The big question for these two billionaires is, “Can Broadcom maintain its trillion-dollar valuation?” While sustainable double-digit growth seems likely, Broadcom trades at a price-to-sales multiple that it is well above its historical average. We may see the company’s stock hurt until its valuation becomes more palatable.

A second AI stock that billionaire money managers can’t stop buying before 2025 is the world’s largest chipmaker. Taiwan Semiconductor Manufacturing (NYSE: TSM). In the third quarter, billionaire Chase Coleman of Tiger Global Management picked up 564,090 shares, while Duquesne boss Stanley Druckenmiller got 57,355 shares.

Leading companies in the AI ​​industry, including Nvidia, are counting on Taiwan Semi to dramatically increase GPU production. Based on newly updated targets after Donald Trump’s victory in November, Taiwan Semi is targeting monthly chip-on-wafer-on-substrate (CoWoS) capacity of 35,000 units by 2024, 75,000 units by 2025 and 135,000 units by 2026 is a necessity. to pack high-bandwidth memory that supports AI-accelerated Data Centers.

Taiwan Semiconductor Manufacturing should also continue to benefit from long AI chip builds. As long as the AI-GPU shortage persists, the company’s operating cash flow can remain highly predictable.

The big question billionaires Coleman and Druckenmiller will have to ask is, “How much will Trump’s trade policies affect the company?” The incoming president’s US-first focus and expected reliance on tariffs could pose challenges for Taiwan Semi, which has 80% to 90% of its production capacity in Taiwan. Export restrictions on AI chips and equipment to China that the Biden administration put in place may also pose a challenge.

Like Broadcom, Taiwan Semiconductor Manufacturing is no longer the phenomenal fundamental bargain it has been for years. Its price-to-sales (P/S) ratio is 45% above its trailing five-year average P/S reading, while its trailing price-to-earnings (P/E) ratio of 23 represents the its highest reading since 2020. . That’s a bit of an aggressive valuation for highly cyclical industry

The third AI stock pick that billionaire investors can’t stop buying before the new year is the e-commerce giant Amazon (NASDAQ: AMZN). Four billionaires were buyers in the quarter ending in September, including (total shares bought in parentheses):

• Stephen Mandel of Lone Pine Capital (1,033,987 shares)

• Philippe Laffont of Coatue Management (496,218 shares)

• Larry Robbins of Glenview Capital Management (125,000 shares)

• Chase Coleman of Tiger Global Management (94,408 shares)

Amazon’s AI ties are primarily based on utilization. Amazon Web Services (AWS) is the world’s leading cloud services infrastructure platform and has been aggressively incorporating generative AI solutions. Generative AI on AWS can help companies build AI applications, deploy virtual chatbots and AI assistants, and build/run large language models.

Among Amazon’s many operating segments, none is more important to its cash flow or profit generation than AWS. In the first nine months of 2024, AWS accounted for 17.5% of Amazon’s net sales, but almost 62% of its operating income. The juicy margins that typically come with cloud subscriptions will play a key role in increasing the company’s cash flow over time.

Amazon is also in the process of developing its own AI chips, known as Trainium2 and Inferentia. Although Amazon is already using Nvidia’s leading GPUs, and its own chips are unlikely to rival Nvidia’s in terms of compute speed, Trainium2 and Inferentia should be significantly cheaper and more readily available than the hardware so sought after from Nvidia.

Similar to Broadcom and Taiwan Semi, the big concern for Mandel, Laffont, Robbins and Coleman is whether Amazon stock remains a bargain after hitting an all-time high. While traditional fundamental tools like the P/E ratio suggest that Amazon is more than fully valued, the company’s price-to-cash flow ratio implies that it still offers an edge. At 16 times estimated 2025 cash flow, Amazon is still well below the 23 to 37 times cash flow investors regularly paid for its stock in the 2010s.

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John Mackey, former CEO of Whole Foods Market, a subsidiary of Amazon, is a member of The Motley Fool’s board of directors. Sean Williams has positions on Amazon. The Motley Fool has positions in and recommends Amazon, Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has one disclosure policy.

3 Artificial Intelligence (AI) Stocks Billionaires Can’t Stop Buying Before 2025 was originally published by The Motley Fool