Three billionaire fund managers are betting on one unstoppable artificial intelligence (AI) stock. It’s not too late to follow their lead.

America’s billionaire fund managers are living proof that the stock market creates enormous wealth over the long term. Many of them continue to invest today, and hedge funds, family offices and holding companies are required to report their positions every quarter, making it easy for the average investor to follow.

Steven Cohen (net worth $19.8 billion), Stanley Druckenmiller (net worth $6.2 billion), and Bill Ackman (net worth $4.1 billion) each made most of their fortunes by investing their clients’ money and their own money in stocks and other areas. Financial assets.

The three billionaires are currently investing heavily in artificial intelligence (AI) stocks, but they have one thing in common.

Image source: Getty Images.

Cohen, Druckenmiller and Ackman are betting on Alphabet

alphabet (google -0.11%) (GOOG -0.11%) is the parent company of Google, which operates the world’s leading Internet search engine and third-largest cloud computing platform. It is also home to streaming giant YouTube and self-driving car developer Waymo.

As of the latest regulatory filings for the third quarter of 2023 (ending September 30):

• Point72 Asset Management, run by Steve Cohen, owned 552,101 shares of Alphabet Class A stock and 105,374 Class C shares worth a total of $86 million.
• The Duquesne Family Office, run by Stanley Druckenmiller, owned 838,375 shares of Class A stock worth $109 million.
• Pershing Square Capital Management, run by Bill Ackman, owned 4.3 million shares of Class A stock and 9.3 million shares of Class C stock, worth a total of $1.8 billion.

Google is the window of the Internet. With a 91% market share in search, it’s no exaggeration to say that we have access to more data than almost any other platform of its kind in the world. Data is the honey of any AI model. This is why Alphabet is quickly becoming a leader in the emerging AI industry.

Alphabet stock is incredibly cheap right now, and here’s why investors should take advantage of this opportunity to buy.

Alphabet is developing industry-leading AI models.

In early 2023, one of Alphabet’s technology competitors microsoft (MSFT 0.46%)announced a $10 billion investment in OpenAI, a leading AI startup and creator of ChatGPT. Chatbots can generate text, images, video, and even computer code, and Microsoft immediately began incorporating them into its product portfolio.

ChatGPT’s integration into Microsoft’s Bing search engine attracted the most initial attention. That’s because investors were concerned that ChatGPT would be a viable competitor to Google. In the end, ChatGPT could lose everything with 91% market share. While traditional search engines require users to sift through web results to find the information they are looking for, chatbots are much more convenient because they provide direct answers.

However, Alphabet has been working on AI for years, even though it is not explicitly reflected in its product portfolio before 2023. This allowed the company to quickly launch a ChatGPT competitor called Bard, followed by a much more advanced model called Gemini.

The latter is more robust than OpenAI’s latest GPT-4 model in most multimodal benchmarks. This means Gemini’s ability to understand, interpret, and create text, images, video, and code has become more advanced.

Alphabet is in the process of monetizing AI models by integrating them into popular products such as Gmail, Docs, Sheets, and Slides. Additionally, the existing Google search engine uses AI to place answers to queries at the top of the page, providing a more convenient user experience.

Alphabet is generating record profits.

Alphabet is scheduled to release its official 2023 annual results at the end of January. Earnings per share of $5.74 are expected to generate a record $305 billion in revenue, representing year-over-year growth of 8% and 25%, respectively.

Advertising revenue from Google Search and YouTube rebounded in the most recently reported third quarter, which ended September 30. Businesses have spent much of 2022 and early 2023 cutting budgets due to rising inflation and rising interest rates.

Google Cloud remains Alphabet’s fastest-growing segment and is of great interest to investors. AI will eventually impact every aspect of our lives, and most of the applications we will use in the future will be developed in the cloud. Centralized data center operators like Google Cloud have been preparing for this change by building out their AI infrastructure.

The infrastructure runs on leading AI data center chips from the following providers: nvidia. However, Google has been developing its own chips, such as the new TPU v5p that it launched last December. It is a tensor processor designed to speed up AI model training, and was used in the development of Gemini, the company said.

Google Cloud also offers business customers more than 100 third-party large language models (LLMs) that are building blocks for AI applications. Developing an LLM from scratch requires significant time, data, and financial resources, so using an off-the-shelf solution can accelerate the adoption of AI for your business.

Image source: Getty Images.

Alphabet stock is cheap

Investors love a good deal, and successful billionaires like Cohen, Druckenmiller, and Ackman know how to find one.

Alphabet’s full-year results for 2023 are still pending, but expected earnings per share (EPS) are $5.74, giving it a price-to-earnings ratio (P/E) of 24.8. For perspective, Nasdaq-100 The tech index, home to all of Alphabet’s big tech competitors, trades with a P/E ratio of 30.1. Alphabet stock therefore trades at a 17% discount to its peers.

Microsoft stock trades for a P/E ratio of 37.6, so Alphabet stock would need to surge 51% to catch up. This is because Microsoft’s cloud business is much larger than Alphabet’s and this is where investors place the most value. But there is certainly room for Alphabet to close the gap.

It’s not too late to buy stock, as Alphabet is set to post another record year in sales and earnings, according to Wall Street estimates for 2024.