Palantir Billionaire Peter Thiel Buys 2 Brilliant AI Stocks (Hint: Not Nvidia or Micron)

Billionaire entrepreneur Peter Thiel is best known as one of the five co-founders of Palantir Technologies. But he also runs the investment company Thiel Macro, which has 42% of its portfolio invested in two artificial intelligence stocks, both purchased in the second quarter.

• Amazon (NASDAQ:AMZN): 28% of the portfolio.
• Vistra Energy (NYSE:VST): 14% of the portfolio.

Thiel Macro beat the S&P 500 (SNPINDEX:^GSPC) over the last six quarters despite holding zero stocks in two of those quarters. That makes Thiel a good source of inspiration for individual investors. Here's what you should know about Amazon and Vistra.

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Amazon: 28% of Thiel Macro's portfolio

Thiel Macro's largest position is Amazon. While the company is officially classified as part of the consumer discretionary sector due to its large retail footprint, it is frequently listed alongside big technology companies due to its sizable cloud computing businesses. In both cases, Amazon stands to benefit from the artificial intelligence revolution.

In retail, Amazon has developed hundreds of generative AI applications that optimize things like inventory placement, demand forecasting, and last-mile delivery. Amazon is also the largest operator of industrial mobile robots, and it’s using AI to make its fleet more efficient. For instance, next-generation Proteus robots can understand natural language, meaning human workers can give them instructions conversationally.

In cloud computing, Amazon Web Services (AWS) addresses AI demand at every layer of the stack, offering infrastructure, platform, and software services. It has designed custom AI accelerator chips that function as a less costly alternative to Nvidia GPUs. The company also offers development tools like Bedrock, and ready-to-use software like Kiro, an AI agent that automates coding.

In the second quarter, AWS revenue increased 37%, the fastest growth in more than four years. That is a clear sign that AI infrastructure investments are paying off, and investors have reason to believe the company will keep its momentum. CEO Andy Jassy told analysts, "We are unusually well-positioned for this AI inflection given our leading price-performance chips in both AI with Trainium and CPU with Graviton."

Amazon currently trades at 21 times earnings, a very reasonable valuation given that Wall Street estimates earnings will increase at 21% annually over the next three years. Indeed, most analysts think the stock is undervalued. Amazon has a median target price of $330 per share, implying 27% upside from its current share price of $259.

Vistra Energy: 14% of Thiel Macro's portfolio

Goldman Sachs estimates that U.S. data center power demand will reach 66 GW next year, more than double 31 GW last year. More broadly, analysts estimate U.S. electricity demand will compound at 3.5% annually through 2030, up from roughly 0% annually during the previous decade, driven in large part by heavy spending on AI infrastructure.

As the largest competitive power producer in the U.S., Vistra is well-positioned to benefit. The company generates electricity from a portfolio of nuclear, natural gas, coal, and renewable power plants, then sells it into wholesale markets through contracts with utilities and businesses. The company also sells electricity directly to residential and commercial customers via its retail business.

Vistra earlier this year announced a power purchase agreement with Meta Platforms covering 2.6 GW of nuclear generation capacity over two decades. Vistra also signed a similar power purchase agreement with Amazon. Those deals provide long-term revenue visibility, and the company could strike deals with other hyperscalers as the AI boom unfolds.

When valuing Vistra, investors should consider price-to-operating-cash-flow rather than price-to-earnings. The latter can be distorted by non-cash adjustments, such as unrealized gains and losses on derivatives used to hedge against volatility in natural gas and electricity prices. The former offers a clearer picture of the cash generated from the company's core business.

Vistra currently trades at 10.8 times operating cash flow, a discount to the 10-year average of 12. That looks particularly reasonable given that the company's operating cash flow is forecast to increase at 19% annually through 2030. Most Wall Street analysts agree. The median target price of $210 per share implies 29% upside from the current share price $162.

Trevor Jennewine has positions in Amazon, Nvidia, and Palantir Technologies. The Motley Fool has positions in and recommends Amazon, Goldman Sachs Group, Meta Platforms, Micron Technology, Nvidia, Palantir Technologies, and Vistra. The Motley Fool has a disclosure policy.