Many tech-savvy investors and entrepreneurs agree: the AI revolution is the real deal and will likely transform our lives in the years to come. But unlike other disruptive revolutions, this one should actually benefit many of today’s tech giants. These powerful companies are, after all, the only ones with enormous financial war chests and diverse technological know-how to deploy this extremely expensive and difficult technology at scale.
Not surprising that Seven magnificent actions have taken off recently. But while the leader in AI chips Nvidia (NASDAQ:NVDA) gets most of the attention, its stock has also taken off into the stratosphere and trades at a high valuation for a chip stock.
That’s why billionaire hedge fund manager Dan Loeb is betting on one of the cheaper Mag Seven stocks as his new AI bet instead.
Third Point invests in Alphabet in the first quarter
In his first quarter letter to shareholders, Loeb detailed the new purchase of Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) as a cheap way to play AI racing.
It’s worth noting that Loeb also said that AI-related betting makes up about half of Third Point’s holdings today. So, Loeb is clearly optimistic about this powerful trend, which accelerated after the launch of ChatGPT in November 2022.
The problem is, of course, that AI stocks are rarely cheap these days. But as Loeb explained in his first-quarter letter, Google’s initial missteps in rolling out its big language model, Gemini, which seeks to compete with ChatGPT, provided this window of opportunity.
The highly anticipated Gemini deployment in February did not go as planned. When asked by early users to create historical images, Gemini often depicted racially diverse figures in historical contexts in which it was not historically accurate to do so, and these politically charged inaccuracies were widely publicized. In response, Google’s stock fell to its lowest level since early March.
However, Loeb writes in his letter:
Assigning primacy to a small operational misstep while downgrading the fact that the company has been building world-class AI capabilities for over a decade created an attractive entry point for a long-term investor . While it’s easy to forget that the original Transformers paper that paved the way for the rise of LLMs was published by Google engineers and that it was Alphabet that built two of the leading research organizations in AI (Google Brain and DeepMind), when the new reports previewed AppleIt is (NASDAQ:AAPL) Intentions to integrate Gemini into iOS, investors have paid attention. We believe the time for Gemini to take a seat at the economic table is approaching.
Not only does Loeb see Alphabet’s AI team eventually solving Gemini’s problems to make it a preeminent LLM, but Loeb also notes that AI has the potential to significantly improve Alphabet’s current core businesses in search, YouTube, Android, cloud and others. And rather than being threatened by AI, Loeb thinks Google search could actually become even fairer. more…
