason. These state-of-the-art algorithms generate original text and images, streamline processes, and automate simple and time-consuming tasks, all with a few simple keystrokes. The potential for large productivity gains has companies aligning themselves to see how they can best implement AI to benefit their respective businesses.

Philippe Laffont knows a thing or two about profiting from emerging technology. The billionaire trained under the watchful eye of hedge fund legend Julian Robertson of Tiger Global Management. Laffont heads Coatue Management, the world’s leading technology-focused hedge fund, which he founded in 1999. Since then, he has leveraged $50 million in seed capital into a financial empire with 58 assets under management. billions of dollars. Additionally, Coatue has far outperformed the broader market, delivering annualized returns of 14% over the past three years, compared to 8% for S&P 500.

Laffont believes AI will be one of the dominant investment themes over the next decade, and he’s got his money where his mouth is: Top Five AI Stocks are Coatue’s five biggest holdings.

Image source: Getty Images.

Artificial intelligence stock no. 1: Meta Platforms — 8.2% of holdings

Meta platforms (META -3.21%) is Coatue’s largest AI holding — and largest overall position, with nearly 4.2 million shares worth more than $2.1 billion. Laffont cut the position by 3%, but second-quarter earnings left the position relatively unchanged. It’s no surprise that Meta is its biggest position, given the company’s long history of using AI to its advantage. From surfacing relevant content on its social media platforms to recognizing and tagging people in photos, Meta has been one of the earliest adopters of earlier branches of AI.

The company is an outlier compared to its big tech peers because Meta doesn’t have a cloud infrastructure service to build its AI. That hasn’t stopped the company from creating its Meta AI (Llama) large language model, which is available for all major cloud services — for a price. Advertising accounts for the lion’s share of Meta’s revenue, so the company offers a growing suite of free AI-based tools that help marketers on its platforms succeed, keeping them coming back for more.

Improving economic conditions are already lifting his digital advertising business. And at just 24 times forward earnings, the Meta is cheap in light of its vast opportunity.

Artificial intelligence stock no. 2: Amazon — 8.1% stake

Amazon (AMZN -3.65%) it was already Laffont’s second largest position, but increased it by 7% in Q2. It now totals about 10.8 million shares worth nearly $2.1 billion. The e-commerce and cloud giant also has a long history of implementing AI. Amazon uses artificial intelligence to highlight relevant products for its online shoppers, to recommend programming options to its Prime Video and Music audiences, to determine the most efficient delivery routes for its e-commerce deliveries, and to plan inventory levels at its warehouses, among other uses. More recently, Amazon launched generative AI tools to answer buyers’ questions and help sellers create compelling product descriptions.

Let’s not forget Amazon Web Services (AWS), which launched Bedrock AI to deliver the most popular generative AI models to its customers in the cloud. The company also created AI-specific chips — called Inferentia and Trainium — to accelerate AI processing on AWS.

Improving economic conditions are expected to be a boon for Amazon, and AI will undoubtedly play a role in its success. And at less than 3x sales, the price is right.

Artificial intelligence stock no. 3: Taiwan Semiconductor Manufacturing — 7.7% stake

Taiwan Semiconductor Manufacturing (TSM -4.20%)often referred to as TSMC, is “the world’s largest and best semiconductor foundry,” according to the company. Since high-end chips are the heart of AI processing, it’s no surprise that TSMC is Laffont’s third largest position. He added more than 1 million shares in the second quarter, increasing his holdings by 10%. Coatue’s position now stands at 11.4 million shares, collectively worth about $2 billion.

The accelerated adoption of AI has increased demand for the world’s most advanced processors. TSMC dominates the semiconductor foundry space, with about 62% of the market. More importantly, the company makes about 92 percent of the world’s most advanced chips — including most of the processors used for AI.

Given TSMC’s pivotal role in the industry and the widespread belief that the AI ​​revolution is still in its early stages, the next few years should provide an uptick for the company — and its shareholders. And at just 25 times forward earnings, TSMC is still reasonably priced.

Artificial intelligence stock no. 4: Nvidia — 6.6% stake

Nvidia (NVDA -4.08%) could be the standard bearer for the AI ​​revolution, so it’s only natural that it figures prominently in Laffont’s portfolio. Coatue reduced its position by less than 1% in the second quarter, but the value of its holdings increased, thanks to a 37% gain in Nvidia shares. Laffont now owns about 13.8 million shares worth $1.7 billion.

The company’s next-generation graphics processing units (GPUs) are already the gold standard for AI processing in data centers and cloud computing, having previously been the solution for machine learning, an earlier branch of AI. Even with an estimated 90% market share, Nvidia is not resting on its laurels and has accelerated its product release schedule at a one-year cadence. This dramatic increase in the pace of chip development will make competition even more difficult for rivals.

The triple-digit year-over-year growth that Nvidia has delivered for five consecutive quarters is expected to decline this year, but remain high by historical standards. Despite dominating the AI ​​chip market, Nvidia stock is reasonably priced, with a price-to-earnings-growth ratio (PEG ratio) of less than 1 — the standard for an undervalued stock.

Artificial intelligence stock no. 5: Microsoft — 6.4% stake

Microsoft (MSFT -1.64%) has been quick to jump into the AI ​​revolution, integrating AI into a broad cross-section of its products and services and offering a growing suite of AI models on its Azure Cloud platform. That’s probably why it’s Laffont’s fifth-largest holding, one he increased by nearly 21,000 shares in Q2. The position now stands at 3.7 million shares worth nearly $1.7 billion.

However, the company’s biggest coup was probably the launch of Copilot, its suite of AI-powered assistants for increasing productivity. Although Microsoft has yet to disclose its results, some on Wall Street believe Copilot — and, more broadly, AI — could generate as much as $100 billion in incremental revenue by 2027. It also has a impact now as Microsoft’s proliferation of AI services has a halo effect on Azure Cloud, contributing 8 percentage points of growth in its most recent quarter.

The stock is selling at 31 times forward earnings, which is an attractive price given Microsoft’s growth potential.

Data by YCharts

All long term winners

Each of these stocks is well known for dominating their respective industries, but it’s their performance since the start of the AI ​​revolution early last year that really stands out. As you can see from the chart above, each of Laffont’s top five holdings has outperformed the S&P 500, and most by a wide margin.

Generative AI is expected to add between $2.6 trillion and $4.4 trillion to the global economy annually in the coming years, according to estimates by global management consulting firm McKinsey & Company. Some estimates are much superior. Given their pivotal positions in the emerging AI industry, each of these stocks is worth a shot.