Billionaire David Tepper is one of the most successful hedge fund managers on Wall Street. He founded Appaloosa Management in 1993 and eventually became a self-made billionaire. Over the last few years, he’s returned much of his clients’ funds, so Appaloosa is now primarily his own personal capital.
Since Appaloosa is technically an institutional investor, investing on behalf of others, it’s required to file form 13F with the Securities and Exchange Commission every quarter when it holds more than $100 million in assets. Appaloosa ended 2023 with $5.8 billion in assets under management.
Thanks to those public filings, we can get a glimpse at exactly how Tepper invests his money. And he’s betting big on three artificial intelligence (AI) stocks in 2024. Nearly one-third of his portfolio is tied up in these companies.
Image source: Getty Images.
Meta Platforms (11%)
Meta Platforms (META 1.83%) is the company behind leading social media platforms Facebook and Instagram. The company boasts nearly 4 billion unique users across its family of apps, which also includes WhatsApp and Messenger. It’s also developing augmented and virtual reality technology within its Reality Labs division.
Meta’s been investing heavily in artificial intelligence for the last few years. That shows up in its massive capital expenditures (capex), which topped $28 billion last year. That’s a pullback from the $32 billion it spent in 2022.
All those capital expenditures are going toward building data centers to train AI algorithms such as its LLaMA large language model, which is now on its third version.
Meta uses its AI algorithms to improve content and advertising recommendations within its Facebook and Instagram’s Feed, Stories, and Reels. The advancements in AI turned Reels from a drag on revenue performance to additive in a shorter time frame than management expected.
What’s more, Meta can apply its generative AI capabilities to the ad-creation process, making it easier for marketers to test new ads on the platform and improve conversions. That boosts total advertisers and the amount they’re willing to pay.
Meta shares started strong in 2024, zooming 42% higher. But they were arguably very undervalued before the company’s blowout fourth-quarter earnings and new dividend announcement.
With shares currently trading at a forward price-to-earnings ratio (P/E) of around 24.5, the stock looks fairly valued. In fact, shares may still have a lot of room to grow when you consider that analysts expect the company’s earnings to grow at an average rate of 24.5% over the next five years, giving it a PEG ratio of 1.
Microsoft (11%)
Microsoft (MSFT 1.26%) vaulted to the forefront of the AI conversation when it added $10 billion to its investment in OpenAI at the start of 2023. It’s now leveraging that position to fuel its cloud computing and enterprise software businesses.
Microsoft Azure makes it easy to deploy AI applications using a growing number of large language models. Microsoft now counts 53,000 Azure AI customers, up more than 50% over the past 12 months.
As a result, it’s been growing revenue faster than its competitors in the space. Azure sales climbed 30% in Microsoft’s second quarter. By comparison, Amazon (AMZN -0.14%) and Alphabet saw their cloud computing segments grow just 13% and 26%, respectively. Granted, Amazon’s cloud business is bigger than Microsoft’s, but Google Cloud remains the smallest of the three and is falling further behind.
Microsoft is also incorporating generative AI capabilities into its enterprise software through its Copilot features. Developers can use its Github Copilot to help them code more efficiently. The company is developing Copilot applications for sales, customer service, healthcare, retail, and everyday productivity tasks in its Microsoft 365 suite. As it taps into its existing user base of millions, it could sell a lot of Copilot subscriptions.
Microsoft’s stock isn’t cheap but may be worth the price. It trades at a forward P/E of around 30.9. While analysts see strong revenue growth and slight margin expansion over the next five years, they still only expect 15.4% earnings growth.
But when you combine Microsoft’s strong cash position and massive free cash flow supporting its dividend and buybacks, it might be worth following Tepper into some shares of the most valuable company on the market.
Amazon (10%)
Amazon is best known for its incredibly popular online marketplace, where its Prime members can receive millions of items within 24 hours with just the click of a button. While the company continues to grow its share of the e-commerce market, its advertising and cloud computing businesses are sure to fuel its earnings growth for years to come.
Amazon is the market leader in public cloud services. While Microsoft is making significant headway, cutting into Amazon’s market share recently, the e-commerce leader is quickly reestablishing itself. After Amazon Web Sales (AWS) slowed to 12% in mid-2023, the segment started showing signs of life, accelerating to 13% growth in the fourth quarter. That’s still well behind the competition, but Amazon is investing heavily to catch up in AI.
The company invested $4 billion in Anthropic, gaining more access to its leading generative AI technology. It introduced Amazon Bedrock last year, making it easy for new and existing AWS customers to launch generative AI applications using a number of large language models.
It’s also developing its own chips designed for training AI models and deploying them in applications. These chips are more power efficient than general graphics processing units (GPUs) from Nvidia, which has seen its prices skyrocket amid the AI boom.
Management believes we’re still in the very early innings of the generative AI boom, so there’s plenty of time for it to catch up. It’s investing with a long-term mindset, which has worked out well for Amazon in the past.
Shares of Amazon currently trade at a price-to-sales ratio of around 3.3. Due to the company’s double-digit revenue growth and expanding margin expectations, investors will pay a fair price for the stock today. But if Amazon can start winning back share in cloud computing, it could easily outperform the market.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Adam Levy has positions in Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
