The surge in artificial intelligence (AI) stocks has not escaped the attention of billionaires. As opportunities emerge, investing disclosure requirements show they have deployed significant amounts of capital into AI stocks like Nvidia .
This is important because some investors follow the lead of these top-tier investors and mimic their transactions hoping for similar results. While these billionaires buy stocks for many reasons that have little to do with the investing goals of their followers, fortunately, their positions do occasionally benefit average investors, especially if they happen to pick some solid stocks to get behind.
Let's take a look at three billionaires and explore why they took positions in Alibaba (NYSE: BABA) , Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) , and Microsoft (NASDAQ: MSFT) . The exercise might lead to some insight that can be useful to your investing journey.
1. Alibaba
At first glance, investors may find it puzzling that Appaloosa Management, the fund run by billionaire David Tepper , took a position in Alibaba. In 2022, the stock faced a delisting threat when the Chinese company resisted allowing the Securities and Exchange Commission (SEC) to see its internal financial audits because of its association with the Chinese Communist Party. Although the U.S. and China eventually resolved that issue, the tenuous relationship between the countries put tremendous pressure on the stock.
As a result of the turmoil, Alibaba's stock price fell to almost 20% less than its initial public offering (IPO) price from 10 years ago. This drop comes despite Alibaba's net income more than tripling over that time. That caused its P/E ratio to fall briefly into the single digits, and its current earnings multiple of 18 is far below any comparable conglomerate.
With the stock trading at a heavily discounted price, Tepper increased the size of his Alibaba position by more than 11,000% over the last year. The markets may vindicate this move over time. The stock price has remained steady so far this year, though it is down about 75% from its 2020 high.
Still, if Alibaba can find a way to ease investor concerns, Tepper's fund and those who invest along with him could experience a significant payday as the stock finally prices in its growing profits.
2. Alphabet
Alphabet has been a top AI innovator since it introduced the technology to its Google Search platform in 2001. Nonetheless, AI investors soured on the stock when OpenAI introduced a vastly improved version of ChatGPT in early 2023, creating the impression that the Google parent was behind the curve.
Billionaire investors like Bill Ackman saw this as a buying opportunity, so much so that 13% of his Pershing Square portfolio is tied up in this stock. As late as the fourth quarter of 2022, Pershing Square did not own any Alphabet stock.
Buying at the time Pershing Square did may have been the right move. More recently, Alphabet has responded with its own generative AI product, Google Gemini. It has also combined its AI research under the Google DeepMind umbrella. Considering its $108 billion in liquidity , it will likely buy any AI innovation it cannot invent in-house.
Additionally, despite perceptions, the stock has risen by around 60% over the last year, and its 29 P/E ratio makes it the most inexpensive company with a market cap above $2 trillion. That positions Alphabet to offer both safety and a higher likelihood of further gains.
3. Microsoft
The opportunity in Microsoft was of particular interest to Stanley Druckenmiller, the manager of the Duquesne Family Office fund. He saw that Microsoft's CEO, Satya Nadella, had returned the tech giant to prominence as a leader in cloud computing.
Succeeding in the cloud today means leading in AI. Druckenmiller began buying shares at the low point of the 2022 bear market and increased the purchases as Microsoft's partnership with generative AI specialist OpenAI came to light. Now, it makes up around 11% of the Duquesne fund.
The company built on that deal, integrating search engine Bing with ChatGPT to better enable it to compete with Google Search. Additionally, it launched Copilot, an AI-powered chatbot that combines the ChatGPT large language model and Microsoft's tools to create deliverables on command through one's natural language.
Amid its innovations, it holds around $80 billion in liquidity, giving it tremendous optionality. Indeed, optimism around AI has helped Microsoft stock rise by nearly 40% over the last year.
At a P/E ratio of about 39, Microsoft has become a moderately valued AI stock, but given its resources and leadership in AI, the stock should continue to rise over time.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Microsoft, and Nvidia. The Motley Fool recommends Alibaba Group and 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 .
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