Billionaire Stephen Mandel Slashed His Stake in 2 Cutting-Edge Artificial Intelligence (AI) Stocks in 2024 and Piled Into a Smoking-Hot High-Yield Dividend Payer Instead

In case you missed it, one of the most-important data releases of the entire quarter occurred on Feb. 14. While many Americans were reminding their significant other how cherished they are on Valentine's Day, institutional investors with at least $100 million in assets under management (AUM) were filing Form 13F with the Securities and Exchange Commission.

A 13F is a required filing no later than 45 days following the end to a quarter that spills the beans on which stocks Wall Street's top money managers have been purchasing and selling. In other words, 13Fs provide an easy way to tell which stocks, industries, sectors, and trends have the full attention of Wall Street's billionaire investors.

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Although Warren Buffett tends to garner a lot of attention, he's far from the only billionaire money manager that can turn heads and raise eyebrows. Lone Pine Capital's Stephen Mandel, who closed out 2024 with $13.5 billion in AUM, is a perfect example of another highly successful billionaire asset manager investors pay close attention to.

In 2024, Mandel, who tends to mix hot tech trends with stalwart businesses in Lone Pine's portfolio, was a notable seller of two high-profile artificial intelligence (AI) stocks. At the same time, he more than doubled his fund's stake in a smoking-hot high-yield dividend stock whose growth rate is reaccelerating.

Stephen Mandel sent shares of these industry-leading AI stocks to the chopping block

Most billionaire money managers have taken full advantage of the rise of AI. According to the analysts at PwC in Sizing the Prize, AI has the potential to add $15.7 trillion to the worldwide economy by the turn of the decade. This is a big enough addressable market that it can accommodate a long list of potential winners.

Despite this ongoing AI spending spree and lengthy growth runway, Lone Pine's billionaire chief hit the sell button on e-commerce titan Amazon (NASDAQ: AMZN) and customer relationship management (CRM) leader Salesforce (NYSE: CRM) in 2024. Spanning 12 months, Mandel sold 1,675,755 shares of Amazon, representing a reduction of 31%, and parted ways with 934,437 shares of Salesforce, equating to a 37% decline.

On paper, both businesses appear rock-solid. Amazon is incorporating generative AI solutions into its fast-growing and high-margin cloud infrastructure service segment, Amazon Web Services (AWS). AWS holds the leading global market share among cloud infrastructure service providers, and AI is expected to accelerate this segment's long-term growth potential.

Meanwhile, Salesforce has been the top-ranked global CRM software provider for 11 consecutive years, according to IDC, with market share that totals more than its No. 2 through 4 CRM competitors on a combined basis. But what's particularly exciting about Salesforce is the company's focus on agentic AI -- i.e., using virtual agents as assistants that can work side-by-side with humans and other virtual assistants.

One potential catalyst that explains Mandel's selling activity is simple profit-taking. Lone Pine is a relatively active fund, with the average holding time for all 30 positions currently clocking in at six quarters, or 18 months. Shares of both Amazon and Salesforce have performed well in the current bull market.

Perhaps the bigger concern is that Lone Pine Capital's chief is paring down his stakes due to valuation. Although Amazon's multiple relative to cash flow is notably lower than it was throughout the 2010s, it's not exactly an inexpensive stock at 29 times forward-year earnings. It's a similar story for Salesforce, which is commanding a forward price-to-earnings (P/E) ratio of roughly 28.

While neither Amazon nor Salesforce are egregiously overpriced, the stock market is, collectively, trading at one of its highest valuation multiples when back-tested 154 years. The S&P 500's Shiller P/E Ratio (also known as the cyclically adjusted P/E Ratio, or CAPE Ratio)), has been hovering around 38, which is more than double its 154-year average.

Stephen Mandel has navigated valuation bubbles before. If the AI bubble were to burst, as history suggests will happen at some point, shares of Amazon and Salesforce will almost certainly be weighed down.

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The scorching-hot stock billionaire Stephen Mandel bought hand over fist in 2024

In spite of the stock market being historically pricey, Mandel's fund opened positions in 17 new stocks in 2024, as well as increased its stake in a handful of other existing holdings. Arguably no stock was purchased more aggressively in 2024 than tobacco behemoth Philip Morris International (NYSE: PM).

When 2023 came to a close, Lone Pine was holding just over 3 million shares of Philip Morris. But when the bell tolled on Dec. 31, 2024, Mandel had overseen the addition of 3,462,581 shares, which increased his fund's stake by a cool 115% in this high-yielding stock.

The headwinds for tobacco stocks are well-known. As the public has become aware of the long-term dangers of smoking tobacco products, adult-use cigarette smoking rates in a number of developed markets have declined. In the U.S., for example, the adult cigarette smoking rate has fallen from the 42% range in the mid-1960s to an estimated 11.6% in 2022, per the Centers for Disease Control and Prevention. A market with a shrinking pool of consumers can be a challenge to operate in.

The silver lining for Philip Morris is that isn't bound to developed markets. It has operations in more than 180 countries worldwide, which means that if regulations become more stringent in a developed market, it can lean on faster-growing emerging markets, where tobacco often remains a luxury, to pick up the slack.

To build on this point, tobacco contains nicotine, which is an addictive chemical. Existing smokers have been willing to absorb sizable price hikes, which helps Philip Morris International offset cigarette volume weakness in select developed markets.

But what's really allowing Philip Morris to shine is its smoke-free business, which includes its Zyn nicotine pouches, as well as its IQOS heated tobacco system. The company sold 22% more Zyn pouches in the U.S. during the fourth quarter, compared to the prior year period, while international sales of Zyn pouches more than doubled. Meanwhile, heated tobacco unit shipments grew by 11.6% in 2024 to nearly 140 billion units.

Philip Morris International's ongoing shift to promote its smoke-free segment is helping to reaccelerate its sales and profit growth. Whereas some domestic tobacco stocks are struggling with declining cigarette shipments, Philip Morris is expected to deliver greater than 7% sales growth in 2026, with earnings per share projected to jump by more than 10%.

The icing on the cake for investors is the juicy dividend tobacco stocks are known to deliver. Philip Morris International is doling out $1.35 per share in dividends each quarter to its investors, equating to an annual yield of 3.5%!

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Sean Williams has positions in Amazon. The Motley Fool has positions in and recommends Amazon and Salesforce. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.