The Next NVDA? 3 AI Stocks the Gurus Are Buying Hand Over Fist

Stocks to buy

The release of OpenAI‘s generative artificial intelligence (AI) chatbot, ChatGPT, set the world on fire with the technology’s nascent potential. Yet the practicality of Nvidia‘s (NASDAQ:NVDA) chips, which allow AI to function to its full potential, arguably showed investors how they could profit from it.

Nvidia stock became a rocket. Just this year its shares more than tripled in value. It was deemed one of the so-called Magnificent 7 tech stocks that accounted for almost all of the S&P 500‘s gains in 2023. Because Nvidia’s $1.15 trillion valuation is equal to about 3% of the index’s total capitalization, it means the chipmaker was singlehandedly influencing the benchmark’s direction.

Yet its stock is priced for perfection today. Seeing where investing gurus are looking to find the next NVDA could help our own portfolios profit from the experience. Below are three AI stocks these billionaires are buying hand over fist. 

Microsoft (MSFT)

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As a major investor in OpenAI, Microsoft (NASDAQ:MSFT) had the most to lose from the turmoil that erupted at the company when its directors ousted the company’s founder and CEO. Microsoft was instrumental in bringing him back and dismissing the board. The tech giant also got an observer’s seat on the board to watch over its investment.

It’s natural that Microsoft is working to protect the technology since it’s integrating ChatGPT into every facet of its business. The Bing search engine, cloud service platform Azure, Teams collaborative tools, and Microsoft 365 Copilot are all embedded with AI. By combining the power of large language models (LLMs) within the basic structure of Microsoft’s offerings, they become powerful productivity tools.

Both Ron Baron of Baron Capital and Joel Greenblatt of Gotham Asset Management were establishing new positions in MSFT stock. Ken Fisher of Fisher Investments, however, was adding to an already substantial stake in the business. Specifically, Fisher owns almost 25 million shares which make him a significant stockholder in the company.

The stock is expensive on traditional valuation measures, but because it continuously grows free cash flow while raising its dividend yearly, shareholders new and old are well rewarded. 

Duolingo (DUOL)

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As its name suggests Duolingo (NASDAQ:DUOL) helps teach you a new language through its language learning app. It uses a freemium model to lure you in with free access to its courses. Once you’re hooked, it then prompts you to pay up to explore more advanced tools. Increasingly, those are enhanced with or driven by AI. Roleplay, for example, is an AI conversation partner employing OpenAI’s newest, most advanced chatbot, ChatGPT-4. 

While most users do just use the free portion of its software, Duolingo is becoming adept at converting a growing number of users to the paid side of the platform. Subscription bookings surged 54% last quarter to $121.3 million with paid subscribers numbering 5.8 million, a 60% year-over-year increase. Total monthly active users stood at 83.1 million, up 47%.

Duolingo is having almost as much success as Nvidia. Shares tripled in 2023 and spiked last month after a blowout quarter. The language app caught the attention of several astute investing gurus. Both Baron and Greenblatt were again actively staking out new positions in Duolingo too. With estimated average purchase prices of $147 a share, the billionaire investors have already gained 45% on their purchases.

The stock is obviously not cheap anymore but seems to have significant growth opportunities. Duolingo is developing math and music lessons to add to its core language programs. It says it won’t go beyond this right now because it wants each offering to be successful. That’s a smart management team that won’t throw AI at every problem even though it could.

Palantir Technologies (PLTR)

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Data analytics are a perfect application for AI, and Palantir Technologies (NASDAQ:PLTR) thought so too, launching its new Artificial Intelligence Platform (AIP) a few months ago. Already it’s having an impact as the big data stock reported its fourth consecutive quarter of GAAP profits. It’s the first time in its history it’s been profitable on a trailing 12-month basis. It credited AIP with helping to drive that growth.

The platform is opening new possibilities for existing customers while bringing in new ones. Commercial customers grew 37% to 181, raising revenue by 23% year over year. Government revenue grew 12% from last year.

Palantir is deemed the best way to profit from AI’s potential. Wedbush Securities analyst Dan Ives calls it “the best pure-play AI name” while global marketing intelligence firm IDC ranked Palantir as the No. 1 AI software platform. Mario Gabelli of Gabelli Asset Management certainly thinks so, as well. He was busy buying more shares of Palantir. He increased his stake by 26% to 95,000 shares.

Palantir Technologies stock also tripled in value this year yet appears to have plenty more room to expand. Joining in with the gurus buying this stock isn’t a bad strategy at all.

On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Rich Duprey has written about stocks and investing for the past 20 years. His articles have appeared on Nasdaq.com, The Motley Fool, and Yahoo! Finance, and he has been referenced by U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, USA Today, Milwaukee Journal Sentinel, Cheddar News, The Boston Globe, L’Express, and numerous other news outlets.

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