Wealthy individual Philippe Laffont dispensed with substantial shares of Nvidia and Meta Platforms, opting instead to amass holdings in four alternative "Magnificent Seven" investments.
The arrival of artificial intelligence (AI) is significantly impacting the tech sector. This impact is most evident in the explosive growth of the "Stellar Half Dozen" stocks, a group renowned for its connection to technology. Since AI's inception at the start of last year, each of these tech heavyweights has surpassed the performance of the S&P 500, with some exceeding this threshold substantially. Wealthy investors have taken notice of this development, and many have invested in the Stellar Half Dozen stocks. However, all investors have unique objectives and follow various strategies to accomplish them.
One such closely watched billionaire is Philippe Laffont, who gained notoriety by establishing Coatue Management as the world's foremost tech-centric hedge fund. Laffont transformed a $50 million investment in 1999 into $27 billion in assets under management.
Laffont's focus on technological advancements and the ensuing long-term growth trends has served him well. "You don't need countless brilliant ideas to thrive in our line of work; you just need a few key concepts that set off a chain reaction of success," said Laffont in an interview with the Financial Times.
This strategy was evident during the third quarter.
On the chopping block
Laffont's investment portfolio includes a multitude of holdings, but it's worth noting that 31% of it is composed of the Stellar Half Dozen stocks, with numerous other holdings intertwined with AI.
However, Laffont made some notable moves during the quarter, selling some Stellar Half Dozen stocks while augmenting others. Laffont sold more than 3.6 million shares of Nvidia (NVDA -1.41%) stock -- accounting for 26% of Coatue's stake during the quarter, but only telling part of the story.
As my Fool.com associate Sean Williams noted, Laffont has sold roughly 80% of his Nvidia stock over the past 18 months. Yet, thanks to the stock's phenomenal growth, the total value of these holdings has only decreased by $152 million, currently standing at $1.23 billion and representing 4.5% of Coatue's portfolio -- its seventh-largest holding.
Nvidia has served as the poster child for AI. Sales of its graphics processing units (GPUs) have skyrocketed, driving the company's revenues, profits, and stock price upward. Its divestment of Nvidia shares does not seem to stem from a waning confidence in the company's prospects but rather a tactical approach to portfolio management.
The story has largely remained the same for Meta Platforms, another of Laffont's preferences. Laffont sold more than 488,000 shares of the stock, representing roughly 12% of Coatue's stake. It's worth noting that Meta still holds the title as the fund's largest holding, with a total of 3.69 million shares worth $2.11 billion.
Meta has ascended to the top echelon of AI, developing one of technology's most influential AI models, which is available on all of the world's leading cloud services.
It's also worth noting that among the Stellar Half Dozen stocks, Nvidia and Meta have emerged as the top performers over the past couple of years, gaining 889% and 366%, respectively (as of this writing).
Thus, the paring down of his positions is not motivated by a disillusionment in the companies, but rather an opportunity to invest in other promising ventures.
Investing in your winners
Sir Isaac Newton's third law of motion states (in part), "An object in motion tends to stay in motion unless acted upon by an outside force." When translated to investing, it can be simplified to this: Winners persistently win. If one believes, as I do, that this principle holds true, some of Laffont's purchases this quarter make perfect sense.
He expanded Coatue's stake in Tesla (TSLA -1.57%), buying 596,000 shares, representing a 36% increase. This brought his total stake in the electric vehicle maker to 2.23 million shares or 2.2% of Laffont's portfolio.
The move appears prescient, as Tesla stock has surged 30% in just six weeks. The Trump Administration is rumored to loosen regulations pertaining to self-driving cars, a move that would likely benefit Tesla.
Laffont also extended his stake in Alphabet (GOOGL -1.76%) (GOOG -1.57%), purchasing more than 917,000 Class A shares, representing a 33% increase. He additionally added 46,000 Class C shares, increasing by about 7.5%. In total, Coatue holds more than 4.3 million Alphabet shares worth $721 million, accounting for roughly 2.7% of the portfolio.
It does not require a detective to conclude why Laffont is amassing Alphabet shares. Among the Stellar Half Dozen stocks, the Google parent has a plethora of growth catalysts and boasts the most appealing valuation, trading at just 23 times earnings.
Amazon is presently available for purchase at around 3 times its sales, making it the most affordable Magnificent Seven stock when considering the price-to-sales (P/S) ratio. This low value is further bolstered by Amazon's dominant positions in cloud computing, e-commerce, and digital advertising, as well as its strong influence in AI. As a result, Amazon has numerous avenues for success.
Laffont recently increased its investment in Microsoft by acquiring an additional 151,000 shares, totaling 3.85 million shares worth approximately $1.7 billion. This represents approximately 6% of Laffont's overall portfolio and is Microsoft's fourth-largest position.
Microsoft is already benefiting from AI through its Copilot suite of tools, which is contributing to the increased adoption of its Azure Cloud service. Additionally, Microsoft's stock is presently priced at just 27 times its projected 2026 earnings, making it an appealing investment considering the opportunity it presents.
Is it worth imitating Laffont's moves in the third quarter?
There are several convincing arguments in favor of each of Laffont's third-quarter investments, but whether or not investors should follow suit largely depends on their views on the future of AI.
Many predictions about the rapidly evolving AI market surpass the $1 trillion mark. Each of the Magnificent Seven, a group of companies leading the charge in AI development, is positioned to capitalize on this opportunity, albeit in different ways. If they can capture even a tiny fraction of the potential market share represented by AI, it could lead to significant gains for these companies -- and their shareholders.
I would humbly suggest that there are strong reasons to invest in all of these companies, as outlined above. It's not just talk; roughly 35% of my own portfolio is invested in Magnificent Seven stocks. If AI continues to gain traction, that percentage could potentially rise even higher.
Following Laffont's investment strategies, some wealthy investors might consider investing in the Stellar Half Dozen stocks, given their outstanding performance compared to the S&P 500. These tech heavyweights have truly shown their potential in the field of finance, especially in investing and finance.
Given Laffont's focus on technological advancements and the ensuing long-term growth trends, it's interesting to note his investment in stocks like Tesla and Alphabet, which are leading the way in AI development and have substantial growth potential. These companies are not just notable in the tech sector, but also in the world of finance, as their stocks have significantly outperformed other investments.
