The field of Artificial Intelligence (AI) is booming, many companies are trying to make waves in this market. The most successful will reap great financial rewards for themselves and their shareholders, but what will they be? Getting inspiration from the most famous and successful money managers on Wall Street can be helpful to pick promising AI stocks. One of them is David Tepper, the billionaire founder of Appaloosa Management.
The hedge fund has several AI stocks worth serious consideration for investors, including Amazon(NASDAQ: AMZN) again Meta Platforms(NASDAQ: META). The two made up about 14% of the fund’s total as of the third quarter. Here’s why both companies are worth investing in.
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Amazon’s business spans several industries, including video and music streaming, e-commerce and advertising, health care, grocery stores, and cloud computing. The tech giant offers many AI-related services through its cloud computing arm, Amazon Web Services (AWS). That includes its main language model, Bedrock; an AI assistant called Amazon Q; and much, much more than that. Cloud computing has been the most profitable part of Amazon for a while now.
AI is already helping to improve it. In the third quarter, Amazon’s sales increased 11% year over year to $158.9 billion. AWS revenue increased 19% year over year to $27.5 billion. And, despite making up about 17% of Amazon’s revenue, AWS holds 60% of its operating income. According to management, AWS has grown significantly over the last four quarters at the same time as the company’s AI business has recorded triple-digit annual revenue growth.
But there is still a huge runway for growth here. This is undoubtedly still the early innings of this AI revolution. It could be a critical situation for Amazon for years to come, similar to how AWS, first introduced in 2006, is now the most profitable part of the company. However, due to Amazon’s various functions, it is not just an AI game. Some investors are concerned that pure-play AI companies will gain more traction if the industry’s growth slows.
Amazon is well equipped to deal with this potential issue. Here’s another key factor in Amazon’s success: The company has a strong competitive advantage. To put it simply, AWS benefits from cost-shifting while its core e-commerce operations show strong network results. There will always be competition, but a company with a strong competitive edge like Amazon should continue to do well regardless.
So, between its growing AWS unit, several opportunities in other segments, and its moat, Amazon is an outstanding stock to benefit from AI.
Meta Platforms makes almost all of its revenue through ads. AI has a direct impact on its business as the company has been using powerful AI algorithms to drive more traffic and engagement across its websites.
On Facebook and Instagram, Reels, or short videos, have become increasingly popular in recent years, partly because of this strategy. It allowed Meta Platforms to compete with the high-flying TikTok. Meta Platforms has also released generative AI tools to help companies create ads to display on their websites, a way that delivers results.
Meta Platforms’ AI-related work includes its major language model, Llama, and its MetaAI virtual assistant, which now has more than 500 million active users. Meta Platforms’ AI involvement and financial results have helped boost the stock this year while continuing to post strong financial results. Third-party revenue increased 19% year over year to $40.6 billion. Meta’s total revenue was $15.7 billion, up 35% from the year-ago period.
Meta Platforms plans to double down. The company has revealed that it will invest heavily in AI-related infrastructure next year.
Although the market was initially not very happy with this news, in my opinion, it could be a great move. Meta Platforms ended the third quarter with 3.29 billion daily active users, an increase of 5% year over year. With a large ecosystem and network effect across its websites and applications (especially Facebook and Instagram), Meta Platforms can find endless ways to monetize its users. The return from this investment can be more than worth it. And that’s before you consider other growing sources of revenue for Meta Platforms, such as paid messaging on WhatsApp.
In short, there is growing fuel left for the Meta Platform, with leading AI. The tech giant represents another great way to monetize this very important sector.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of marketing and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Prosper Junior Bakiny has positions in Amazon and Meta Platforms. The Motley Fool has positions and recommends Amazon and Meta Platforms. The Motley Fool has a policy of disclosure.
Billionaire David Tepper Has 14% of His Portfolio Invested in These 2 Artificial Intelligence (AI) Stocks was first published by The Motley Fool.
