Dan Loeb is the founder and CEO of Third Point, an institutional asset management firm whose flagship offshore fund has returned 13.1% annually since its launch in 1996. (SNPINDEX: ^GSPC) It returned 9.4% annually over the same period.
According to The Wall Street Journal, Loeb is “one of the most successful hedge fund managers of his generation.” Third Point underperformed in 2022 and 2023, but its long-term performance makes Loeb a good case study for investors.
Loeb has compared artificial intelligence (AI) to disruptive technologies like the internet and smartphones, and AI has become a major theme in his investments. Somewhat surprisingly, Third Point does not hold any shares in Nvidia, but as of June it had 23.1% of its $8.7 billion portfolio invested in three AI-related stocks.
Amazon (Nasdaq: AMZN): 11%
Microsoft (Nasdaq: MSFT): 8.1%
Taiwan Semiconductor (NYSE:TSM): 4%.
Here’s what investors need to know.
Amazon: 11% of Dan Loeb’s portfolio
Amazon runs the largest e-commerce marketplaces in North America and Western Europe. The company has used the scale of its retail business to secure a strong presence in digital advertising. But the biggest opportunity to cash in on artificial intelligence (AI) is in its cloud-computing business, Amazon Web Services (AWS).
AWS is the leader in cloud infrastructure and platform services, with its market share growing by one percentage point between the first and second quarters of 2024. This scale means that AWS is uniquely positioned to benefit from AI simply because it already has a large customer base, which will likely turn to AWS for AI services when needed, rather than working with a new cloud provider.
AWS has also expanded its ability to monetize AI with new products like coding assistant Amazon Q and generative AI development platform Amazon Bedrock, with CEO Andy Jassy recently telling analysts that “our AI business continues to grow dramatically, at multi-billion dollar revenue rates, even though we’re still in our early stages.”
Going forward, Wall Street expects Amazon’s earnings to grow 25% annually through 2025. That makes the current valuation of 44 times earnings seem acceptable, and I think that’s a reasonable entry point for patient investors, so I wouldn’t mind buying a small amount of the stock today.
Microsoft: 8.4% of Dan Loeb’s portfolio
Microsoft is monetizing AI across its software and cloud business, with its new generative AI Copilot for business productivity and enterprise resource planning platform getting attention: The number of employees using Copilot for Microsoft 365 daily nearly doubled in the most recent quarter, and the total number of customers grew by more than 60%.
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Microsoft Azure has been steadily gaining share in cloud services thanks to its strengths in cybersecurity, analytics and artificial intelligence. Its partnership with OpenAI has helped it attract new customers. Azure is the only public cloud that enables developers to build generative AI applications using the large-scale language models that underpin ChatGPT.
“This new technology favors incumbents who are dedicating their arsenal of money and brainpower to winning the AI arms race. Today, the best-run ‘legacy’ companies like Microsoft and Amazon (both of which we own) are building significant competitive advantages and accelerating their growth trajectory,” Loeb wrote in a recent investor letter.
Wall Street expects Microsoft’s earnings to grow 13% annually through fiscal 2026 (the end of June 2026), which makes the current price-to-earnings ratio of 36 times look rather expensive. Although I think Microsoft is well-managed and has attractive growth prospects, I would avoid the stock at current prices.
Taiwan Semiconductor: 4% of Dan Loeb’s portfolio
TSMC (Taiwan Semiconductor Manufacturing Company) is the leading semiconductor foundry company as measured by revenue. This gives the company a significant advantage in a capital-intensive industry. TSMC’s ability to spend more on research and development than its peers keeps it at the forefront of semiconductor manufacturing technology, also known as process technology.
Morningstar’s Felix Rex highlighted that advantage in a recent note: To paraphrase his comments, “Process technology leadership means that TSMC is continually improving its chip PPA (power, performance, area), cost per chip, and time to market — all of which are essential to making computing devices more competitive. It also allows TSMC to charge higher prices than its peers.”
TSMC’s process technology leadership has also attracted high-profile customers such as Apple, AMD, Nvidia, Qualcomm and Broadcom, which designs custom semiconductors for Alphabet’s Google and Meta platforms. All of these companies are investing heavily in artificial intelligence, which benefits TSMC.
Dan Loeb explained his investment thesis in a recent investor letter:
“Google was the first to get into custom accelerators with its TPUs nearly a decade ago, and today this is already a multi-billion dollar business for TSMC. Amazon, Microsoft and Meta have all followed Google’s lead by announcing their own chips (and, in Amazon’s case, already in mass production). As these products scale, TSMC’s AI revenue is expected to grow many-fold over the next few years.”
Going forward, Wall Street expects TSMC to grow its earnings by 29% annually through 2025. With that in mind, the current price-to-earnings multiple of 31 seems reasonable, and I’d be comfortable buying a small amount of the stock today.
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and communications at Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Trevor Gennewin owns shares of Amazon and NVIDIA. The Motley Fool owns shares of and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and recommends long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Billionaire Daniel Loeb has 23% of his portfolio invested in 3 AI stocks (hint: it’s not Nvidia) was originally published by The Motley Fool.
