Daniel Loeb is something of an iconic figure throughout the annals of Wall Street. The billionaire is CEO of Third Point, the hedge fund he founded in 1995. Loeb secured his place in investor history by starting Third Point with just $3 million in seed money — collected from family and friends — and parlaying that right right into a $6 billion financial empire. In 2022, Loeb made the list of the “Best Hedge Fund Managers of All Time.”

So when Loeb talks, Wall Street listens.

Over the past yr, Loeb’s Third Point’s holdings have been heavily weighted toward the so-called “Magnificent Seven” stocks. The common thread that unites these industry leaders is artificial intelligence (AI). They were also all amongst the various top performers throughout the Nasdaq Composite last yr:

• Nvidia: up 239%.

• Meta Platforms (NASDAQ: META): up 194%.

• Tesla: up 102%.

• Amazon (NASDAQ: AMZN): up 81%.

• Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG): up 58%.

• Microsoft (NASDAQ: MSFT): up 57%.

• Apple: up 48%.

Loeb has made no bones regarding the onset of generative AI, calling it “transformative” and saying “profound economic upheaval” coming. “We imagine generative and other forms of AI could compare to the Industrial Revolution but compressed right right into a period of months and years reasonably than an extended time,” he said.

Let’s take a take a look at which Magnificent Seven stocks dominated his portfolio throughout the fourth quarter and which one he sold completely out of.

1. Microsoft: 11.5% of holdings

Microsoft earned its place on Loeb’s list because of a quick pivot to embrace AI. The company integrated AI functionality across a broad cross-section of its existing services. Nonetheless, a very powerful potential opportunity comes from its AI assistant, Copilot, which helps streamline and automate a big selection of tasks, significantly enhancing worker productivity. Demand for the product has been robust.

Loeb has minced no words about its potential. “Microsoft’s introduction of its AI-assisted Office Copilot software … could increase its revenues by as much as $25 billion or more on software sales alone.”

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It’s value noting that Loeb trimmed his position in Microsoft by greater than 9% in the middle of the quarter — nevertheless the position is unquestionably larger than when the quarter began. Why? The stock jumped 19% in the middle of the fourth quarter, so whilst Loeb took somewhat off the best, your entire value of his Microsoft holdings grew.

At 34 times forward earnings, Microsoft may appear somewhat pricey, but given its pole position in AI, it’s deserving of a premium.

2. Amazon: 9.7% of holdings

Loeb’s stake in Amazon shouldn’t be a surprise, as he’s held the position for years. In early 2022, when the company’s market cap was $1.6 trillion, Loeb stated that he believed there was greater than $1 trillion in “untapped value” in Amazon. He estimates that its online retail business was value greater than $1 trillion alone, while its cloud infrastructure business — Amazon Web Services (AWS) — was value greater than $1.5 trillion.

Furthermore, Loeb has argued that “essentially essentially the most direct consequence” of the accelerating adoption of generative AI is that it “will drive faster revenue growth” for cloud infrastructure services providers — including Microsoft Azure, AWS, and Google Cloud. He went on to say that such services “are the ‘picks and shovels’ of the AI gold rush and can profit” no matter who wins the AI revolution.

Loeb trimmed his Amazon holdings by about 10% in the middle of the fourth quarter, but — as with Microsoft — the value of the position increased. This was because of Amazon’s stock price gains of 20% in the middle of the fourth quarter.

Nonetheless, at lower than 3 times forward sales, Amazon stays to be very much a bargain.

3. Meta Platforms: 6.2% of holdings

Consistent with Loeb’s big bets on the Magnificent Seven and AI, he established a big position in Meta Platforms throughout the third quarter and added again in Q4. Meta’s ties to AI are well established, as the company has long used these advanced algorithms to help goal its promoting while surfacing relevant content for users on its various social media sites. Furthermore, the recovery of the selling market stays to be ongoing, representing additional upside potential for Meta.

There’s also Meta’s foray into generative AI with its Large Language Model Meta AI, which is in the marketplace on all of the foremost cloud platforms. This represents a contemporary income for the company.

While he hasn’t explained his reasoning, Loeb obviously believes the stock stays to be a superb value. While not addressing Meta specifically, Loeb’s penchant for “high-quality corporations trading at reasonable valuations” is well documented. Indeed, Meta Platforms stock was selling for 24 times earnings to shut out 2023, a discount to the S&P 500, with a price-to-earnings ratio of 28.

4. Alphabet: 0% of holdings

Loeb closed out of his entire position in Alphabet, selling all 900,000 shares of Class A stock valued at roughly $125 million on the tip of the quarter. Loeb has been mum as to his mindset, but broader portfolio shifts might provide some insight. Together with Alphabet and trimming his Microsoft and Amazon holdings, Loeb significantly reduced his stake in other technology stocks, including Taiwan Semiconductor, Intercontinental Exchange, and Uber, amongst others. On the an identical time, the billionaire investor initiated positions in several utilities, including Verizon and Vistra, while increasing his stake in Pacific Gas & Electric. This implies Loeb was rebalancing his portfolio and saw greater opportunities in utility stocks, particularly given the epic run in tech stocks over the past yr.

To be clear, I feel Loeb made a mistake selling out of Alphabet. It stands to learn from the selling rebound and the an identical AI tailwinds that may drive the alternative Magnificent Seven stocks higher. Furthermore Alphabet is selling at just 24 times earnings, discount to the market.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Idiot’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Idiot’s board of directors. Danny Vena has positions in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Idiot has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Taiwan Semiconductor Manufacturing, Tesla, and Uber Technologies. The Motley Idiot recommends Intercontinental Exchange and Verizon Communications and recommends the subsequent options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure policy.

Billionaire Dan Loeb Has 27% of His Third Point Portfolio in 3 Sensible “Magnificent Seven” Stocks, but Completely Sold Out of One other was originally published by The Motley Idiot