5 Top AI Stocks Prominent Billionaires Are Buying

Key Points

• Billionaire Philippe Laffont is betting big on AI chip companies, with investments in Broadcom and Nvidia.

• Stanley Druckenmiller has taken the safer bet, investing in chip manufacturing TSMC.

• Bill Ackman's buying suggests he is going the route of investing in cloud computing giants.

• 10 stocks we like better than Nvidia ›

Billionaire portfolio managers typically become billionaires because they are good investors. That is why it can sometimes be smart to make note of the moves these investors are making to see if you might want to do the same.

Let's look at five artificial intelligence (AI) stocks that billionaires were buying in Q2 and see if they might help you in your efforts to boost your portfolio.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

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Philippe Laffont: Nvidia and Broadcom

Philippe Laffont runs Coatue Management, which is a technology-focused hedge fund. While he may not be a household name, Laffont manages money for rich and powerful clients, including Amazon (NASDAQ: AMZN) founder Jeff Bezos.

Public filings show the billionaire was buying two top AI chip stocks in Q2, adding to his positions in Nvidia (NASDAQ: NVDA) and Broadcom (NASDAQ: AVGO). He increased his Nvidia stake by 34% and those shares now account for 5% of his overall portfolio. He upped his Broadcom position by 58%, and it now represents 4.3% of his holdings.

With Nvidia predicting that AI infrastructure spending could climb from $600 billion to as much as $4 trillion by the end of the decade, it's easy to see why Laffont is bullish on AI chip stocks. Nvidia is obviously the undisputed leader and has been the biggest beneficiary of the race to build out new AI data centers. Given the wide moat it's created through its CUDA software platform, the company's graphics processing units (GPUs) are likely to remain the primary chips powering AI workloads long into the future.

However, Broadcom is also becoming a major player in the space by helping customers design custom AI chips. As good as Nvidia's chips are, customers do not want to solely rely on the chip giant, and those with deep pockets that are building massive data centers have been increasingly turning to Broadcom. While custom chips lack the flexibility of GPUs, they often can have higher performance and cost savings for the specific task for which they've been designed.

With AI chip demand surging, both Nvidia and Broadcom look like they will be long-term winners.

Stanley Druckenmiller: TSMC

Stanley Druckenmiller manages the Duquesne Family Office. This basically means that Druckenmiller became so rich that he no longer needs to manage the money of outside investors and is happy just investing his own money.

Druckenmiller was also investing in the AI chip theme, but instead of buying shares in chip designers, he added to his position in the company that manufactures the advanced chips: Taiwan Semiconductor Manufacturing (NYSE: TSM). Druckenmiller boosted his position by 28%, taking it up to a 4.3% position in his portfolio.

The beauty of investing in TSMC is that Druckenmiller doesn't have to pick a chip winner. TSMC is currently the only foundry that is able to make advanced chips with a high yield rate (this means with only a few defective chips per wafer) at scale. That has made it a close partner to every chipmaker and given it strong pricing power.

With the need for AI chips growing and potential in emerging industries like robotaxis and quantum computing, TSMC looks like a long-term winner.

Bill Ackman: Amazon and Alphabet

Famed investor Bill Ackman is head of Pershing Square Capital Management. Ackman has always been fond of the consumer space, and he's playing AI in much the same way, making a large investment in Amazon in the quarter and increasing his bet on Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG). Amazon was a new investment for Ackman, and it represents a little over 9% of his portfolio, while he boosted his position in Alphabet so it now accounts for 15% of his holdings.

Both Amazon and Alphabet are cloud computing leaders that are seeing huge demand for their services. They also both have their own custom AI chips, which can help improve performance and reduce costs. This space is booming, and both are investing aggressively to take advantage of the opportunity.

Meanwhile, both companies are also deploying AI to help power their core businesses. Amazon is using AI to make its e-commerce business more efficient. This includes everything from having AI-powered robots in its fulfillment centers to using AI to optimize delivery routes and improve supply chain management. It's also using AI to drive its fast-growing sponsored ad business. This is all leading to strong operating leverage in its retail operations.

Alphabet, on the other hand, is using AI to help power its search business. AI Overviews is leading to more search queries, and it's just started rolling out its new AI Mode globally. In addition, newer features such as Lens and Circle to Search are also driving more queries, with many having a commercial intent (this is when a user is searching for products or services to purchase). With a big distribution advantage through its Chrome browser and Android operating system and a huge global ad network, Alphabet is well-positioned to benefit from AI.

Overall, both Amazon and Alphabet look like long-term AI winners.

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Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Amazon, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.