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The concept of artificial intelligence (AI) has been around since the 1930s, first introduced by noted mathematician and computer scientist Alan Turing, who also helped develop the first modern computer and the first algorithms. However, recent advances in the field of generative AI have made headlines, and people are captivated. The capabilities exhibited by OpenAI's ChatGPT went far beyond anything most could have imagined, sparking a wave of public interest -- but this could be just the beginning.

Cathie Wood and her team at Ark Investment Management have been running the numbers and concluded that AI software could represent a $14 trillion revenue opportunity by the close of the decade.

Some of the most successful hedge fund billionaires are looking for a way to capitalize on the fervor, buying up shares of companies best positioned to profit from the growing integration of AI into every facet of our lives. Here are two AI-related stocks billionaires are buying hand over fist.

Image source: Getty Images.

Billionaire philanthropist and hedge fund manager Seth Klarman is something of a value investing legend, called "the most successful and influential investor you have probably never heard of," says The New York Times. Klarman authored the book Margin of Safety, Risk-Averse Investing Strategies for the Thoughtful Investor, which sold just 5,000 copies and has long since been out of print. However, those looking to own the book often pay hundreds or even thousands of dollars for the privilege of buying a used copy.

Klarman's Baupost Group, with more than $30 billion in assets under management, recently made a big bet on e-commerce titan Amazon (AMZN 1.98%). In the fourth quarter, the hedge fund bought 742,000 shares, increasing its stake by 299%, bringing its total holdings to 990,000 shares, currently worth roughly $104 million.

The AI connection is clear. In its 2022 letter to shareholders, CEO Andy Jassy noted that Amazon has been using machine learning (a type of AI) "extensively for 25 years ... in everything from personalized e-commerce recommendations to fulfillment center pick paths, to drones for Prime Air, to Alexa, to the many machine learning services AWS [Amazon Web Services] offers." He went on to say that Amazon plans to continue to "invest substantially" in AI, saying it will "transform and improve virtually every customer experience."

Amazon also announced the debut of its own generative AI service -- dubbed Bedrock -- to AWS cloud customers. Users will be able to access the company's Titan large language model (LLM) -- similar to the technology that powers ChatGPT -- and customize it based on their needs. In a recent interview with CNBC's Squawk Box, Jassy noted that "really good" LLMs cost "billions of dollars" and take "many years" to train, and most companies simply don't have the resources.

To be clear, it probably wasn't the AI connection that caught Klarman's eye, but rather Amazon's strong business and historically low valuation. The stock currently trades for roughly 2 times sales, squarely in the range of a bargain price-to-sales ratio of between 1 and 2. Plus, the last time Amazon stock was this cheap was nearly eight years ago, in early 2015.

Many investors are familiar with the name Ken Griffin, billionaire founder and CEO of hedge manager Citadel Advisors. He had already achieved legendary status on Wall Street for predicting the 1987 market crash, but recently added a new accomplishment to his resume: In 2022, Citadel became the most profitable hedge fund in history, producing $16 billion in gains.

Citadel Advisors bet heavily on creative kingpin Adobe (ADBE -3.26%) in the fourth quarter, snapping up 802,267 shares, an increase of 96%. That brings the total to more than 1.57 million shares, currently worth more than $598 million.

Adobe was early to jump on the AI bandwagon, introducing its Sensei platform in 2016. The system provided a set of AI tools to creators, helping them search for and identify images, alter digital facial expressions, or categorize their creations, among many other features.

That long-term tradition continues with the recent debut of Firefly, a generative AI editing tool for creators. The suite of AI models will initially focus on "the generation of images and text effects," and will be integrated across Adobe's Creative Cloud, Document Cloud, Experience Cloud, and Adobe Express, according to the press release. The use of text-based prompts will enhance and accelerate the creative process, while cutting down on the amount time wasted doing menial but necessary creative tasks. These tools are already available in beta, and Adobe will be soliciting feedback from users to help improve its utility.

It also doesn't hurt that despite the stock's 750% gains over the past decade, Adobe is currently selling for roughly 9 times sales. For context, the valuation hasn't been that cheap since early 2017, which likely factored into Griffin's decision.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fools board of directors. Danny Vena has positions in Adobe and Amazon.com. The Motley Fool has positions in and recommends Adobe, Amazon.com, and New York Times. The Motley Fool recommends the following options: long January 2024 $420 calls on Adobe, short April 2023 $38 calls on New York Times, and short January 2024 $430 calls on Adobe. The Motley Fool has a disclosure policy.

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AI Boom: 2 Artificial Intelligence Stocks Billionaire Investors Are ... - The Motley Fool