When looking at the top bets of some of the most prominent billionaire investors, there is a common theme that stands out. These professionals are favoring highly profitable companies that dominate their industry. Most importantly, they are investing in the stocks that trade at reasonable valuations relative to future growth expectations.
Stephen Mandel of Lone Pine Capital, Chase Coleman of Tiger Global Management, and Andreas Halvorsen of Viking Global Investors have had successful investing careers, with their net worth ranging from $2.5 billion to $7 billion, according to Forbes. Let’s look at these firms’ largest holdings at the end of the second quarter and why investors should expect outstanding returns from these stocks over the next few years.
1. Taiwan Semiconductor Manufacturing
Lone Pine Capital manages over $16 billion in assets. Its largest holding at the end of the second quarter was leading chip maker Taiwan Semiconductor Manufacturing (NYSE: TSM), also commonly known as TSMC.
TSMC is a widely held tech stock among the most successful investment firms. The company enjoys a lucrative position as the world’s top chip foundry. It manufactures chips for Nvidia, Advanced Micro Devices, Intel, and a host of other semiconductor companies and commands over 60% share of the global foundry market.
TSMC gives investors broad exposure to the trends driving growth in the semiconductor industry without the additional risks of picking the winners and losers among the Nvidias and Intels of the world.
TSMC’s advantages in advanced chipmaking positions it well for growth as companies invest in powerful chips to handle the demanding workloads of artificial intelligence (AI) training. The demand for high-performance chips drove a 32% year-over-year increase in revenue last quarter, and it should continue that momentum into 2025.
Management expects strong results in the near term driven by improving chip demand for smartphones and AI. Strong top-line growth should pad profits, as TSMC generates a high operating margin of 45% relative to revenue. This will fund the company’s plan to spend at least $30 billion this year in capital expenditures to support long-term demand for advanced chip technologies.
Wall Street analysts expect the company’s earnings to grow at an annualized rate of 26% over the next several years. With the stock likely to continue trading at its current forward price-to-earnings (P/E) ratio of 26, investors could earn a return on par with those estimates.
2. Meta Platforms
Meta Platforms (NASDAQ: META) estimates there are 3.2 billion people that use its family of apps every day. This is a strong advantage in the digital advertising market, which is how the company makes money.
Chase Coleman’s Tiger Global Management has held a large stake in the social media leader since 2018, and it held $3.7 billion worth of shares in the second quarter, making it the firm’s largest holding.
Meta AI is already having a big impact on the user experience in Facebook and Instagram. The company’s AI models improved the quality of recommendations, which can have a big impact on the time spent on these platforms. As a result, ad impressions and price per ad were up 10% year over year last quarter, and that drove a strong revenue increase of 22% over the year-ago quarter.
Strong revenue growth will provide more profit for Meta to reinvest in advanced AI models and, therefore, keep the positive cycle of growth going. “We had a strong quarter, and Meta AI is on track to be the most-used AI assistant in the world by the end of the year,” CEO Mark Zuckerberg said.
Meta is a highly profitable business. It generated a profit of $51 billion on $149 billion of revenue over the last four quarters. Management plans to spend between $37 billion and $40 billion on capital expenditures this year, with a significant increase expected in 2025. This spending will support AI research and other products for long-term growth.
Wall Street analysts expect Meta to post annualized earnings growth of 17% in the coming years. Assuming the stock continues to trade at the same P/E, that’s enough growth for the shares to double in value within the next five years.
3. Amazon
Amazon (NASDAQ: AMZN) is a powerful brand in e-commerce and the enterprise space with the Amazon Web Services (AWS) cloud computing business. It generates most of its $604 billion in trailing 12-month revenue from retail-related services, including advertising, but around two-thirds of its operating profit comes from cloud services.
Viking Global Investors held $1.8 billion worth of Amazon stock in Q2, making it the firm’s largest holding, and it added significantly to its stake in the quarter.
“We’re continuing to make progress on a number of dimensions, but perhaps none more so than the continued reacceleration in AWS growth,” CEO Andy Jassy said in the second-quarter earnings report. Amazon is benefiting from companies migrating their on-premise data systems to the cloud, and a big incentive for this migration in 2024 is taking advantage of AI services.
AWS revenue increased 19% year over year last quarter, and Amazon should see this momentum continue. Amazon offers tools to help customers build their own AI applications with Amazon Bedrock, in addition to its proprietary AI chips like Trainium, to provide more cost-efficient computing power for AI training.
Amazon’s increasing AI capabilities position it well in a cloud market expected to reach $774 billion, according to Statista. Wall Street analysts expect the company’s earnings to increase at a 23% annualized rate. Investors should expect the stock to command a premium P/E multiple and hit new highs for years to come.
Should you invest $1,000 in Taiwan Semiconductor Manufacturing right now?
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. John Ballard has positions in Advanced Micro Devices, Meta Platforms, and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Meta Platforms, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
3 Billionaire-Held Stocks to Buy Now was originally published by The Motley Fool
