The field of artificial intelligence (AI) is booming, and many companies are actively trying to make waves in this market. The most successful will generate huge financial returns for themselves and their shareholders, but which ones will they be? Taking inspiration from Wall Street’s most famous and successful money managers may help pick promising artificial intelligence stocks. One of them is David Tepper, the billionaire founder of Appaloosa Management.
The hedge fund owns several artificial intelligence stocks that investors should seriously consider, including Amazon(NASDAQ: AMZN) and meta platform(NASDAQ: META). The two accounted for about 14% of the fund’s portfolio as of the third quarter. Here’s why both companies are worth investing in.
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Amazon operates across multiple industries, including video and music streaming, e-commerce and advertising, health care, grocery and, of course, cloud computing. The tech giant offers a range of artificial intelligence-related services through its cloud computing arm, Amazon Web Services (AWS). This includes its large language model Bedrock; its artificial intelligence assistant called Amazon Q; and much more. Cloud computing has been Amazon’s most profitable business for some time.
Artificial intelligence is already helping to improve it. In the third quarter, Amazon’s sales increased 11% year-on-year to $158.9 billion. AWS revenue increased 19% year over year to $27.5 billion. In addition, although AWS only accounts for about 17% of Amazon’s revenue, its operating income accounts for 60%. AWS has grown significantly over the past four quarters, according to management, while the company’s artificial intelligence business has also seen triple-digit annual revenue growth.
But there’s still plenty of room for growth. It can be said that these are still the early stages of this artificial intelligence revolution. This could be a tailwind for Amazon in the coming years, just as AWS, which was first launched in 2006, has become the company’s most profitable business. However, because of Amazon’s diversification, it’s not just an AI game. Some investors worry that pure artificial intelligence companies will suffer a major blow once industry growth inevitably slows down.
Amazon is well positioned to deal with this potential problem. This is another important aspect of Amazon’s success: The company has a strong competitive advantage. To name just two, AWS benefits from switching costs and its core e-commerce business shows strong network effects. There will always be competition, but companies with strong competitive advantages like Amazon should continue to perform well.
So, with its booming AWS division, some opportunities in other areas, and its moat, Amazon is an excellent stock to profit from artificial intelligence.
Meta Platforms generates almost all of its revenue from advertising. Artificial intelligence is having a direct impact on its business, as the company has been using AI-powered algorithms to drive more traffic and engagement on its website.
Reels, or short videos, have become increasingly popular on Facebook and Instagram in recent years, in part because of this tactic. It enables Meta Platforms to compete with the ambitious TikTok. Meta Platforms has also released generative AI tools to help companies create ads to publish on their websites, an approach that is bearing fruit.
Meta Platforms’ artificial intelligence-related work also includes its large-scale language model Llama and its MetaAI virtual assistant, which currently has more than 500 million active users. Meta Platforms’ artificial intelligence involvement and financial results have helped drive the stock sharply higher this year, while it continues to post strong financial results. The company’s third-quarter revenue increased 19% year-on-year to $40.6 billion. Meta’s net profit was US$15.7 billion, an increase of 35% over the same period last year.
Meta Platforms is planning to double down on its efforts. The company expects to increase investment in artificial intelligence-related infrastructure next year.
While the market was initially not too happy with the news, in my opinion this could be a great move. Meta Platforms had 3.29 billion active users at the end of the third quarter, a 5% increase from the same period last year. With its vast ecosystem and the network effect of some sites and apps (notably Facebook and Instagram), Meta Platforms can find endless ways to monetize its users. The return on these investments can be well worth the money. That doesn’t take into account Meta Platforms’ other growing revenue streams, such as paid messaging on WhatsApp.
In short, under the guidance of artificial intelligence, the meta-platform still has a lot of growth momentum. The tech giant represents another great way to profit from this increasingly important industry.
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John Mackey is the former CEO of Amazon subsidiary Whole Foods Market and a board member of The Motley Fool. Randi Zuckerberg is the former director of market development and spokesperson for Facebook, the sister of Meta Platforms CEO Mark Zuckerberg, and a board member of The Motley Fool. Prosper Junior Bakiny works at Amazon and Meta Platform. The Motley Fool has positions and recommendations on Amazon and Meta platforms. The Motley Fool has a disclosure policy.
Billionaire David Tepper invests 14% of his portfolio in these two standout artificial intelligence (AI) stocks
