Daniel Loeb, the iconic figure in Wall Street’s history, founded Third Point in 1995 with a mere $3 million seed fund. Fast forward to today, Third Point stands as a robust $6 billion financial empire. Loeb’s prowess has earned him a spot among the “Best Hedge Fund Managers of All Time.” When this man of the hour speaks, Wall Street stands at attention.

During the past year, Loeb has strategically anchored his Third Point’s investment ship in the realm of the “Magnificent Seven” stocks. These chosen few, bound by the thread of artificial intelligence (AI), emerged among the top performers in the Nasdaq Composite last year.

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Loeb’s outright endorsement of generative AI underscores his vision of impending transformative change and vast economic ripples. He boldly predicts a revolution akin to the Industrial Revolution, but on a fast-track, compressed into months and years, eclipsing the timelines of prior transformations.

Now, let’s delve into the stars that dazzled in Loeb’s portfolio in the final quarter, and the one that met its exit.

Microsoft: 11.5% of Holdings

Microsoft secured its golden spot in Loeb’s collection by deftly embracing AI. The tech giant seamlessly integrated AI features into its suite of offerings, with Copilot, the AI assistant, leading the charge. Copilot’s adeptness in automating tasks and elevating workforce productivity drew significant demand.

Loeb’s praise for Microsoft’s potential rings loud. He envisions the introduction of AI-assisted Office Copilot software catalyzing a revenue surge of over $25 billion exclusively from software sales.

A noteworthy shift occurred as Loeb trimmed his Microsoft holdings by over 9% in the quarter. However, due to a robust 19% surge in the stock’s value, the total worth of his Microsoft holdings burgeoned.

Despite Microsoft boasting a forward earnings multiple of 34 times, its leadership in AI justifies a premium valuation.

Amazon: 9.7% of Holdings

Loeb’s long-standing Amazon investment showcases his unflinching faith in the e-commerce behemoth. Posing an intriguing thought when Amazon’s market cap perched at $1.6 trillion, Loeb hinted at unearthed value surpassing $1 trillion within Amazon. He estimated Amazon’s online retail arm alone to be valued at over $1 trillion, while AWS stood tall at $1.5 trillion.

He contended that the AI acceleration’s primary outcome would spur rapid revenue growth for cloud infra providers, including AWS, Azure, and Google Cloud, portraying them as essential catalysts in the AI wave.

Despite a 10% trim in Amazon holdings, the stock’s upward trajectory appreciated the total position value. With Amazon trading below 3 times forward sales, it remains a steal.

Meta Platforms: 6.2% of Holdings

Adding another ace to his AI-driven deck, Loeb ventured into Meta Platforms, bolstering his position across Q3 and Q4. Meta’s AI affiliations, steering its ad targeting and content curation prowess, stood as pillars of strength. Notably, Meta’s strides in generative AI, magnified by Large Language Model Meta AI, demonstrate a new revenue stream.

While Loeb’s rationale remains veiled, Meta’s value proposition apparently struck a chord. Trading at 24 times earnings at the dawn of 2023, Meta Platforms holds a discount to the S&P 500, bearing a respectable price-to-earnings ratio of 28.

Alphabet: 0% of Holdings

In an unexpected twist, Loeb bade adieu to Alphabet, liquidating his entire 900,000 shares of Class A stock valued around $125 million by the quarter’s end. While Loeb’s intentions remain undisclosed, broader portfolio maneuvers shed light. In addition to Alphabet, trimming stakes in tech entities like Taiwan Semiconductor, Intercontinental Exchange, and Uber, Loeb gravitated towards utility stocks. The shift hints at rebalancing actions spurred by burgeoning utility prospects amid the tech sector’s historic bull run.

Regrettably, Loeb’s exit from Alphabet appears hasty. Positioned to leverage the advertising resurgence and AI tailwinds, Alphabet’s ~24 times earnings valuation sits at a fair discount.

Closing Thoughts

Embedded within Loeb’s strategic maneuvers lies wisdom for investors to decode. By navigating the AI landscape with precision, Loeb’s choices serve as a beacon in a dynamic market terrain of evolving opportunities.

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