Billionaire investor Dan Loeb’s hedge fund Third Point had a strong start to 2024 after its offshore fund posted returns of 7.8% in the first quarter chugging along with the broader market’s 10.6% gain. AI has been one of his top investing themes for some time now and the activist shareholder maintains his bullish view on the technology. In the first quarter, he initiated a position in Alphabet and also increased his position in Amazon by 22% to about $920 million.
Loeb Thinks Vistra’s Capital Allocation Strategy is “Brilliant”
Loeb’s also bullish on the energy transition and one of his favorite stocks that is expected to benefit from the AI-driven electricity demand is Vistra, one of the largest independent power producers and retail electricity providers in the US. Though Vistra’s core markets have experienced volatility due to weak domestic electricity demand, the power company’s “capital allocation strategy has been brilliant”, he stated in his Q1 2024 letter to shareholders, seen by Insider Monkey. In the weak demand environment for fossil fuels, Vistra made smart moves by shutting down its unprofitable coal plants and instead buying back 33% of its shares between 2018 and 2023. Additionally, its acquisition of nuclear generation assets of Ohio-based energy company, Energy Harbor, was right on time as governments are turning to nuclear fuel sources to meet the world’s growing energy demands. Loeb expects Vistra to be a direct beneficiary of AI-driven electricity demand and is bullish on the company’s unique position of holding both renewable and fossil fuel-based assets under its belt.
Loeb’s Bullish on LSEG, and For Good Reason
Another AI play Loeb is increasingly bullish on is UK-based stock exchange and financial data company London Stock Exchange Group. The activist investor likes the company’s unique market position as a data provider that is democratizing and making financial data accessible to consumers without the use of additional third-party software. He sees London Stock Exchange Group benefitting from generative AI as information retrieval systems in financial services become more powerful. He also expects the company to develop “a powerful Research Assistant application” with Microsoft to reduce both human resources and time needed to process financial data. He thinks London Stock Exchange Group is at the forefront of capitalizing on the transition of the financial services industry “from manual data processing via clunky desktop terminals to machine-assisted data processing”.
So AI and the energy transition are billionaire Dan Loeb’s main investing themes for 2024. Let’s now examine his top growth stock picks and see what else he likes.
Dan Loeb of Third Point
Our Methodology
We scanned Third Point’s Q1 portfolio and picked growth stocks from the fund’s top 13F holdings. Additionally, we’ve also added overall hedge fund sentiment, as of Q1 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Note: All pricing data is as of June 6.
10 Best Growth Stocks to Buy According to Billionaire Dan Loeb
10. Marvell Technology, Inc. (NASDAQ:MRVL)
Third Point’s Stake Value: $108,001,263
Number of Hedge Fund Holders: 87
Marvell Technology, Inc. (NASDAQ:MRVL) is a semiconductor company that develops and scales complex System-on-a-Chip architectures and provides data infrastructure semiconductor solutions. Marvell provides designated chips for data centers and resource-intensive AI workloads. It also operates in other end markets including carrier, enterprise networking, consumer, and automotive, among others.
Though Loeb quoted Marvell Technology, Inc. (NASDAQ:MRVL) as being among the top 5 losers of the quarter, the billionaire initiated a position worth $108 million as shown in Third Point’s latest 13F filing. Loeb’s bullish on AI and Marvell Technology, Inc. (NASDAQ:MRVL) is an AI hardware play. The company reported a disappointing quarter on May 30, with revenue declining 12.17% year over year to $1.16 billion for FQ1 2025. However, its datacenter revenue grew by 87% year over year to $816.4 million, driven by demand for its AI products. Management remains focused on AI, particularly the company’s custom AI silicon, and is guiding to an 8% sequential increase in revenue for FQ2 2025. CEO Matt Murphy said during the earnings call:
“Our custom compute AI programs are beginning to ship in the first half of this fiscal year. And we are expecting a very substantial ramp in second half of this year followed by a full year of high-volume production in fiscal 2026.”
The semiconductor company is also expecting a recovery in its other end markets as macro headwinds subside. Analysts are optimistic and hold a consensus “Buy” opinion with a median price target of $90, which implies an upside of 32% from current levels. Institutional investors are also heavily positioning themselves in this AI hardware play as the stock was a part of 87 portfolios with an aggregate stake of $4.05 billion at the close of Q1 2024, up from 53 funds in the preceding quarter with positions worth $1.80 billion.
But is this an attractive entry point? Marvell Technology, Inc. (NASDAQ:MRVL) has been struggling with profitability and has seen its net income decline by 39% and sales grow by 14% over the past 5 years. In fiscal 2025, the company is expected to stay unprofitable. The stock is currently trading at 11 times its trailing sales. For context, Broadcom is trading at 15.8 times its sales and Nvidia is trading at 38 times its sales, but they’re both more profitable than MRVL. Analysts, however, expect MRVL to grow its revenue by 28% in fiscal 2026.
We think Marvell Technology, Inc. (NASDAQ:MRVL) may have an impressive story a few quarters from now as the company grows its AI business and its macro-sensitive segments recover. If the company manages to grow its data center business, it might be able to swing to a profit and grow its top and bottom line by fiscal 2026. Marvell Technology, Inc. (NASDAQ:MRVL) is working with Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) to develop the semiconductor industry’s first technology platform for the manufacturing of 2nm chips, the latest generation of chips in the market right now. Management’s commitment to innovation and AI might be the reason why Loeb bought the stock. The activist is known for taking huge bets in troubled companies with secular growth stories.
9. S&P Global Inc. (NYSE:SPGI)
Third Point’s Stake Value: $142,525,750
Number of Hedge Fund Holders: 97
We know Loeb’s bullish on LSEG and his other idea in the financial information and analytics industry is S&P Global Inc. (NYSE:SPGI). Loeb initiated a $142-million position in S&P Global Inc. (NYSE:SPGI) in the first quarter and it’s one of his top growth stocks picks. The company is a top-tier provider of financial information and data services and boasts a solid track record of profitability and delivering returns to shareholders. The company has paid a dividend every year since 1937 and has grown its dividends for at least the past 50 years.
S&P Global Inc. (NYSE:SPGI) enjoys a near-monopoly status. Its ratings arm is one of the Big Three credit ratings agencies in the world. The company is part of a niche industry with high barriers to entry. S&P Global Inc. (NYSE:SPGI) has grown its revenue by a compound annual growth rate of 11% and its net income by 12% over the past 10 years, on a trailing twelve-month basis. Just for context, Moody’s (NYSE:MCO) has grown its revenue by 8% and net income by 7% over the same time period.
S&P Global Inc. (NYSE:SPGI) is guiding to 6% to 8% organic revenue growth and 11% in EPS growth in fiscal 2024. Analysts expect the financial data provider to grow its sales by 7.5% in 2024, and 16% in 2025, from 2023 levels. Currently, S&P Global Inc. (NYSE:SPGI) is trading at 10.7 times its sales, cheaper than Moody’s (NYSE:MCO), which is trading at a P/S multiple of 12x.
On the Street, the stock has a consensus “Buy” rating among analysts, with 1-year price targets ranging from $440 to $542.15 (median is $500). The stock has gained 16% over the past 12 months and the median target implies a further 15% upside, from current levels. The stock was held by 97 hedge funds at the close of Q1 2024, with positions worth $9.57 billion. Ken Griffin’s Citadel boosted its stake in the company by 46% in the quarter to $645.6 million.
New York-based investment firm Baron Funds also talked about why it continues to own SPGI even though it faced a marginal decline in its share price in the quarter. Here’s what the firm said in its Q1 2024 investor letter:
“Shares of rating agency and data provider S&P Global Inc. (NYSE:SPGI) declined 3.1% during the quarter after the company provided financial guidance that missed Street expectations. While S&P guided to solid organic revenue growth of 7% to 9% and EPS growth of 9% to 11%, projected margin expansion fell short of investor estimates, which underestimated the correlation between improving top-line trends and variable employee comp (which is rising as a result). We are not concerned with this short-term dynamic that is the outcome of improving business fundamentals. S&P reported solid results for the most recent quarter, with 11% organic revenue growth, 23% EPS growth, and broad-based strength across the company’s business segments. Ratings growth was especially robust as debt issuance rebounded amid improving market conditions. Positive momentum has continued into 2024, with 66% issuance growth in January and February. We continue to own the stock due to the company’s durable growth characteristics and significant competitive advantages.”
S&P Global Inc. (NYSE:SPGI) has several secular trends that will drive its future growth, one of which is steadily rising global debt. Moreover, with the advent of AI and Retrieval Augmented Generation (RAG) technology, the company can potentially outpace its historic growth rates. In February this year, S&P Global Inc. (NYSE:SPGI) launched AI-enabled search on S&P Global Marketplace to make the search process more efficient and user-friendly. The company launched 25 new products in Q1 2024 and expects to launch 15 more products by the end of 2024, with a particular focus on AI. S&P Global Inc. (NYSE:SPGI) has more than 100,000 customers in over 150 countries. Given its brand status, near-monopoly position, and consistent double digit growth rates, we think SPGI is an idea worth exploring while it trades at P/S multiples close to its 5-year average of 11x.
8. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Third Point’s Stake Value: $159,858,750
Number of Hedge Fund Holders: 135
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is one of the biggest semiconductor foundry companies in the world, providing an array of wafer fabrication processes for manufacturing next-generation semiconductors. TSM dominates the semiconductor space, holding a global market share of over 60% in semiconductor manufacturing. Today, chips power everything from your phones to your automobiles to large-scale power-hungry data centers and this company is at the center of chip manufacturing. Loeb’s position remained unchanged in Q1 2024, with the stock still accounting for 2% of Third Point’s holdings. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is one of his top growth stocks picks.
Third Point Management stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its first quarter 2024 investor letter:
“During the quarter, we added to our Taiwan Semiconductor Manufacturing Company Limited(NYSE:TSM) investment, which we initiated in May of last year. TSMC is coming off its worst year since the Global Financial Crisis, and in the years to come we see a combination of cyclical recovery plus structural growth in AI demand fueling substantial earnings growth for the company.
We view TSMC as the “toll road” of the semiconductor industry, particularly for AI compute. TSMC holds more than 90% market share for leading edge semiconductor manufacturing, where all AI silicon is being processed. Beyond their reliable execution producing some of the most complex products on earth in volume, TSMC has spent decades optimizing for and building ecosystems around their 500+ customers, an advantage that cannot be replicated overnight…” (Click here to read the full text)
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) has grown its revenue by a CAGR of 11% and net income by 12% over the past 10 years. The stock is trading at 26.5 times its forward earnings, lower than its sector median of 30x. The company has seen a surge in institutional ownership over the past quarter, with the number of hedge funds owning the stock growing to 135 from 105. Billionaire Philippe Laffont of Coatue Management grew his position by 3,210% in the quarter, amassing a stake worth $1.4 billion in the foundry operator.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is an innovator and premium supplier of equipment for AI and high-performance computing, both of which are high-growth markets. It has a first-mover advantage when it comes to semiconductors, and though it has seen competition from the likes of IBM (they launched a 2nm process back in May 2021 and TSMC responded with its research report on the 1nm process), it has retained its position. The company’s client base, consisting of trillion-dollar giants Apple and Nvidia, are going to propel it to remain the world’s largest foundry company. Management expects AI processors to lead its sales in 2024 and “account for low-teens percent” of total sales, and further grow to 20% of its total revenue by 2028.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) expects to grow its 2024 revenue “by low to mid-20% in U.S. dollar terms”, and analysts expectations sit at 22.6%. TSM’s shares have gained nearly 62% over the past year, but how high can it go? Analysts’ median price target implies a marginal upside of 4% from current levels but the Street-high target implies a 13% upside. The stock has a “Buy” recommendation, and we agree, because it’s a monopoly holder with specialized exposure to a high-growth industry. The company is expected to benefit from the secular tailwinds of the AI sector and its strategic global expansion into the US, Japan, and Germany.