AI Stocks: Billionaires Investing
Source: finance.yahoo.com
Following billionaire investment moves could help investors find top AI stocks. In the first quarter, some billionaire fund managers bought Taiwan Semiconductor and Nvidia stocks. While Nvidia has risks, it remains a leader in the growing AI chip market.
Billionaire investors' stock picks can be helpful because they typically do extensive research into a company's competitive standing, risks, and potential returns before investing. Billionaire fund managers must report their holdings each quarter on Form 13F.
Taiwan Semiconductor Manufacturing
The latest 13Fs showed billionaires still buying high-flying chip stocks in the first quarter. Taiwan Semiconductor Manufacturing is a leading global chip manufacturer controlling over 60% of the foundry market, making chips for companies like Nvidia. Increased demand for AI workload chips in data centers has boosted the stock 279% over five years. David Tepper of Appaloosa Management, Stephen Mandel of Lone Pine Capital, and Chase Coleman of Tiger Global Management added to their stakes in the first quarter.
The company's strong first quarter amid economic uncertainty suggests significant momentum in the AI market. AI chip demand was robust in the first quarter, with revenue up 35% and earnings up 60% year over year. TSMC is investing in capacity expansion to meet long-term demand. TSMC recently introduced its A14 logic process technology, an advancement over its current 2-nanometer (N2) process, offering a 15% performance increase and 30% power savings, with production planned for 2028. These billionaires are betting on sustained AI market demand benefiting TSMC.
They are aware of the semiconductor industry's cyclical nature. Some cyclical effects were seen last quarter as not all TSMC markets have strong demand. For instance, smartphone demand softness caused a 5% revenue drop from the previous quarter. A recent earthquake also slightly disrupted chip production. However, increased use of advanced devices and AI data centers should create opportunities for TSMC long term. The rising demand for advanced chips has driven market-beating returns over the past decade and could continue. TSMC projects AI chip sales to double in 2025 and grow at a 40% annualized rate through 2028. The stock trades at 21 times this year's earnings estimate, with analysts expecting 21% annualized earnings growth.
Nvidia
TSMC's AI chip sales outlook is positive for Nvidia. Nvidia's GPUs are the gold standard in the AI chip market. The stock has increased 1,400% over the past five years, but some billionaires still see potential. In the first quarter, Chase Coleman increased his firm's stake, and Daniel Loeb of Third Point started a new position in the stock. Nvidia is coming off a year where revenue more than doubled to $130 billion. Based on a strong outlook for new chips, analysts expect revenue to rise 53% to nearly $200 billion this fiscal year. Its new Blackwell computing platform for advanced AI workloads is generating billions in revenue, and the company is increasing supply to meet demand. Nvidia's automotive chips for self-driving cars also have strong demand, with revenue expected to triple this year to $5 billion.
One risk for Nvidia is companies pursuing cheaper alternatives to its GPUs. Some customers, including Amazon and Alphabet's Google, have invested in their own AI chips. Custom chip solutions can be more efficient for specific tasks and save money compared to Nvidia's general-purpose GPUs that can cost tens of thousands of dollars per unit. Coleman and Loeb are betting that data centers will continue to need Nvidia's GPUs. Nvidia's software allows companies to tailor these GPUs for various use cases. Nvidia recently announced at the Computex conference that its GPU technology is becoming more integrated into companies' AI investment plans. For example, Nvidia and Microsoft are collaborating on agentic AI. Nvidia introduced NVLink Fusion, enabling customers to integrate chips from other makers with Nvidia's GPUs in data centers. This strategy could expand Nvidia's addressable market while protecting its AI market lead.
Despite these positives, the stock's forward price-to-earnings ratio of 30 seems low, given analysts expect 35% annualized earnings growth. Given Nvidia's GPU lead, the stock could reach new highs this year and continue to deliver market-beating returns.