It’s always fascinating to follow the transactions of Wall Street’s best investors. We’ve had the chance to do that recently after regulatory filings disclosed which value and/or growth stocks they traded during the fourth quarter (Q4).
Billionaire investor Sir Chris Hohn might not be a household name outside of the world of finance. But his hedge fund, TCI Fund Management, is one of the most profitable in history.
Last year, it generated a 33% return and made $12.9bn for clients. This excellent performance saw it crowned the best-performing hedge fund of 2023.
Needless to say, then, Hohn’s stock-market moves are well worth paying attention to.
#1. Alphabet
As of Q4, Hohn had 17.7% of TCI’s portfolio – around $6.38bn (£5bn) – in two artificial intelligence (AI)-related stocks.
One of these was Google-owner Alphabet (NASDAQ: GOOG), a continuous holding since 2017. This $2.38bn position made up 6.6% of the portfolio.
However, as we can see below, this holding has actually been cut by 69% over the past year.
| Number of Alphabet Class C shares* | |
| Q4 2022 | 54,540,690 |
| Q4 2023 | 16,927,056 |
The timing of this huge reduction coincides with the launch of ChatGPT, which many investors fear could be an existential threat to Google’s search business.
Admittedly, this does present a genuine risk. After all, if people can get instant information from AI chatbots, why do they need to click on ad-monetised search links?
However, I’d be wary about jumping to conclusions. Google has six products that serve over 2bn users and is already embedding generative AI into them all, including search.
More importantly, it possesses arguably the world’s highest-quality AI training data due to its mind-boggling amount of consumer information and queries. It remains at the very centre of the AI revolution.
Trading at 21 times forward earnings, Alphabet is one of the cheapest AI stocks around. I actually invested when Hohn slashed his holding. That position is up 50% for me, and I plan to keep holding.
#2. Microsoft
The second AI stock held by the hedge fund is Microsoft (NASDAQ: MSFT). With a market cap of approximately $2.99trn, it’s currently the world’s most valuable firm.
The stock has an 11.1% weighting in the portfolio, but the strange thing is TCI fully unloaded a large stake in Microsoft in the third quarter… then bought it back in the fourth quarter at a higher price!
It’s not clear why exactly, though the company’s massive investments in AI – including $10bn+ in ChatGPT maker OpenAI — are starting to bear fruit.
CEO Satya Nadella recently said: “By infusing AI across every layer of our tech stack, we’re winning new customers and helping drive new benefits and productivity gains across every sector.”
As with Alphabet, there aren’t many companies better placed to deploy AI products than Microsoft. Its Office suite of software already has a massive installed user base of over 1.2bn people.
Trading at 34 times forward earnings, however, the stock is pricier than Alphabet. This valuation is keeping me from investing at present.
To sum up, though, here’s an incredible stat from CNBC: Microsoft has been among the world’s five most valuable firms for all but four months since 1997. I wouldn’t be surprised to still see it there in 2027.
