One of the biggest technological advancements of our current age is without a doubt artificial intelligence, which is providing a whole lot of investing opportunities for individuals who are looking to find a way to make some serious returns in the tech industry. However, the average investor probably has no clue what companies to pour their money into, which is why you need to keep your yes on where billionaires are investing their cash as a way to sort of ride on their coattails. Usually, that sort of thing is bad, but when it comes to investing, you definitely want to play follow the leader.
According to a new report from The Motley Fool, “Nvidia (NVDA -2.68%) is arguably the world’s most popular artificial intelligence (AI) stock, as evidenced by its 215% gain in the past year alone. It’s not a claim without merit, because the company’s revenue more than doubled in fiscal 2024 (which ended Jan. 28) on the back of its industry-leading AI data center chips.”
If you want to know what direction the AI industry might headed in the near future, taking a look at where the big dogs are putting their money will help give you some ideas. One such individual is Bill Ackman, who has a staggering $10 billion stock portfolio for his hedge fund known as Pershing Square Capital Management, and he doesn’t own a lick of stock in Nvidia.
In fact, Ackman owns a $1.9 billion position in Alphabet, which is the parent company of Google. Yeah, he’s made some pretty solid gains from sinking some dough in that stock already, but it’s also still cheap enough that he could be about to experience an even bigger upside thanks to Alphabet’s AI initiatives.
The good news is, the Motley Fool says, there’s still time to get on board and follow Ackman’s lead.
It’s no coincidence Bill Ackman bought Alphabet stock in the first quarter of 2023 when Microsoft (MSFT -1.41%) announced its $10 billion investment in leading AI startup OpenAI. Microsoft quickly integrated OpenAI’s ChatGPT technology into its Bing search engine, in an attempt to disrupt Google’s 91% market share in the internet search industry.
Traditional search engines like Google typically make the user sift through web pages for the information they need, whereas Bing’s new chatbot interface can instantly provide a direct answer to almost any question. It’s a far more convenient experience. Alphabet stock plunged because investors feared the company fell way behind Microsoft on the AI front, but Ackman viewed that as a buying opportunity.
In a recent interview with David Rubenstein, Ackman said Alphabet’s valuation had fallen so much that he was getting a great deal on the company’s existing businesses, like search and YouTube, while getting its AI initiatives basically for free. It’s interesting to note that Ackman felt Alphabet’s AI technology was neck-and-neck with OpenAI’s when he made the investment, even though Alphabet hadn’t launched its own AI chatbot yet.
According to the report, not long after Microsoft dropped the announcement about its OpenAI investment, Alphabet took an opportunity to remind its investors that it had been working on developing AI technology for many years. Google acquired an AI startup company called DeepMind back in 2014, which is why it only took a few months to get Google Bard up and running. Google Bard is a chatbot application that was designed to give ChatGPT a run for its money.
Whether or not an AI application is of high quality or not comes down to the overall quality of the developer’s data. Since Google has been the most popular search engine in the world for what feels like eternity, it has a ton of useful information it can use to build AI apps with, much more than other companies.
Bard paved the way for Alphabet’s latest and greatest family of AI models called Gemini, which were launched in December. According to Alphabet, Gemini outperforms OpenAI’s most advanced GPT-4 models across most multimodal benchmarks. In other words, it’s capable of interpreting and generating text content, images, videos, and computer code more accurately.
Alphabet announced the release of Gemini 1.5, which is even more advanced, in February. The company says it’s far better at “in-context learning,” meaning it can learn new skills from users’ prompts without needing additional fine-tuning from developers. In one test, Alphabet gave Gemini 1.5 a grammar manual for a rare language called Kalamang — which has fewer than 200 speakers worldwide — and it could translate it at a similar level to human subjects who used the same learning material.
The Fool says that Gemini can now be used as a standalone chatbox, but the technology behind it is now a part of the Google Search engine that will provide users text-based replies as part of their search results. This is a super helpful feature because it cuts the time users would normally spend clicking through to web pages looking for the information they need.
“Ackman bought the bulk of Pershing Square’s Alphabet position in the first quarter of 2023, at an estimated average price of $96.56. That implies he’s sitting on a 60% gain based on the stock’s current price of $154.85. Ackman added to his holdings in the second and third quarters of 2023, and he’s sitting on a profit on those positions, too. But it isn’t too late for investors to follow his lead, because the stock is still relatively cheap,” the Fool reported.
Alphabet ended up making a record $307.4 billion in revenue last year, which would be 2023, with $5.80 a share. This means that stock in the company is currently sitting at price-to-earnings ratio of 26.7, which translates into it being the second cheapest stock available among six tech companies in America that are valued at a trillion dollars or more.
The report went on to say, “The advertising dollars generated by Google Search still account for most of Alphabet’s revenue. However, Google Cloud is the company’s fastest-growing segment thanks to its growing portfolio of AI services. Businesses and developers can access the latest data center infrastructure and ready-made large language models, including Gemini, on Google Cloud to build their own AI applications.”
“Alphabet is also weaving Gemini into its other products, such as Google Docs and Gmail, offering a productivity boost to customers who can now use AI to rapidly craft content in those applications. Longer-term, Alphabet is reportedly negotiating with Apple to make Gemini the default AI chatbot on that company’s devices, including the iPhone. Details are scarce, but it could be an incredible opportunity, considering Apple has an installed base of more than 2.2 billion devices worldwide,” The Motley Fool concluded.