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.
7. Corpay, Inc. (NYSE:CPAY)
Third Point’s Stake Value: $200,551,000
Number of Hedge Fund Holders: 32
This fintech stock has also caught the attention of Dan Loeb and was a new addition to Third Point’s portfolio in the first quarter. Corpay, Inc. (NYSE:CPAY) is a payment services company that serves both consumers and businesses. It offers vehicle payment solutions, corporate payment solutions, and lodging payment solutions, among other products. It also facilitates cross-border payments. Corpay, Inc. (NYSE:CPAY) rebranded itself in March 2024 and changed its name from FLEETCOR Technologies, Inc., to better reflect its corporate payments portfolio, a major driver for its top-line. Corpay, Inc. (NYSE:CPAY) is one of Dan Loeb’s top growth stocks picks.
Corpay, Inc. (NYSE:CPAY) serves over 800,000 business across the globe and is the number 1 B2B commercial Mastercard issuer in North America. The company is a frontrunner in a niche yet high-growth industry (B2B payments). CPAY’s multiple revenue streams and diversified business model have allowed it to drive growth over the years. The company knows where to invest and has been focusing on wheelhouse deals. In March, it closed a majority investment in Brazilian vehicle payments company Zapay and has the right to fully acquire it over four years. In May, the company signed agreements to acquire Paymerang, an invoice and payment automation platform operator that operates in newer markets, including healthcare and manufacturing, that CPAY already doesn’t have a presence in.
In addition to the company’s strong history of successful deals, it has managed to drive organic growth through high retention rates. Its retention rate in Q1 2024 was logged at 91%. Over the past 10 years, Corpay, Inc. (NYSE:CPAY) has grown its revenue by 14.8% and net income by 13%. In fiscal 2023, it logged a 9.7% year-over-year increase and reported a revenue of $3.75 billion. For 2024 management expects total revenues to range within $3.96 billion and $4.04 billion, and analysts’ estimates sit at $4.01 billion. If CPAY beats analysts’ estimates, that would mean it grew its revenue by about 7%.
So you’ve got a company with consistent double-digit or high single-digit growth, is working on cementing its position in its specialized market, and is going to benefit from the digitization of business payments. If CPAY continues to grow at double digit rates in the future, it may be an idea worth exploring as the stock is currently trading at 13.6 times its forward earnings, lower than its 5-year average P/E ratio of 23x. The stock has gained 10% over the past year and analysts’ median consensus price targets point to a 26% upside from current levels.
6. Vistra Corp. (NYSE:VST)
Third Point’s Stake Value: $311,335,500
Number of Hedge Fund Holders: 79
Vistra Corp. (NYSE:VST) is a power generation company that is also involved in electricity generation and wholesale energy purchases and sales. The company has about 5 million customers and operates a 41,000-megawatt portfolio of natural gas, coal, nuclear, and solar assets, as well as battery storage facilities. We discussed above why Loeb’s bullish on Vistra Corp. (NYSE:VST) and how the company stands to benefit from AI-driven electricity demand and also the shift to electric vehicles. Third Point Management stated the following regarding Vistra Corp. (NYSE:VST) in its first quarter 2024 investor letter:
“Vistra Corp. (NYSE:VST) is one of the largest independent power producers (“IPPs”) and retail electricity providers in the country. In 2023, Vistra’s natural gas, nuclear and coal plants generated over 20% of electricity consumed in Texas.
Unlike regulated utilities, where profits are determined by capital invested, Vistra operates in deregulated markets (primarily ERCOT and PJM), where they generate and sell electricity at market prices. Historically, Vistra has been valued at a steep discount to both the regulated utility sector and the broader market in part due to the challenging fundamentals of merchant power. Stagnant domestic electricity demand combined with an oversupply of natural gas has made US electricity prices among the lowest in the world. Meanwhile, significant growth in subsidized renewable generation has created major intraday price volatility in Vistra’s core markets, with power prices sometimes going negative during periods of abundant sunshine or wind. Bankruptcies, including Vistra’s former parent company TXU in 2014, have become commonplace in the sector over the last decade…” (Click here to read the full text)”
But why is Vistra Corp. (NYSE:VST) particularly on Wall Street’s radars (and it is)? In Q1, 79 hedge funds held positions worth $3.32 billion in the company, up from 56 positions in the preceding quarter with stakes worth $1.30 billion. Analysts and investors have been touting the stock as a “hidden AI play”, and think it’s among the top beneficiaries of power demand from data center hyperscalers and generative AI applications. Wall Street’s interest spiked after the company closed its acquisition of Ohio-based Energy Harbor (operator of the second largest non-regulated nuclear fleet in the US) in March for $3.43 billion.
Guggenheim analyst Shahriar Pourreza who holds a Buy recommendation and a Street-high price target of $133 on Vistra Corp. (NYSE:VST) thinks the company is a “unicorn” for its portfolio of both gas and nuclear power plants. Pourreza further said in his note to clients that data centers are exploring 24-hour power sources that are clean and “nuclear plants are a very strong avenue for that”, further adding to his thesis for the stock.
Analysts and investors expect Vistra Corp. (NYSE:VST) to follow suit and pen contracts with hyperscalers, similar to those done between Constellation Energy and Microsoft for nuclear power back in June 2023 and Amazon’s 10-year power agreements with nuclear energy producer Talen Energy. Vistra Corp. (NYSE:VST) is one of Dan Loeb’s top growth stocks picks.
Is it too late to get in on the VST action? Before we answer that, here are some quick facts: Over the past 10 years, Vistra has grown its revenue by 8.1%, however it has struggled with profitability due to its unprofitable coal operations (which it shut down in 2022). After reporting losses for several years up to 2022, the group swung to a profit in 2023 ending the year with a net income of $1.34 billion. Analysts anticipate VST to grow its EPS by 45% in 2024. Over the past 12 months, VST has gained 243% and the Street’s median 1-year target implies an upside of 33%. We think VST is worth exploring as it trades at 19 times its forward earnings, lower than peers Bloom Energy (PE of 131.5x) and Constellation Energy (PE of 27x), and stands to capitalize on favorable power demand trends from hyperscalers, generative AI, and electric vehicles.
5. Alphabet Inc. (NASDAQ:GOOG)
Third Point’s Stake Value: $452,790,000
Number of Hedge Fund Holders: 165
Loeb initiated a position in Alphabet Inc. (NASDAQ:GOOG) in Q1 2024, acquiring a stake of nearly $453 million. It’s is one of his top growth stocks picks. He likes the company’s dominant position across its different verticals including search and cloud, however, pointed out threats to the company’s core business (Google Search) due to the rise of answer engines like Perplexity and shifting trends in how consumers interact with the internet. But Alphabet Inc. (NASDAQ:GOOG) is a tech titan and Loeb is confident about the company’s ability to protect its profits from competitors by utilizing its expertise in AI, a technology the Google-parent has been working on for over a decade (long before ChatGPT). Here’s are some comments from Third Point’s Q1 2024 investor letter about GOOG:
“During Q1, the funds made a substantial investment in Alphabet Inc. (NASDAQ:GOOG) as the market worried about the impact of LLMs, personal assistants, and answer engines such as Perplexity AI on Google Search. We have owned Alphabet in the past and have long admired its exceptional business model and its proven ability to maintain a leading position across an array of preeminent products such as Search, Gmail, Android, GCP, and YouTube.
The concern that in an AI world, changes in the way consumers will eventually interact with their personal devices and with the internet can result in risks to Alphabet’s core business Search is not entirely unfounded. Alphabet, however, has both a substantial distribution and technology advantage over competitors and is positioned to use its AI capabilities to unify, enhance, and better monetize the entire suite of its products…” (Click here to read the full text)”
Alphabet Inc. (NASDAQ:GOOG) is among the few companies in the AI scene that has the potential to remain untouchable and unrivaled. Why? Let’s talk about this disruptive application that’s made global headlines (ChatGPT) which operates on something called Large Language Models (LLMs). It was Google’s engineers who authored a research paper called Attention Is All You Need back in June 2017 which laid the foundation for the transformer architecture, the architecture that powers all LLMs today. Alphabet Inc. (NASDAQ:GOOG) has a clear economic moat in AI, with its cloud platform (Google Cloud Platform), research lab (DeepMind), and large-scale data collection and processing capabilities. GOOG has the potential to remain an undisputed leader in an industry that’s expected to hit $1.8 trillion by 2030 (as per estimates by Grand View Research).
Apart from that, Alphabet Inc.’s (NASDAQ:GOOG) growth trajectory is remarkable. GOOG’s revenue has grown at a Compound Annual Growth Rate (CAGR) of 18.6% over the past 10 years and its net income has grown even more impressively, at a CAGR of 20.3% during the same period. GOOG is a blue-chip stock with high-teen growth rates that’s currently trading at 23.5 times its forward earnings, lower than its 5-year average multiple of 26x. While there may not be near-term multi-bagger potential to it now, it’s a long-term portfolio pick.
4. Danaher Corporation (NYSE:DHR)
Third Point’s Stake Value: $511,926,000
Number of Hedge Fund Holders: 98
Another one of Dan Loeb’s top growth stock picks is Danaher Corporation (NYSE:DHR). The stock accounts for 6.5% of Third Point’s Q1 2024 portfolio. Danaher Corporation (NYSE:DHR) is a diversified conglomerate that manufactures and markets medical, industrial, and commercial products and services across the globe. The company operates through three segments: Biotechnology, Life Sciences, and Diagnostics. DHR is among Dan Loeb’s longest held positions and here’s what the activist investor had to say about the company in his Q2 2023 investor letter:
“Danaher has created significant value over decades through its unique operating system and superior M&A, and its low leverage balance sheet should allow it to take advantage of depressed valuations in the life science tools sector to continue to add to its portfolio. More importantly, Danaher stands to benefit from the surge in new projects and drug discovery spending occurring in the post-Covid world. Danaher’s Biotechnology and Life Sciences segments are poised to accelerate from data analytics and computational biology, which will grow meaningfully as AI and eventually quantum computing technology advance. We would not be surprised to see Danaher’s growth rate move from high single digits to the low teens over time, implying a long runway for Danaher’s business and stock price to increase sustainably while they enable the discovery and manufacturing of key life-saving drugs.”
Danaher Corporation (NYSE:DHR) has a track record for successfully acquiring and integrating businesses (Beckman Coulter in 2011, Pall Corporation in 2015, and General Electric Life Sciences in 2020). The company recently acquired Cambridge-based biotech company Abcam, that makes proteins and reagents, for $5.7 billion in December 2023. The company’s Kaizen-based M&A philosophy has helped it acquire hundreds of businesses since 1984, some of which were troubled, and turn them into profitable entities. Danaher Corporation (NYSE:DHR) has grown its portfolio and global footprint across all its segments and has demonstrated strong capital allocation skills. In 2016, it spun off its industrial businesses into a separate industrial technology conglomerate Fortive in 2016. In 2019, it spun off its dental business into Envista in 2019. And in 2023, the group spun off its environmental services arm into a separate listed entity Veralto. These moves have created immense shareholder value and show how DHR’s continuous improvement-oriented approach throughout its operations has worked and will work for the years to come.
Why should growth investors who also want a bit of value buy DHR? Over the past 10 years, the company has grown its free cash flow at a compound annual growth rate of 5.8%. It converts over 100% of its profits into free cash flow and ended 2023 with an FCF of $5.78 billion (net income was $4.74 billion). It has a highly recurring revenue business model (over 50% of its revenue is recurring across all its segments), driven by consumables like filters and reagents. This limits its downside risk to business cycles and translates into stable earnings. Moreover, new drug discovery spending and projects are expected to be a long-term catalyst for this company. One of its most opportunistic end-markets is bioprocessing i.e. its biotech segment, in the long term, as biotech spend picks up pace and recovers later in 2024. In Q1 2024, the company reported a 17% decline in core revenue in its biotech segment, led by weak demand from China. However, management remains optimistic and expects the new FDA wins for biologic and genomic medicines in 2023 to drive core revenue growth in its bioprocessing business to high-single digits, in the long term.
The company’s long-term business strategies, successful restructuring toward becoming a pure-play company with exposure to life sciences and diagnostics, and cash flow generation capabilities make DHR an attractive idea while it trades at 8.4 times its sales, close to its 5-year average of 6.7x.
3. Meta Platforms, Inc. (NASDAQ:META)
Third Point’s Stake Value: $600,176,880
Number of Hedge Fund Holders: 246
Loeb upped his stakes in Meta Platforms, Inc. (NASDAQ:META) by 7% in Q1 2024, ending the quarter with a position of over $600 million. In total, 246 hedge funds were bullish on Meta Platforms, Inc. (NASDAQ:META) and ended the quarter with positions worth $47 billion. Meta Platforms, Inc. (NASDAQ:META) is one of Dan Loeb’s top growth stock picks.
Meta Platforms, Inc. (NASDAQ:META) is seeing robust ad revenue growth. Its Family of Apps (Facebook, Instagram, WhatsApp and Messenger) generated ad revenue of $35.6 billion, up 27% year over year, and about 3.2 billion people use one of its apps each day. However, the company’s AR/VR business Reality Labs keeps bleeding cash and logged losses of $3.85 billion in Q1. Management said its AR/VR business is supporting its AI initiatives and it continues to be optimistic about the future of the metaverse and mixed-reality ecosystem. The company is sticking to its strategy of collaborating with eyewear brands such as EssilorLuxottica to build virtual and mixed reality headsets to boost its market share. Meta is also making progress on the AI front and successfully rolled out its AI assistant Meta AI and is currently in the process of training Meta Llama 3, a 400-billion+ parameter large language model. What’s interesting about Meta’s two long-term focus areas is the fusion of AI and mixed reality. While still in its infancy, the metaverse concept shows more promise with the addition of AI to it. Meta is integrating AI functionalities into its smart glasses which will give users access to real-time information related to their surroundings.
Meta Platforms, Inc. (NASDAQ:META) also raised its capital expenditures guidance for 2024, saying it expects CapEx to range between $35 billion and $40 billion, up from its prior guidance of $30 billion to $37 billion. The group is investing heavily in infrastructure and AI, and is reportedly working on its own in-house AI chips. By developing its own AI chips, Meta can gain a competitive advantage in the market, reducing its reliance on external providers and improving the performance of its AI applications.
Why should growth investors consider Meta Platforms, Inc. (NASDAQ:META)? The company has grown at double digits consistently over the past 10 years, growing its revenue by a CAGR of 32% and net income by 37.3%. The company has also started paying dividends and exited Q1 2024 with $16 billion in capital returns through dividends and buybacks. In a world where cash is king, Meta doesn’t lose. The company has grown its free cash flow by a compound annual growth rate of 23% over the past 10 years. In 2023, Meta’s net income was $39 billion and it ended the year with a free cash flow of $44 billion, its FCF to net income ratio is 113%. Meta is an extremely profitable company that is pioneering disruptive technologies and with its strong near-monopoly position in social media and digital advertising, we think it’s a good idea while it trades at 24.5 times its forward earnings, close to its 5-year average multiple of 23.7x.
2. Microsoft Corporation (NASDAQ:MSFT)
Third Point’s Stake Value: $742,570,800
Number of Hedge Fund Holders: 293
Microsoft Corporation (NASDAQ:MSFT) accounts for 9.5% of Third Point’s Q1 2024 portfolio. According to Loeb, Microsoft Corporation (NASDAQ:MSFT) is a “best run legacy” company that has built clear moats in its industry and has established itself as a leader. The billionaire has held MSFT since Q4 2022 and holds a position worth over $742.5 million, as of Q1 2024. In total, there were 293 hedge funds with long positions in MSFT at the close of Q1 2024 with stakes worth over $88 billion. Microsoft Corporation (NASDAQ:MSFT) is one of Dan Loeb’s top growth stock picks.
Microsoft Corporation (NASDAQ:MSFT) generated $61.9 billion, up 17% year over year, and reported net income of $21.9 billion, up 20% year over year. The company’s Azure and cloud services revenue increased 31% year over year, outpacing its rivals’ Amazon Web Services’ and Google Cloud’s revenue growth rates of 17% and 28%, respectively. The company also returned $8.4 billion to shareholders through dividends during the quarter.
Azure continues to gain market share, driven by a broad portfolio of AI and cloud services. The Azure OpenAI Service is being used by over 65% of Fortune 500 companies and the introduction of the Models as a Service API and partnerships with major players including Nvidia and AMD for AI hardware accelerators are all driving the company’s cloud business’ growth. Moreover, Microsoft’s Copilot offerings are revolutionizing productivity across various domains. With Copilot now integrated into Microsoft 365, Dynamics 365, and GitHub, the company is democratizing AI-powered capabilities and capturing further market share in office productivity tools.
Microsoft Corporation (NASDAQ:MSFT) stands to benefit from multiple markets including AI, cloud, and office productivity. The company has grown its revenue by a CAGR of 11% over the past 10 years and its net income by 14.4%. The company also has a solid dividend profile and has grown its dividends for the past 2 decades. Is it too late to buy MSFT and are all its near-term growth prospects priced in? The stock has gained 32% over the past 12 months and analysts’ 1-year median price target implies an upside of 13% from current levels, however the Street-high target implies an upside of 41%. Analysts expect MSFT’s EPS to grow by 20% in 2024 and 35% in 2025, compared to 2023 levels. We think MSFT is attractive while it trades at 31.6 times its forward earnings, close to its 5-year average multiple of 31x.
1. Amazon.com, Inc. (NASDAQ:AMZN)
Third Point’s Stake Value: $919,938,000
Number of Hedge Fund Holders: 302
Dan Loeb grew his position in Amazon.com, Inc. (NASDAQ:AMZN) by 22% and ended Q1 2024 with a stake of $919 million in the company. Loeb’s bullish on Amazon.com, Inc. (NASDAQ:AMZN) and sees it as another “best run legacy” company that stands to capitalize on AI’s secular trends. Other hedge funds also grew their positions sizably in the company as the stock was part of 302 investors’ portfolios in Q1 2024, up from 293 portfolios in Q4 2023.
Amazon.com, Inc. (NASDAQ:AMZN) was primarily known for its e-commerce business but over the years it has diversified into other verticals including cloud, streaming, advertising, and supply chain and logistics, among many others. The tech titan, like Loeb’s other top 5 picks, has clear economic moats when it comes to its space. Amazon’s been among the frontrunners to pen contracts with renewable power operators for 24-hour data centers. The company’s also making strategic investments in AI startups, further growing its exposure and footprint. It invested an additional $2.75 billion in AI startup Anthropic in March, swelling its total investment to $4 billion. Its AWS business currently holds a majority market share and is among the top 3 cloud providers rivaling Microsoft’s Azure and Alphabet’s Google Cloud. The company’s also developing its own custom AI chips (Trainium and Inferentia) for facilitating the development of deep learning models.
Apart from being a true disruptor in tech, Amazon.com, Inc. (NASDAQ:AMZN) has generated billions of dollars of free cash flow over the years. Over the past 10 years, its free cash flow has grown at a CAGR of 34%. In 2023, the e-commerce giant converted over 100% of its profits to free cash flow. Amazon ended the year with $30.42 billion in net income and $32.2 billion in free cash flow. Moreover, the company has grown its top-line by 22.4% over the past 10 years and even more impressively its profits (10-year CAGR for net income is 62.15%). For 2024, analysts anticipate the group to grow its EPS by 57% and revenue by 11%.
On the Street, price targets range from $180 to $353 (median is $220). AMZN has gained 45% over the past 12 months and its 1-year median target implies an additional 20% upside from current levels.
Amazon.com, Inc.’s (NASDAQ:AMZN) diversified business model, advances in AI and the data center market are painting an attractive story. While the stock is an obvious long-term portfolio pick, given its blue chip status and growth rates, its newest moves are adding more reasons to buy the stock while it trades at 3 times its sales while rivals MSFT and GOOG trade at higher P/S multiples of 13.3x and 7x. While we acknowledge the potential of AMZN as an AI play and believe that it should be in your portfolio, our conviction lies in the belief that some other AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AMZN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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