In this article, we discuss the 10 best stocks to buy according to billionaire D.E. Shaw.
Equity market pricing is never perfect due to supply and demand imbalances, emotional reactions, and errors. Billionaire investor David Elliot Shaw excels at detecting and exploiting these inefficiencies to generate shareholder value. Unlike most hedge fund managers who rely on intuition, Shaw uses sophisticated mathematical models and algorithms for investment decisions. Over the years, he has developed software and hardware to gain an edge in investment opportunities.
Born in 1951, David E. Shaw became a successful billionaire scientist and hedge fund manager. After earning a PhD from Stanford in 1980, he founded D.E. Shaw & Co. in 1988 with six employees and $28 million in capital. The hedge fund has averaged a 12.5% return since inception, with only one down year. Shaw’s firm uses powerful computers and advanced algorithms for quick market responses and risk management, returning over $51 billion to investors. Likewise, it generated a net return of 11.88% between 2001 and 2011. While Shaw’s firm was down by 9% at the height of the financial crisis in 2008, it bounced back to profitability with a 21% return in 2009.
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D.E. Shaw is expanding and launching new funds. In 2023, they raised money for D.E. Shaw Alkali Fund VI, the newest in their Alkali group. By November 2024, they had secured $1 billion for this fund, focusing on corporate debt, structured credit, and synthetic securitizations.
Last year, the firm also raised $1.1 billion for two new private investment vehicles: D.E. Shaw Voltaic Fund and D.E. Shaw Diopter Fund. In June 2024, D.E. Shaw announced it was raising its second fund in 16 months to target bank capital deals. They filed a private placement notice for D.E. Shaw Diopter Fund II, but the amount wasn’t disclosed.
Bloomberg reported that D.E. Shaw’s largest hedge fund, the D.E. Shaw Composite Fund, gained 9.6% in 2023, outperforming the HFR Global Hedge Fund Index, which was up about 2.5% through December 15. Reuters added that D.E. Shaw’s macro-oriented fund, the Oculus Fund, gained 7.8% in 2023, beating its macroeconomic peers. According to Bloomberg, the Oculus Fund has never had a negative year since it started.
Diversification is another vital arsenal that D.E. Shaw & Co. relies on to spread risk and reduce market volatility. The firm is highly diversified with a portfolio value of about $116.49 billion. While technology stocks account for the most significant share in the equity market at 24.6%, the hedge fund also has stakes in Services at 17.5% and the financial sector at 7.7%. In addition to diversifying holdings, Shaw relies on a multi-strategy approach to squeeze optimum value in the market.
Billionaire D.E. Shaw suggests investing in resilient companies, even as the US Federal Reserve signals fewer interest rate cuts in 2025. Despite three cuts reducing the benchmark rate to 4.25%-4.5%, economic slowdown concerns persist, especially in the labor market. Job growth is mainly in government and health care, while growth in manufacturing, business, and professional services has stagnated.
David E. Shaw of D.E. Shaw
Our Methodology
To make the list of best stocks to buy according to billionaire D.E. Shaw, we scanned D.E. Shaw & Co investment portfolio. We then settled on the hedge fund’s largest holdings analyzing why they stand out and the number of hedge funds that hold stakes in them. Finally, we ranked the stocks in ascending order based on D.E. Shaw & Co stake value.
At Insider Monkey, we are obsessed with 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).
10 Best Stocks to Buy According to Billionaire D.E. Shaw
10. Hess Corporation (NYSE:HES)
D.E. Shaw & Co’s Stake Value: $547.41 Million
Number of Hedge Fund Holders: 75
Hess Corporation (NYSE:HES) is an exploration and production company that produces, transports and sells crude oil, natural gas liquids (NGLs), and natural gas. Its stock is down by about 11% for the year compared to a 30% gain for the S&P 500. The underperformance comes on oil prices plunging to about $70 a barrel.
Amid the underperformance, Hess Corporation (NYSE:HES) continues to outperform on the operations front, affirming why it is one of the best stocks to buy, according to billionaire D.E. Shaw. The company delivered better-than-expected third-quarter results on October 30, 2024. Its net income totaled $498 million or $1.62 a share, better than $1.25 a share expected.
Its net production was also up by 17% to 461,000 barrels but was weighed down by lower oil processes. Hess Corporation (NYSE:HES) exited the quarter with $1.9 billion in cash and cash equivalents. Likewise, the company raised its dividend offering by 14% to $0.50 a share.
Amid the better-than-expected financials, Hess Corporation’s (NYSE:HES) competitive edge stems from its focus on large, high-impact oil resources. Its focus is on resource-rich regions, including Guyana Stabroek Block and domestic operations in the Bakken Shale. Additionally, the company is engaged in a potential merger with Chevron, which could result in substantial growth benefits.
9. Alphabet Inc. (NASDAQ:GOOGL)
D.E. Shaw & Co’s Stake Value: $617.90 Million
Number of Hedge Fund Holders: 202
Alphabet Inc. (NASDAQ:GOOGL) is one of the best stocks to buy according to billionaire D.E. Shaw as artificial intelligence developments continue to fuel investor optimism. The stock is already up by 41%, outperforming the overall market as investors remain optimistic that the company is succeeding in safeguarding its lucrative search engine business.
Broader adoption and integration of AI features into the Google search engine is believed to have strengthened the company’s search empire. Likewise, Google’s lucrative digital advertising business remains well-protected and poised to enjoy robust growth. Investments in AI are seen as one of the factors that have resulted in substantial free cash flow into Google’s core search advertising business, which has reached $55.8 billion over the past 12 months.
The strengthened financial flexibility leaves Alphabet Inc. (NASDAQ:GOOGL) in a strong position to fund growth in multiple sectors for years. One key area is cloud computing, whereby Alphabet is the third largest player with a 12% market share right behind Amazon and Microsoft. The company has been integrating AI features into its cloud offerings as one of the ways of attracting clients. Similarly, revenues in the cloud unit were up 35% to record highs of $11.35 billion in the quarter.
Alphabet Inc.’s (NASDAQ:GOOGL) long-term prospects have also received a boost with the launch of a quantum computing chip that it says can solve a problem in five minutes. Enhancing computing speeds with the new chips could be a game changer that could strengthen Alphabet’s prospects on the cloud.
8. CAVA Group, Inc. (NYSE:CAVA)
D.E. Shaw & Co’s Stake Value: $637.31 Million
Number of Hedge Fund Holders: 32
CAVA Group, Inc. (NYSE:CAVA) is a company that operates a chain of restaurants in the US. It is turning out to be one of the biggest surprises in the restaurant industry. Its share price has more than doubled after a 188% rally year to date. The rally has come on the company delivering blowout growth in revenues and earnings nearly every quarter since going public in mid-2023.
CAVA Group, Inc. (NYSE:CAVA) has become dominant in the expanding Mediterranean food market by leveraging its distinctive value proposition to appeal to a broad clientele. This accomplishment demonstrates CAVA’s capacity to change dining preferences and establish Mediterranean food as a powerful force in the restaurant sector.
In the third quarter, CAVA Group, Inc. (NYSE:CAVA) delivered an 18.1% increase in same-store sales, resulting in a 39% increase in revenues to $241.5 million. Earnings before taxes were up 69% to $33.5 million as net income jumped 165% to $18 million. The robust sales growth comes as the restaurant chain continues to expand its footprint with 11 new locations, bringing its total locations to 352.
In its prospectus last year, CAVA Group, Inc. (NYSE:CAVA) stated that it has the potential to open more than 1,000 restaurants in the US by 2032. Such a move would strengthen the company’s revenue base by allowing it to target new niche markets.
7. Visa Inc. (NYSE:V)
D.E. Shaw & Co’s Stake Value: $645.92 Million
Number of Hedge Fund Holders: 165
Visa Inc. (NYSE:V) is one of the largest financial services players that operates as a payment technology company. It offers VisaNet, a processing network that enables payment transaction authorization, clearing and settlement. The stock is up by about 22% for the year, emerging as one of the best stocks to buy, according to billionaire D.E. Shaw.
Visa Inc.’s (NYSE:V) outperformance year to date shows the company outperforming the industry in various metrics. In its fiscal fourth quarter, it delivered $9.6 billion in revenues, up 12% year over year. The increase was driven mainly by an 8% increase in data processing revenues. Additionally, Visa benefits from increased payment volume, transaction processing, and cross-border volumes owing to expanded global operations. Consequently, Visa Inc.’s (NYSE:V) payment volume was up 8% in the fourth quarter due to increased operations in Canada, Europe, and Latin America.
Visa Inc.’s (NYSE:V) revenue has increased at a compound annual growth rate (CAGR) of 11%, and its earnings per share (EPS) increased at a CAGR of 16% between fiscal 2013 and fiscal 2023.
Here is what Qualivian Investment Partners said about Visa Inc. (NYSE:V) in its Q3 2024 investor letter:
“Visa Inc. (NYSE:V): FQ3 2024 revenues and EPS came inline versus consensus estimates with revenue and EPS growing 10% and 12% respectively. Payment volume increased by 7% and the highly profitable cross border volume increased by 14%. Operating margins at 67.1% missed consensus expectations at 67.4%. Management’s commentary on consumer spending for the back half of 2024 suggested a cautious but stable backdrop. Similar to our thoughts on MA, while we do not view V as immune to the macro backdrop, we continue to expect that over the longer term, it will continue to drive and benefit from the digitization of payments globally.
6. Merck & Co. Inc. (NYSE:MRK)
D.E. Shaw & Co’s Stake Value: $767.79 Million
Number of Hedge Fund Holders: 86
Merck & Co. Inc. (NYSE:MRK) is a healthcare company that offers pharmaceutical products for human health in the areas of oncology, neuroscience, and diabetes, among others. Its lead product is Keytruda, a lead cancer drug approved for 40 different oncology indications. The medicine may be approved for a number of new indications, including small-cell lung cancer and ovarian cancer, with continued clinical trials and increased research and development (R&D) funding.
Merck & Co. Inc. (NYSE:MRK) is already looking into the future as it looks to reduce its reliance on Keytruda. The company already has more than 30 programs in phase clinical trials, with an additional 80 in phase 2 trials. The company has also moved to strengthen its prospects in the weight loss business by signing a licensing agreement with Chinese biopharma Hansoh Pharma.
The deal paves the way for the company to commercialize the Chinese company’s oral weight loss candidate HS 10535. Hansoh will get an upfront payment of $112 million from Merck & Co. Inc. (NYSE:MRK), with additional milestone payments of up to $1.9 billion possible.
Merck & Co. Inc. (NYSE:MRK) sees potential in HS-10535, which is still in the experimental stage, and this is reflected in the financial terms of the agreement. The company’s dedication to expanding its R&D pipeline in a therapeutic area with substantial unmet medical needs is demonstrated by the upfront payment and subsequent milestone payments.
Oakmark Equity and Income Fund stated the following regarding Merck & Co., Inc. (NYSE:MRK) in its Q3 2024 investor letter:
“Merck & Co., Inc. (NYSE:MRK) is a global pharmaceutical firm with leading oncology, vaccine and animal health franchises. Premier products in Merck’s portfolio include Keytruda, Gardasil, Winrevair and Bravecto. Outsized contributor Keytruda is an immuno-oncology drug that treats several cancers and tumors. Keytruda is an astounding clinical and commercial success that is on track to become one of the best-selling prescription drugs to date. Investor angst surrounding Keytruda’s pending U.S. patent expiration in 2028 presented a chance to buy shares at a discounted valuation. We believe opportunities to extend Keytruda’s duration through life cycle management are underappreciated. More importantly, discounted cash flows from products already on market cover today’s entire stock price, meaning there is minimal value ascribed to a promising pipeline with strong sales potential. We believe Merck is led by a capable management team that looks to reinvest these cash flows in an accretive manner.”
5. Amazon.com, Inc. (NASDAQ:AMZN)
D.E. Shaw & Co’s Stake Value: $842.15 Million
Number of Hedge Fund Holders: 286
Amazon.com, Inc. (NASDAQ:AMZN) is one of the best stocks to buy, according to billionaire D.E Shaw, for gaining exposure in the burgeoning e-commerce sector and cloud computing. The company is a market leader in the two industries from which it generates significant revenues and earnings.
Over the years, Amazon.com, Inc. (NASDAQ:AMZN) has also changed its business model and is now much more than just an online retailer. Although it has a well-known streaming service called Prime Video, its AWS cloud computing division is the company’s main source of revenue. Last quarter, this segment’s operating income jumped 49% to $10.4 billion, while its revenue increased by 19% and advertising revenue jumped 19% to $14.3 billion.
As the company’s growth in high-margin areas like advertising, marketplaces, and AWS surpass the growth in the rest of the business, profit margin should continue to grow. Its operating margin hit its greatest level ever in the third quarter, at 11%.
Amazon.com, Inc. (NASDAQ:AMZN) is using artificial intelligence (AI) to boost its growth metrics. Its SageMaker platform assists clients in developing their own AI applications, and its Bedrock platform provides foundational long language models (LLMs) for both itself and AI start-ups. By employing AI to determine the optimal routes, it also seeks to save logistical expenses.
Qualivian Investment Partners stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q3 2024 investor letter:
“Amazon.com, Inc. (NASDAQ:AMZN): Amazon’s Q2 2024 results missed consensus revenue expectations slightly while beating EPS expectations nicely. Revenue grew 10.0%, including continued reacceleration in AWS (Amazon Web Services) which grew 19%; however, North American and International ecommerce revenue growth both showed slight deceleration in their growth rates from prior quarters. Advertising revenues grew 20%, which decelerated a bit from prior quarters as well.
Encouragingly, the company continued its streak of delivering impressive cost efficiencies in Q2 with operating margins jumping 420 bps vs. Q2 2023. Q3 2024 guidance was also a bit lower than consensus expectations sparking some short-term concerns about the strength of the consumer. We remain comfortable with our long-term outlook for Amazon’s ecommerce and AWS businesses, and expect they have new avenues of growth to exploit in scaling their advertising and generative AI business in the years ahead. However, we recognize that there is trepidation about the level of capex spending required to scale their generative AI business.”
4. Meta Platforms, Inc. (NASDAQ:META)
D.E. Shaw & Co’s Stake Value: $976.47 Million
Number of Hedge Fund Holders: 235
Meta Platforms, Inc. (NASDAQ:META) is a communications services company that provides applications that allow people to connect and share with friends and family. It is one of the best stocks to buy, according to billionaire D.E. Shaw, owing to its dominance in social media advertising. The company is increasingly investing in artificial intelligence as it looks to enhance user experience in its apps and engagement levels to attract more advertising campaigns.
Meta Platforms, Inc. (NASDAQ:META) is up by more than 73% in 2024, demonstrating strong financial performance over the year. Its outstanding 23% year-over-year revenue growth has outpaced the digital advertising industry. Likewise, the company boasts an exceptional gross margin of 81.5%, allowing it to generate more earnings and, therefore, higher shareholder value.
While the global digital advertising market is poised to exceed $1.15 trillion by 2030, Meta Platforms is making the most in the fast-growing sector. The company is investing more in artificial intelligence tools to drive returns for advertisers and, therefore, attract more dollars in ad campaigns.
Advertisers have seen an 8% increase in the quality of ads they can produce when they use Meta’s Andromeda machine learning (ML) tool. The social networking giant also notes that returns on investment have increased by 22% as a result of advertisers using its Advantage+ tool, which uses AI to help them target audiences. Because of this, Meta Platforms, Inc. (NASDAQ:META) has a good chance of continuing to grow faster than the digital ad market for a very long time.
Hardman Johnston Global Equity stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q3 2024 investor letter:
“During the quarter, we initiated one new position in Meta Platforms, Inc. (NASDAQ:META) and had no liquidations. Management at Meta has effectively addressed concerns about investment efficiency by shifting resources from Reality Labs towards broader AI initiatives with a clearer path to profitability. We believe management has successfully articulated the benefits of this strategy, highlighting how AI is driving user engagement and advertiser productivity. This, in turn, fuels continued revenue momentum and increases the likelihood of positive earnings surprises in the future. Additionally, the parent company of the social media platform, Facebook, has recently taken positive steps to enhance safety, which suggests to us a shift towards a more proactive and responsive approach to addressing important potential challenges and concerns. Weak oversight over data privacy protection was a key reason why we sold the position in the portfolio back in 2021. Removing this governance overhang allows us to feel comfortable to enter back into the stock at a time when we believe it is poised for strong earnings growth going forward.”
3. Microsoft Corporation (NASDAQ:MSFT)
D.E. Shaw & Co’s Stake Value: $1.71 Billion
Number of Hedge Fund Holders: 279
Microsoft Corporation (NASDAQ:MSFT) is a technology giant that develops and supports software, services and solutions. It is one of the best stocks to buy, according to billionaire D.E. Shaw, amid the artificial intelligence race. The company has been investing in generative AI to strengthen its software offerings, cloud unit, and search engine.
Likewise, the company has cemented its position as the second-largest cloud computing company with a 25% market share. While Microsoft Corporation (NASDAQ:MSFT) does not release revenue numbers for its Azure platform, revenue for Azure and other cloud services was up by 33% in its fiscal fourth quarter. The company spent $55.7 billion in its fiscal 2024. A majority of the investment went to building the AI infrastructure, which is expected to be a key growth driver.
In fiscal Q4, Microsoft Corporation (NASDAQ:MSFT) notes that the number of paid customers doubled from quarter to quarter, demonstrating the impressive traction of its models-as-a-service offering. Customers can rent a variety of models from the tech giant to help them create and implement AI applications. Therefore, Microsoft should see further acceleration in its Azure revenue as the demand for AI services in the cloud is expected to grow significantly in the upcoming years.
Growing demand for Microsoft 365 office collaboration and productivity tools, cloud computing solutions and a 9% increase in search and news-advertising revenue affirm the tech giant is well poised for long-term growth.
RiverPark Large Growth Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q3 2024 investor letter:
“Microsoft Corporation (NASDAQ:MSFT): MSFT was a top detractor in the third quarter following a fiscal fourth quarter earnings report that featured inline operating metrics but mixed guidance. Positively, the company reported strong revenue (+15%) and earnings growth (+10%), powered by Azure (+30%), and operating margins of 43%. Guidance however calls for lower than expected fiscal first quarter Azure revenue as infrastructure constraints limit growth, and higher capital expenditures throughout the company’s fiscal 2025 to alleviate these constraints. The company expects growth to reaccelerate in the back half of fiscal 2025 as more AI capacity comes online.
Cloud-based services have become the company’s largest revenue and earnings producer. The company’s Azure platform alone has the potential to grow to more than $200 billion in annual revenue over the next decade. Overall, we believe that the company will continue to deliver double-digit revenue and EPS growth and generate an enormous amount of free cash flow to return to shareholders and use for acquisitions.”
2. Apple Inc. (NASDAQ:AAPL)
D.E. Shaw & Co’s Stake Value: $2 Billion
Number of Hedge Fund Holders: 158
Apple Inc. (NASDAQ:AAPL) is a technology company that designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories. It is one of the best-performing stocks in the D. E. Shaw portfolio, going by the 37% year-to-date gain. The strong performance comes from investors rallying behind the company’s innovative product lineup and strong financial performance that affirms underlying growth.
Similarly, it is one of the best stocks to buy, according to billionaire D.E. Shaw, given the investments it is making in AI. Apple Inc. (NASDAQ:AAPL) is investing in Apple Intelligence, an AI-driven initiative that is expected to bolster the iPhone product line. While iPhone sales have appeared subdued in recent years, the integration of AI features is one factor expected to give people a reason to upgrade, strengthening Apple’s revenue base.
Consequently, iPhone shipments are projected to grow 12% year-over-year to 258 million units in fiscal 2026. The growth would be propelled by features like upgraded Siri, AI image tools, and ChatGPT integration. While the hardware business has been a key growth driver over the years, the service segment also affirms Apple Inc.’s (NASDAQ:AAPL) long-term prospects. The segment is projected to achieve a double-digit growth rate driven by strong pricing power, expanding adoption and new offerings
The introduction of AI services is projected to contribute between $7 and $14 billion in incremental services revenue. Likewise, the expectation is high that Apple Inc.’s (NASDAQ:AAPL) gross margin will improve next year owing to cost efficiencies and faster-growing service revenue, allowing the company to generate more shareholder value.
1. NVIDIA Corporation (NASDAQ:NVDA)
D.E. Shaw & Co’s Stake Value: $2.09 Billion
Number of Hedge Fund Holders: 193
NVIDIA Corporation (NASDAQ:NVDA) is one of the best stocks to buy, according to billionaire D.E. Shaw, as a leading supplier of much sought-after graphics processing units. The company has affirmed its status as the most valuable company owing to strong demand for its GPUs used in powering and developing AI infrastructure.
NVIDIA Corporation (NASDAQ:NVDA) is up by more than 189% for the year. The rally comes on the company affirming its status as the leader of the artificial intelligence revolution. Likewise, it has delivered blockbuster financial results that affirm underlying growth. It logged a 94% increase in revenue in Q3 on November 21, 2024, to $35.1 billion. Likewise, its net income doubled to $20 billion. The robust growth comes from competitors struggling to catch up to the company’s graphics processing units (GPUs), which have been used in data centres for years.
It is estimated that between 70% and 95% of AI data centres use NVIDIA Corporation’s (NASDAQ:NVDA) GPUs. Well-funded AI start-ups like OpenAI and xAI, as well as large hyperscale companies with massive data centres like Microsoft, Alphabet, Amazon, and Meta Platforms, are driving the demand for Nvidia’s GPUs. There is currently “insane” demand for Nvidia’s newest-generation Blackwell GPUs as a result of these companies competing to develop the best and most potent AI models.
By introducing new AI hardware, such as the Blackwell chips, management is making a concerted effort to strengthen its lead. Growth is expected to continue, as the majority of NVIDIA Corporation’s (NASDAQ:NVDA) biggest clients have stated that they intend to increase their expenditures on data center expansion in order to support their AI aspirations.
Ithaka Group’s Ithaka US Growth Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2024 investor letter:
“NVIDIA Corporation (NASDAQ:NVDA) is the market leader in visual computing through the production of high-performance graphics processing units (GPUs). The company targets four large and growing markets: Gaming, Professional Visualization, Data Center, and Automotive. NVIDIA’s products have the potential to lead and disrupt some of the most exciting areas of computing, including: data center acceleration, artifi cial intelligence (AI), machine learning, and autonomous driving. The reason for the stock’s appreciation in the quarter was twofold: First, the stock benefi ted from tremendous excitement surrounding the further development of generative AI and the likelihood this would necessitate the purchase of a large number of Nvidia’s products far into the future; Second, Nvidia posted another strong beat[1]and-raise quarter, where the company upped its F2Q25 revenue guidance above Street estimates, showcasing its dominant position in the buildout of today’s accelerated computing infrastructure.”
While we acknowledge the potential of NVIDIA Corporation (NASDAQ:NVDA), our conviction lies in the belief that under the radar 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 NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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