Dan Loeb made some interesting moves during the first quarter, buying stakes in two members of the Magnificent Seven.
A great way to get a glimpse into the minds of prominent investors is to look at their 13F filings. These forms are required by the Securities and Exchange Commission (SEC) and break down the buying and selling activity of large institutional managers.
Recently, I conducted an analysis through the 13F of Third Point, a hedge fund started by billionaire investor Dan Loeb. Given the moves he's making, I'd say Loeb is excited about artificial intelligence (AI). While this shouldn't come as a surprise, I was intrigued by the specific companies he's buying.
AI has dominated the narrative. Microsoft And Nvidia So far. Nevertheless, Loeb recently bought 900,000 shares of two other members of the “Magnificent Seven.” Amazon (AMZN -1.14%) and 3 million shares the alphabet (GOOG -1.65%) (GOOGL -1.60%).
I love these moves. Let's break down how Amazon and Alphabet are quietly emerging as leaders in the AI realm, and discover why each stock is a profitable buy right now.
1. Amazon: The Cash Flow Machine
Amazon is primarily known for its e-commerce marketplace and cloud computing business, Amazon Web Services (AWS).
But over the years, the company has quietly expanded into other areas of growth, including streaming, advertising, grocery delivery, and more. Building such a diverse business has presented Amazon with a unique opportunity.
The thesis is that Amazon can integrate AI-powered services into its ecosystem, thereby reaching a wider audience and selling them more products.
One of Amazon's most significant moves last year was a $4 billion investment in an AI startup called Anthropic. The basic idea was to use Anthropic to accelerate development in AWS. It uses AWS as its primary cloud provider and is training its creative AI models on Amazon's infrastructure.
This is important because Anthropic is ultimately serving as a lead generation source for AWS, helping to drive deals for new products including Amazon Bedrock.
Another move is Amazon's investment in data centers. The company recently pledged $11 billion to build new data centers in Indiana. This decision has come at an important time.
Currently, Nvidia dominates the AI semiconductors market. But Amazon is developing its own line of chips, Trinium and Infinia. Building its own data centers could help it become more independent with chips in the long run. It also gives Amazon a way to keep most of its AI ambitions in-house, relying less on third-party providers.
Image source: Getty Images.
Although the AI revolution is in its infancy, Amazon has generated $50 billion in free cash flow over the past 12 months as the company continues to witness new growth across its business.
I think AWS in particular has a bright future. Additionally, as AI becomes more ingrained throughout Amazon's business, the investment it's making today is extremely smart, and I'm excited about the long-term payoff.
Amazon's price-to-sales (P/S) ratio is 3.3, roughly the same as its 10-year average. I think a lot of investors are underestimating Amazon's position in the AI landscape and underestimating the company's long-term outlook. To me, the stock is a bargain, and I agree with Loeb's decision to acquire the shares.
2. Alphabet: A rising star in a cloud
Alphabet is the parent company of Google and YouTube. With each of their vast reach on the Internet, it's no surprise that Alphabet's biggest source of revenue is advertising.
While the company is definitely the leader in online advertising, Alphabet faces some stiff competition from the likes. Meta platforms and TikTok. And the advertising industry is cyclical and can be unreliable.
One way Alphabet answers is its competitive advantage: data. It owns one of the largest libraries of user search trends, a huge asset it can use to train its big language model, called Gemini.
The speed at which Gemini can be trained is also important. As Google and YouTube continue to be dominant forces online, Alphabet is in a strong position to store, analyze and process vast data sets to improve Gemini and create more products and services.
One area where Alphabet is already making some impressive progress is in cloud computing. Google Cloud Platform is Alphabet's fastest-growing business and is already generating operating profit.
Like Amazon, I wouldn't sleep on Alphabet's potential to become a strong force in AI. The company is building a full-spectrum AI business, including workplace productivity tools, cloud computing, e-commerce, consumer search, and more.
At a price-to-earnings (P/E) ratio of 27.3, the stock trades at a discount to each of its stellar seven peers except Meta. Alphabet shares look cheap to me, and I think long-term investors will enjoy market-beating returns as AI continues to play a bigger role in the company.
Randy Zuckerberg, former director of market development and spokeswoman for Facebook and sister of MetaPlatforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an Alphabet executive, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, is a member of the board of directors of The Motley Fool, an Amazon subsidiary. Adam Spatiko has positions at Alphabet, Amazon, MetaPlatforms, Microsoft and Nvidia. The Motley Fool has positions and recommends Alphabet, Amazon, MetaPlatforms, Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a Disclosure Policy.