Billionaires David Tepper and Dan Loeb Are Piling Into This AI Giant That's Soared 1,100% Over 3 Years. Should You Follow?

Key Points

• Tepper and Loeb increased their positions in this AI company by more than 400% and 90%, respectively, in the second quarter.

• The two investors clearly think this stock has room to run.

• 10 stocks we like better than Nvidia ›

Investors often keep an eye on what billionaires are doing because these players have built up a track record of success, growing fortunes for themselves and, often, for those who invest in their funds. Should you follow the moves of these experts?

I may surprise you when I say "sometimes" instead of "always." But it's important to consider your own investment style and comfort with risk before diving in. For example, if you're a value investor, you may be uncomfortable investing in a young tech player that isn't yet profitable. Or if you're an aggressive investor, you might not feel passionate about a slower-growing but steady healthcare player.

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Still, it's always worth considering what some of the world's best investors are doing and then deciding whether that particular move is right for you.

In recent times, billionaires have been flocking to a stock that's soared 1,100% over the past three years. In fact, David Tepper of Appaloosa Management and Dan Loeb of Third Point significantly increased their positions in this winning player. So, they clearly believe that a lot more growth may be ahead. Should you follow their move? Let's find out.

Image source: Getty Images.

Tepper's and Loeb's funds

Tepper is known for his ownership of the Carolina Panthers and his daring investment moves, including the purchase of troubled financial stocks back in 2009 that recovered and generated major gains for Appaloosa. Loeb turned his interest in buying distressed companies and guiding them through recovery into market-beating returns. Tepper oversees $6.4 billion in 13F securities, while Loeb manages $7.6 billion in such securities.

Any trades in these securities must be declared to the Securities and Exchange Commission every quarter; this applies to managers of more than $100 million. Just recently, Tepper and Loeb reported their second-quarter moves. This brings me to the stock they both have been buying hand over fist. It's none other than artificial intelligence (AI) chip giant Nvidia (NASDAQ: NVDA).

In the second quarter, the billionaires made the following moves:

• Tepper increased his Nvidia holding by 483% to 1,750,000 shares, so Nvidia now represents nearly 4.3% of his portfolio. He originally bought Nvidia shares in the first quarter of 2023.
• Loeb lifted his Nvidia position by 93% to 2,800,000 shares, representing 5.8% of his portfolio -- for the third-biggest position among all his holdings. He opened his Nvidia position in the first quarter of this year.

Dominance in the AI chip market

Nvidia has already delivered a huge amount of growth to investors, thanks to its dominance in the AI chip market. As AI emerged as a hot technology, the company shifted its focus to become a major player in the field. Nvidia did this by designing its graphics processing units (GPUs) with AI in mind, and they soon became the go-to solution for key AI tasks, such as the training and, most recently, inferencing of models.

All of this has helped Nvidia's revenue and profit soar in the double and triple digits, into the billions of dollars. And that's drawn investors to the stock, prompting it to skyrocket. Nvidia even saw its market cap surge past $4 trillion this year, making it the world's biggest company.

Now, though, you may be wondering whether the billionaires -- or you -- may be late to the game if you buy now. Not necessarily. Even though AI has seen tremendous growth in recent years, this movement is far from over. Nvidia recently forecasted that AI infrastructure spending may reach $4 trillion by the end of the decade as big tech companies build out their platforms. This should result in tremendous growth for Nvidia as it supplies them with chips and related products and services.

Powering the future of AI

It's also important to keep in mind that we're in the very early days of actually applying AI to real-world problems -- and Nvidia's GPUs are essential to keep these AI agents doing their jobs. Finally, Nvidia is set to power the future stages of AI, too, such as the development of robotics and the use of AI across industries.

Meanwhile, Nvidia's stock trades for 38 times forward earnings estimates, which looks reasonable considering the growth prospects over the next several years.

So, should you follow the billionaires into Nvidia stock? For any investor aiming to benefit from the AI growth story, the answer is "yes." Nvidia has demonstrated its strengths, and the company has what it takes to remain a central player in the AI boom, meaning if you join the billionaires and get in now, you might benefit from a new wave of explosive growth in the years to come.

Should you invest $1,000 in Nvidia right now?

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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.