Billionaire Money Managers Have Chosen Their Favorite AI Stock (and It's Not Nvidia or Alphabet)

Over the last four years, no trend has played a bigger role in lifting Wall Street's major stock indexes to new heights than the artificial intelligence (AI) revolution. Arguably, no companies have been more foundational to the evolution of AI than Nvidia (NASDAQ: NVDA) and Google parent Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG).

But quarterly Form 13F filings with regulators tell a different story. Billionaire money managers have, as a whole, been sellers of Nvidia and Alphabet, and have decisively chosen Amazon (NASDAQ: AMZN) as their favorite AI stock.

Image source: Getty Images.

Despite their dominance, Nvidia and Alphabet have flaws

On the surface, Nvidia and Alphabet appear to be firing on all cylinders. Nvidia's data center sales skyrocketed 92% in the fiscal first quarter (ended April 26), driven by otherworldly demand for the company's superior graphics processing units (GPUs).

While Nvidia has established itself as the face of AI infrastructure, Alphabet is mastering the art of AI applications. Integrating generative AI and large language model (LLM) capabilities into Google Cloud sent revenue for this high-margin cloud infrastructure service platform soaring by 63% in the first quarter.

But Nvidia and Alphabet aren't infallible.

Billionaire investors have been decisive sellers of Nvidia shares for years. This likely has to do with the expectation of increasing GPU competition. Many of its top customers by net sales are developing AI chips internally for use in their data centers. Even though this hardware poses no threat to Nvidia's compute superiority, it can minimize the GPU scarcity that's helped fuel Nvidia's pricing power and mid-70% gross margin.

Meanwhile, Alphabet's flaw is simply that it isn't the screaming bargain it was 12 months ago. Whereas Alphabet shares traded at a forward price-to-earnings (P/E) ratio of 16 at this time last year, they're now commanding a forward P/E of nearly 26.

Image source: Amazon.

Amazon is a top holding for a half-dozen billionaire money managers

After reviewing the top-four holdings for more than a dozen billionaire fund managers, the one AI stock that kept popping up was dual-industry leader Amazon. It ranks as a core holding for six of the savviest billionaire investors:

• David Tepper of Appaloosa: No. 1 holding by market value
• Dan Loeb of Third Point: No. 1 holding
• Seth Klarman of Baupost Group: No. 1 holding
• Bill Ackman of Pershing Square: No. 2 holding
• Chase Coleman of Tiger Global Management: No. 3 holding
• Larry Robbins of Glenview Capital Management: No. 4 holding

Most consumers are aware that Amazon dominates the U.S. e-commerce landscape. But they might not realize that Amazon Web Services (AWS) accounts for nearly a third of global cloud infrastructure service spending. Although Google Cloud is growing faster, AWS holds considerably more market share and has also seen its sales growth reaccelerate through the integration of generative AI and LLM solutions.

Additionally, Amazon stock hasn't risen nearly as much as Nvidia or Alphabet in recent years, creating an intriguing value proposition for billionaire money managers.

Throughout the 2010s, Amazon ended each year at a multiple of 23 to 37 times cash flow. With AWS's juiced-up margins, Amazon's annual cash flow is projected to more than double from a reported $12.89/share in 2025 to an estimated $27.66/share by 2028. If Amazon hits Wall Street's 2028 consensus, it'll be trading at less than 9 times cash flow.

Sean Williams has positions in Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, and Nvidia. The Motley Fool has a disclosure policy.