Many savvy technology investors and entrepreneurs agree that the AI revolution is real and will likely change our lives in the coming years. But unlike other disruptive revolutions, this one should actually benefit many existing tech giants. After all, these powerful companies are the only ones with the enormous financial resources and diverse technology know-how to deploy this extremely expensive and difficult technology at scale.
It's no wonder Magnificent Seven stock has been soaring lately. However, while being the leader in AI chips, Nvidia (NASDAQ:NVDA) has garnered the most attention, with its stock price soaring into the stratosphere and trading at a high valuation for a chip stock.
That's why billionaire hedge fund manager Dan Loeb is instead betting on one of the cheapest stocks, Mag7, as a new AI bet.
Third Point invests in Alphabet in Q1
Loeb detailed the company's new acquisitions in a first-quarter letter to shareholders. alphabet (NASDAQ:GOOG) (NASDAQ:Google) As a cheap way to play AI races.
It's worth noting that Loeb also said that AI-related bets account for about half of Third Point's holdings today. So Loeb is clearly bullish on this strong trend that accelerated after his ChatGPT debut in November 2022.
The problem, of course, is that AI stocks are rarely cheap these days. But as Loeb detailed in his first-quarter letter, Google's initial failure in rolling out Gemini, a large-scale language model that sought to compete head-on with ChatGPT, presented an opportunity.
Gemini's long-awaited rollout in February didn't go as planned. When early users were inspired to create historical images, Gemini often portrayed racially diverse figures in historical contexts that were not historically accurate, and these politically inaccurate was widely known. As a result, Google's stock price fell to a year-to-date low in early March.
However, Loeb wrote in his letter:
Prioritizing small operational mistakes while downplaying the fact that the company has been building world-class capabilities in AI for over a decade has created an attractive entry point for long-term investors. The original paper on Transformers that paved the way for the rise of LLM was published by an engineer at Google, and it was his Alphabet that founded two major AI research organizations (Google Brain and DeepMind) Often forgotten, report previews apple's (NASDAQ:AAPL) Investors took note of the intention to bring Gemini into iOS. We believe the moment for Gemini at the economic table is nearing.
Not only does Loeb expect Alphabet's AI team to eventually iron out Gemini's flaws to make it a preeminent LLM, Loeb also hopes that AI will help Alphabet's current portfolio across search, YouTube, Android, cloud and more. The company also points out that it has the potential to significantly strengthen its core businesses. And Loeb thinks Google search could actually make him equal, rather than under threat from AI. more The post-AI internet will be filled with “ad-supported content full of fakes” and there will be a lack of reliable sources of information.
the bet pays off
Loeb had good reason to elaborate on the third-point alphabet position in the first quarter. Five days before his letter was released, Alphabet reported first-quarter profits that easily beat analysts' expectations. Additionally, the company announced its first-ever dividend payment. This equates to a dividend yield of 0.5% at this stock price.
This dividend payment was interesting as management expressed confidence in the company's growth trajectory, while also agreeing to the company's renewed focus on operational efficiency following the 2022 economic downturn.
In any case, Alphabet has rallied since the April 25th announcement and is now up about 20% since the beginning of the year and about 25% from its March lows.
What will happen to Alphabet's stock price after the rise?
Even after the recent rally, Alphabet trades at less than 26 times earnings and just 21 times expected earnings in 2025. This remains one of the cheapest Magnificent Seven stocks. Not only that, Alphabet holds $108 billion worth of cash and is still losing more than $1 billion every quarter in its “other bets” division.
Stripping out these two factors, Alphabet's core search, YouTube, Android, and cloud businesses are trading at an even lower valuation than Alphabet's composite P/E suggests. In this Alphabet shareholder's opinion, investors would do well to follow Loeb over the long term and enter the stock.
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Alphabet executive Suzanne Frye is a member of The Motley Fool's board of directors. Billy Duberstein has positions at Alphabet and Apple. His clients may own shares in the companies mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, and Nvidia. The Motley Fool has a disclosure policy.
“Screw it, NVIDIA: Billionaire Dan Loeb is betting on this dividend-paying Magnificent Seven stock to win the artificial intelligence (AI) race instead” originally published by The Motley Fool Published by
