Over the last two years, no trend has put more pep in Wall Street's step than the rise of artificial intelligence (AI). The ability for AI-driven software and systems to grow more proficient at their tasks, as well as evolve to learn new jobs without the need for human intervention, gives this technology a virtually limitless long-term ceiling.
Though growth estimates vary wildly, the analysts at PwC see an addressable market for AI of $15.7 trillion by 2030. According to PwC's Sizing the Prize, increased productivity will boost global gross domestic product by $6.6 trillion, with consumption-side effects adding another $9.1 trillion.
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This forecast outperformance and sky-high ceiling for artificial intelligence isn't lost on Wall Street or its top investors. Thanks to quarterly filed Form 13Fs, investors can track which AI stocks top money managers have been buying and selling.
Based on the latest round of 13Fs, which cover trading activity through the end of September, there are three AI stocks billionaire asset managers clearly want to own heading into 2025.
Broadcom
The first AI stock billionaires can't seem to get enough of as we steam ahead into a new year is networking-solutions specialist Broadcom(NASDAQ: AVGO). Based on 13Fs for the September-ended quarter, billionaires Philippe Laffont of Coatue Management (1,488,666 shares purchased) and Stanley Druckenmiller of Duquesne Family Office (239,980 shares purchased) were buyers.
Just as Nvidia(NASDAQ: NVDA) has become the undisputed top option as a supplier of graphics processing units (GPUs) for businesses wanting to build out AI-accelerated data centers, Broadcom has become a key provider of networking solutions within those data centers. The company's Jericho3-AI fabric is capable of connecting up to 32,000 GPUs, which is essential for maximizing GPU computing capabilities and reducing tail latency.
Additionally, Broadcom is ideally positioned to benefit from enterprise demand for its custom AI chips. By fiscal 2027, CEO Hock Tan believes the company's AI revenue could surge to between $60 billion and $90 billion from the $12.2 billion reported in fiscal 2024 (its fiscal year ended Nov. 3). Demand from the company's top hyperscale customers should fuel this growth.
Perhaps the most enticing aspect about Broadcom for Laffont and Druckenmiller is that it's far more than just an AI stock. It's a top supplier of wireless chips and accessories used in smartphones, provides a laundry list of optical sensors to the industrial sector, and has a suite of cybersecurity solutions. If an AI bubble were to form, Broadcom would be much better suited than Nvidia to ride out the storm.
The big question for these two billionaires is, "Can Broadcom maintain its trillion-dollar valuation?" Although sustainable double-digit growth appears likely, Broadcom is trading at a price-to-sales multiple that's wellabove its historic average. It's possible we see the company's stock flounder until its valuation becomes more palatable.
Image source: Getty Images.
Taiwan Semiconductor Manufacturing
A second AI stock that billionaire money managers can't stop buying ahead of 2025 is the world's leading chip-fabrication company Taiwan Semiconductor Manufacturing(NYSE: TSM). During the third quarter, billionaire Chase Coleman of Tiger Global Management picked up 564,090 shares, while Duquesne's chief Stanley Druckenmiller scooped up 57,355 shares.
Taiwan Semi is being counted on by the AI industry's leading businesses, including Nvidia, to dramatically increase the production of GPUs. Based on recently updated targets following Donald Trump's November victory, Taiwan Semi is aiming for monthly chip-on-wafer-on-substrate (CoWoS) capacity of 35,000 in 2024, 75,000 units in 2025, and 135,000 units in 2026. CoWoS is a necessity for packaging the high-bandwidth memory that supports AI-accelerated data centers.
Taiwan Semiconductor Manufacturing should also continue to benefit from lengthy AI chip backlogs. As long as AI-GPU scarcity persists, the company's operating cash flow can remain highly predictable.
The big question that billionaires Coleman and Druckenmiller will have to ask themselves is, "How much will Trump's trade policies impact the company?" The incoming president's America first focus and expected reliance on tariffs could lead to challenges for Taiwan Semi, which has between 80% and 90% of its production capacity in Taiwan. Export restrictions of AI chips and equipment to China that were put in place by the Biden administration may also pose a challenge.
Similar to Broadcom, Taiwan Semiconductor Manufacturing is no longer the phenomenal fundamental bargain it's been for years. Its price-to-sales (P/S) ratio is 45% above its trailing-five-year average P/S reading, while its forward price-to-earnings (P/E) ratio of 23 represents its highest reading since 2020. It's a somewhat aggressive valuation for a highly cyclical industry.
Amazon
The third artificial intelligence stock select billionaire investors can't stop buying ahead of the new year is e-commerce colossus Amazon(NASDAQ: AMZN). Four billionaires were buyers in the September-ended quarter, including (total shares purchased in parenthesis):
Stephen Mandel of Lone Pine Capital (1,033,987 shares)
Philippe Laffont of Coatue Management (496,218 shares)
Larry Robbins of Glenview Capital Management (125,000 shares)
Chase Coleman of Tiger Global Management (94,408 shares)
Amazon's AI ties are predominantly based on utilization. Amazon Web Services (AWS) is the world's leading cloud service infrastructure platform, and it's been aggressively incorporating generative AI solutions. Generative AI on AWS can help businesses build AI applications, deploy virtual chatbots and AI assistants, and build/run large language models.
Among Amazon's numerous operating segments, none is more important to its cash-flow generation or profits than AWS. Through the first nine months of 2024, AWS accounted for 17.5% of Amazon's net sales, but nearly 62% of its operating income. The juicy margins that typically accompany cloud subscriptions will play a key role in lifting the company's cash flow over time.
Amazon is also in the process of developing its own AI chips, known as the Trainium2 and Inferentia. Though Amazon is already using Nvidia's premier GPUs, and it's unlikely that its own chips will rival Nvidia in terms of computing speed, the Trainium2 and Inferentia should be notably cheaper and more easily accessible than Nvidia's sought-after hardware.
Similar to Broadcom and Taiwan Semi, the big concern for Mandel, Laffont, Robbins, and Coleman is whether Amazon stock is still a bargain after hitting an all-time high. While traditional fundamental tools like the P/E ratio would suggest Amazon is more than fully valued, the company's price-to-cash-flow ratio implies it still offers upside. At 16 times estimated cash flow for 2025, Amazon is still well below the multiple of 23 to 37 times cash flow investors regularly paid for its stock throughout the 2010s.
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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. Sean Williams has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
