After analyzing 16 hedge funds, we found that at least 10 of them had $Alphabet(GOOG)$ $Alphabet(GOOGL)$ $Meta Platforms, Inc.(META)$ $NVIDIA Corp(NVDA)$ as their top three tech holdings as of Q4 2023.
Clearly, billionaires and hedge funds have come to a consensus - they love tech giants! Tech giants are dominating the portfolios of billionaires, and they're also the main drivers behind the recent rally in US stocks.
1. $Alphabet(GOOG)$ $Alphabet(GOOGL)$
Just take a look at Alphabet's financials, and you'll quickly see why this tech stock is a favorite among hedge funds. The company's 2023 revenue of $307 billion, operating profit of $84 billion, the first quarter of this year increased by 15% and 46% to $81 billion and $25 billion, respectively, operating profit margin as high as 32%.
But the real star of the show is Alphabet's cash flow generation. Alphabet generated $102 billion in cash from operating activities in 2023 and $29 billion in the first quarter of 2024. Operating cash flow is higher than operating profit, which indicates that the company's earnings quality is high.
Google search has been the king of the market for decades, but the emergence of ChatGPT and Microsoft's integration with Bing has rung the alarm bells. So, Alphabet came out with its own generative AI chatbot, Gemini.
Alphabet's stock is currently trading at a P/E ratio of 27, close to its 5-year average.
2. $Meta Platforms, Inc.(META)$
Meta is also not lagging behind in the AI race. They've launched their own large language model, Meta AI, and integrated it into platforms like Facebook, Messenger, Instagram, and WhatsApp. But at the core, Meta is still an advertising company, with 98% of its Q1 revenue coming from ads.
The more users they have on their platforms, and the longer they stay, the more money they make. And Meta AI is all about keeping users engaged. Revenue for the first quarter was $36.5 billion, up 27% from a year earlier. Operating profit rose sharply to $13.8 billion from $7.2 billion. Tiger is Meta's biggest fan, with the stock accounting for a whopping 19% of its tech portfolio.
Meta's stock is trading at a slightly higher P/E ratio than its 5-year average, but remember, that average was dragged down by the stock's plunge in 2022. So, the valuation might be close to fair.
What's more, Meta started paying dividends this year - it's not much, less than 1%, but considering their profitability, it's likely to grow significantly in the future.
3. $NVIDIA Corp(NVDA)$
NVIDIA is in high demand for its GPUs and software, and recently, it became the world's largest company by market cap. Their Q1 earnings were stellar, with total revenue growing 262% year-on-year to $26 billion, including a 427% jump in data center sales to $23 billion. In addition, the 10-to-1 stock split has also stimulated bullish sentiment among investors.
NVIDIA is among the top 10 tech holdings in 10 of the 16 billionaires' portfolios, and several funds even have it as their top three largest holdings. But for new investors, NVIDIA's high valuation is a potential risk.
The stock is trading at a P/E ratio of over 70, and while the forward P/E has come down to 47, it's still much higher than $Microsoft(MSFT)$ 's.
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