Why big private investors aren’t worried

The biggest investors in the world often have a greater focus on the private than public markets, but with the artificial intelligence boom set to reshape the economy for decades to come, they can’t afford to not pay close attention to what’s taking place with the largest publicly traded tech stocks, and they are not worried.

Amid fears about risky over-concentration in the so-called “Magnificent Seven” stocks that dominate the S&P 500, and related fears of an AI bubble, two managers overseeing tens of billions of dollars from investors told CNBC at its Delivering Alpha conference last week they remain bullish on what’s taking place in the U.S. tech sector and the huge sums being invested in AI.

Coatue Management founder and portfolio manager Philippe Laffont, whose fund manages roughly $70 billion in assets, according to a Securities and Exchange Commission filing, said at Delivering Alpha that there is an important difference between now and the dotcom bubble, what he called the “hyper-scaler advantage,” a reference to the ability of companies including Alphabet, Microsoft and Amazon to invest what Wall Street estimates may reach over $500 billion in AI bets next year.

General Atlantic Chairman and CEO Bill Ford, whose firm manages $118 billion in assets, agreed that the dollar signs currently being discussed in the market are a reason for conviction about the biggest public tech stocks rather than doubts. “The people driving change in AI are the large public companies and the incumbents, they have the advantage,” he said.

Even as Ford said his firm remains focused on the private market opportunities and how AI can be applied to its portfolio companies — investments he says are being made across every one of the 200 companies in which General Atlantic is invested — he added, “You cant invest in the private market without an understanding of what Oracle, what Google, what Microsoft is doing.”

“You can’t make good decisions. We have to be fully aware of what they are doing even if we are not investing in them,” Ford said.

General Atlantic has been “pretty aggressively” investing across its portfolio companies in AI and Ford said it has already seen a “pretty high payback,” and he added that is in what he would describe as just the “front edge” of the value opportunities from apply AI, in areas like customer care, coding and digital marketing.

Laffont, whose firm invests in both public and private companies, said it is fair to have concerns about tech stocks that increase in value very quickly because that can be at odds with a bullish view of valuations over the longer term. That’s because with publicly traded stocks, he said, belief in the future doesn’t necessarily mean that belief hasn’t already been priced in. He cited Oracle’s recent stock chart as an example — though he did not specifically indicate concern about the company which other market skeptics have recently voiced — which over the past year rose from $150 per share to near $350 per share, before falling back into the $220-range.

Alphabet is a good example of how quickly the big tech stock story tied to AI can change, in its case for the better. It was not long ago that Google had been left for dead by some investors betting in the wake of ChatGPT’s debut and Google Gemini’s stumbles that it had lost the AI war. Alphabet is now the best- performing big tech stock of the year. Last week, Warren Buffett’s Berkshire Hathaway revealed it had taken a stake in the company.

Berkshire Hathaway’s bet on Google is notable given Buffett’s previous comments that he had missed the opportunity to invest in the firm. At the 2019 Berkshire meeting, Buffett and Berkshire vice chairman Charlie Munger lamented that they had “screwed up” by not buying Alphabet earlier because they “could see in our own operations how well that Google advertising was working. And we just sat there sucking our thumbs.” At that time, the shares were going for around $59. On Friday, shares closed at over $276 and over the prior quarter — for which Berkshire just released its portfolio buys and sells — shares had never traded below $170.

The Nasdaq ended last week in the red, its second consecutive weekly decline since August, but remains less than 5% below its all-time high and above its 200-day moving average. Since its Covid low, the Nasdaq has gained over 245%.

Laffont said the rapid rise in tech valuations is definitely a phenomenon that investors…