Billionaire AI Investments: A Closer Look at Amazon, Nvidia, and Taiwan Semiconductor

Billionaire AI Investments: A Closer Look at Amazon, Nvidia, and Taiwan Semiconductor

Following the trades of billionaires can be a smart investing strategy, but blindly mirroring their investments is not advisable. It's prudent to monitor their moves to ensure you're not missing out on significant trends. Artificial intelligence (AI) has been a dominant investment trend in recent years, and billionaires are still pouring capital into this space, even after substantial gains.

One billionaire investor I follow is David Tepper, who manages Appaloosa Management. He's achieved remarkable success over the long term, making his stock selections worth examining. In the second quarter, Tepper increased his positions in three leading AI stocks that have consistently delivered strong results, indicating that it's not too late to participate in the AI investment trend.

The Three Stocks Tepper Added To

• Amazon (AMZN)
• Nvidia (NVDA)
• Taiwan Semiconductor (TSM)

The AI Infrastructure Buildout is Far From Over

Nvidia and Taiwan Semiconductor have long been at the forefront of AI investing, and their performance reflects this. Since the beginning of 2023, Nvidia's and Taiwan Semiconductor's stocks have surged by 1100% and 270%, respectively. This remarkable growth in under three years hasn't deterred Tepper, who anticipates further gains.

Despite the perception that AI spending may be reaching its peak, AI hyperscalers continue to invest heavily in expanding their AI computing capacity. Nvidia projects that AI data center capital expenditures from these hyperscalers will reach $600 billion in 2025. Furthermore, this figure is expected to escalate to between $3 trillion and $4 trillion globally by 2030.

While this represents a significant increase, AI hyperscalers are still experiencing rapid growth, which will drive resource expansion. Investors should also consider China's investment in AI. Additionally, regions like Europe have yet to fully embrace AI, potentially unlocking substantial future growth.

Nvidia's graphics processing units (GPUs) are the preferred computing units for AI models, offering superior ecosystems, computing power, and flexibility. However, Nvidia outsources chip manufacturing to Taiwan Semiconductor.

Taiwan Semiconductor is the world's premier chip foundry, producing chips for Nvidia and its competitors, including Advanced Micro Devices and Broadcom. Operating as a neutral foundry, Taiwan Semiconductor can manufacture chips for competitors without conflict, allowing it to capitalize on all aspects of the AI boom, as well as other trends such as smartphone upgrades and autonomous vehicles.

Investing in Taiwan Semiconductor is a strategic move, betting on increased demand for more chips and more advanced chips in the coming years – a seemingly obvious conclusion.

Amazon's Cloud Computing Service Seeing Strong Growth

Amazon may seem like an unconventional addition to a list of AI stocks, but it plays a crucial role in the computing infrastructure through its cloud computing division, Amazon Web Services (AWS). Many clients prefer to rent AI computing resources from providers like AWS rather than invest in building and maintaining their own expensive infrastructure. This positions Amazon as a key player in the AI revolution, a fact reflected in its stock price.

Since the AI boom began in 2023, Amazon's stock has risen by 158%, a strong performance for a mature company. If current trends persist, Amazon could continue to outperform the market.

Although Amazon is often perceived as an e-commerce company, it is, at its core, a cloud computing provider. In Q2, 53% of Amazon's operating profits came from AWS, despite it accounting for only 18% of total revenue. As AWS grows faster than its commerce division, it will command a larger profit share, further increasing its value.

With many companies still in the process of implementing AI workloads, the growth potential for AWS is immense. This makes it a strategic investment, and David Tepper has positioned his hedge fund accordingly by allocating 9.2% of its holdings to Amazon, making it his third-largest position.