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First Quarter Hedge-Fund Influx Into AI Stocks

May 21, 2023
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Prominent investors, including David Tepper and Bill Ackman, capitalized on the growing artificial intelligence (AI) arms race during the first quarter. Stocks associated with AI experienced a surge in value this year, providing a much-needed boost to the overall market. Meta Platforms and Nvidia shares more than doubled, while competitors Microsoft and Alphabet saw significant gains of at least 32%. This turnaround follows a challenging period for many tech stocks in 2022.

Recent securities filings indicate that numerous hedge funds are also recognizing the potential of AI. Alphabet emerged as one of the most popular AI plays among major investors in the first quarter. Appaloosa Management's Tepper increased his investment in the search giant by approximately 6%, while Bill Ackman of Pershing Square and Dan Loeb of Third Point revealed new positions worth around $1.1 billion and $493 million, respectively.

D1 Capital's Dan Sundheim moderately increased his stake in Alphabet, while Seth Klarman of Baupost expanded his position by about 47%. In addition, Philippe Laffont of Coatue Management established a $645 million position and doubled his wager on AI beneficiary Microsoft. Tiger Cub Chase Coleman also increased his positions in both AI beneficiaries.

Just a week after referring to AI as an "impactful" technology at the Sohn Conference, Stanley Druckenmiller acquired Microsoft shares worth $210 million in the first quarter. The billionaire investor, who oversees Duquesne Family Office, also amassed a $91 million position in Alphabet. Tepper and Chase Coleman of Tiger Global also bolstered their positions in the software giant.

The tech giants vying for AI dominance have profited handsomely this year as investors poured money into the thriving tech movement. Microsoft has made substantial investments in AI capabilities, including a multibillion-dollar investment in ChatGPT maker OpenAI in January. Alphabet launched its own chatbot, Bard, in the first quarter, which some investors viewed as an attempt to catch up with Microsoft.

Beyond Alphabet and Microsoft, many hedge funds increased their holdings in other AI-related companies in the first quarter. This included leading AI chipmakers Nvidia and Advanced Micro Devices (AMD). Tepper and Chase Coleman of Tiger Global made new bets on Nvidia, while Third Point initiated a position in Advanced Micro Devices. Druckenmiller increased his stake in Nvidia by 36%, and Laffont bolstered his positions in both Nvidia and AMD, with his Nvidia bet reaching approximately $1.4 billion by the end of March.

Both Nvidia and AMD, responsible for manufacturing graphics processing units that underpin many AI innovations, have benefited from the AI frenzy this year. Nvidia's stock surged by 114%, surpassing the 63.4% gain of Advanced Micro Devices. Many investors believe that the positive impact of AI justifies Nvidia's high valuation and recent share price increase.

Apart from chip stocks, Laffont revealed a position in AI software company C3.ai, whose shares have risen by 126% this year. Tepper increased his investment in Meta Platforms by 22%, while Sundheim initiated a new stake in the parent company of Facebook. Coatue more than doubled its position, reaching $1.7 billion. Meta, a recent beneficiary of AI, has experienced a surge in its stock price as the company focuses on efficiency and cost-cutting measures. Meta openly discussed its custom AI chips ahead of a virtual event held on Thursday.

While several significant investors increased their exposure to prominent AI players, some chose to reduce their holdings. For instance, Keith Meister's Corvex Management slashed positions in Alphabet and Microsoft, while D1 Capital reduced its stake in Microsoft by 48% and liquidated its position in Nvidia. Baupost dissolved its bet on Meta Platforms.

It's important to note that these positions reflect holdings as of the end of the quarter and may not reflect any subsequent actions taken by these investors.


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