Billionaire Jeff Yass Sold 29% of Susquehanna's Stake in Nvidia and Is Piling Into Another Huge Artificial Intelligence (AI) Stock

Artificial intelligence (AI) has been a hot investing trend ever since ChatGPT exploded onto the scene in late 2022. The opportunities are hard to overstate, but that hasn't stopped analysts from trying. In a recent analysis from PwC, the consulting firm predicted an extra $15.7 trillion in worldwide economic activity by 2030.

Wall Street's biggest investors expect AI to infiltrate every corner of the global economy. Thanks to quarterly disclosures required by the Securities and Exchanges Commission, the rest of us can see which AI-related businesses billionaire fund managers are betting on.

One of the most watched billionaires on Wall Street, Jeff Yass, made his mark decades ago as an options trader. These days, the fund he manages, Susquehanna International, also buys and sells common shares of AI-related businesses.

During the third quarter, Yass and Susquehanna sold shares of the AI gold rush's biggest provider of picks and shovels, Nvidia. Susquehanna reduced its Nvidia stake by 30%, or about $722 million. The common stock sale doesn't tell the whole story, because the firm employs complex option trading strategies, too. On the surface, though, it looks like Yass dumped Nvidia to acquire heaps of another big AI-focused stock, Meta Platforms (META -4.00%).

Wall Street is bullish for Meta Platforms

Susquehanna's stake in the parent company behind Instagram and Facebook increased by 54% in the third quarter to reach $759 million. The firm's own sell-side analysts recently raised their price target for Meta Platforms stock to $675 per share and maintained a positive rating. At recent prices, the target implies a 22% gain.

Engineers at Meta Platforms have been using machine learning to fuel their recommendation engines for years. Those endless recommendations are so offputting that I generally avoid social media. Luckily for Meta investors, most folks aren't as easily irritated. About 3.2 billion people use at least one of Meta's applications every day.

In 2023, ChatGPT became the fastest consumer application to reach 100 million users. Like most of Silicon Valley, Meta Platforms was shocked by the enormous demand for generative AI applications, but it adapted quickly. According to CEO Mark Zuckerberg, Meta AI already has more than 500 million monthly active users. In October, over a million advertisers used Meta's generative AI tools to create over 15 million ads.

Improving engagement and ad creation isn't the end game for Meta Platforms' AI ambitions. Zuckerberg intends to make it a major player in the AI field beyond its family of apps. To this end, it is training Llama, an open-source large language model, on a cluster of graphics processors more powerful than 100,000 Nvidia H100 units.

Reasons to be cautious

Before you hurl your own hard-earned money at Meta Platforms stock, it's important to realize the company is making a big bet on AI and there are no guarantees it will pay off.

In 2024, Meta expects to spend between $38 billion and $40 billion on capital expenditures. The main expenses will be servers, data centers, and network infrastructure necessary to fuel its AI ambitions.

The investments Meta is making in its future took a big leap this year from the $28.1 billion it spent in 2023. An extra $10 billion to $12 billion this year could be just the beginning of Meta's AI investment spree. Management expects a significant acceleration in infrastructure expense growth in 2025.

Meta Platforms' big AI push isn't the only venture that's bleeding money right now. Realty Labs revenue rose to $270 million in the third quarter, but that wasn't nearly enough to offset expenses. The segment posted a $4.4 billion operating loss during the three months ended Sept. 30.

Buy, sell, or hold?

Meta's investments are enormous, but so is its profit. The company recorded a stunning $52 billion in free cash flow over the past 12 months.

META Free Cash Flow data by YCharts

This March, the company announced it would distribute $50 billion in profit to investors as share buybacks. It also began a dividend program that will force management to think about its bottom line every time it makes another investment decision.

Meta stock has been trading for about 26 times forward-looking earnings expectations. This is a historically high multiple for Meta, but earnings per share have more than tripled over the past five years. I'm not excited about buying Meta at recent prices, but there's still a good chance that it can outperform the market over the long run.