So far, Nvidia has been one of the biggest winners of the artificial intelligence (AI) boom. Shares jumped 173% during the past year as the company reported unprecedented demand for its graphics processing units or GPUs, chips that power all of the most advanced AI systems.
However, some billionaire hedge fund managers trimmed their positions in Nvidia during the first quarter, while purchasing shares of two other AI stocks: Amazon (NASDAQ: AMZN) and Salesforce (NYSE: CRM).
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Israel Englander of Millennium Management sold 720,004 shares of Nvidia stock, reducing his stake by 35%. Meanwhile, he increased his positions in Amazon and Salesforce by 32% and 36%, respectively. Those stocks rank as his largest and 12th-largest holdings, respectively, excluding options.
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Louis Bacon of Moore Capital Management sold 2,006 shares of Nvidia, reducing his stake by 19%. He also increased his stake in Amazon by 18% and opened a new position in Salesforce. Those stocks rank as his largest and sixth-largest holdings, respectively, excluding options.
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Philippe Laffont of Coatue Management sold 2,937,060 shares of Nvidia stock, reducing his stake by 68%. Meanwhile, he increased his position in Amazon by 3% and doubled his stake in Salesforce. Those stocks rank as his second- and fourth-largest holdings, respectively.
Investors need not interpret those trades to mean Nvidia is a poor investment. All three hedge fund managers still have a stake in the chipmaker. But Amazon and Salesforce warrant further consideration. Here are the important details.
1. Amazon
Amazon operates the largest online marketplace in North America and Western Europe in terms of gross merchandise sales, and strength in retail has allowed the company to build a booming digital advertising business. Amazon is the biggest retail media company in the United States, and the third-biggest adtech company worldwide. Meanwhile, Amazon Web Services (AWS) leads the market in cloud infrastructure and platform services revenue.
Amazon is using artificial intelligence (AI) to create monetization opportunities and boost efficiency across its different businesses. In e-commerce, it recently announced a generative AI shopping assistant called Rufus that will help consumers find and compare products. Amazon also debuted a generative AI assistant for sellers that streamlines the creation of product pages. Finally, the company uses AI in its logistics business to manage inventory and optimize delivery routes.
In advertising, Amazon uses machine learning to ensure consumers see the most relevant advertisements. That ultimately translates into more successful campaigns for marketers, which makes Amazon an even more attractive advertising partner. The company has also launched a generative AI tool that lets brands turn product profile photos into lifestyle images.
In cloud computing, AWS is already well positioned to benefit from AI given its leadership in cloud infrastructure and platform services, but the company has also introduced new products. Amazon Bedrock is a cloud service that lets brands customize pretrained large language models and build generative AI applications. Amazon Q is a conversational assistant that can summarize information and automate tasks like coding.
Wall Street analysts expect Amazon to grow earnings per share at 24% annually over the next three to five years. That consensus estimate makes its current valuation of 50 times earnings look relatively reasonable. Indeed, Amazon is trading near its cheapest earnings multiple in two years. I would feel comfortable buying this AI stock today, and I think patient investors should consider doing the same.
2. Salesforce
Salesforce is the market leader in customer relationship management (CRM) software, and its market share exceeds that of the next four competitors combined. Its platform brings together productivity applications for sales, customer service, marketing, and commerce. Salesforce will undoubtedly benefit as core CRM spending grows, but two new products extend its addressable opportunities in the adjacent areas of data management and automation.
First, Data Cloud unifies customer data from across internal sources (Salesforce CRM software) and external sources (third-party data platforms), and it lets users activate that data to automate workflows, personalize the customer experience, and develop AI applications. Salesforce CEO Marc Benioff says Data Cloud is the fastest-growing product in company history.
Second, Einstein Copilot is a natural language interface that leans on generative AI to automate tasks across the CRM platform. For instance, Einstein can summarize information and surface relevant insights for sales and customer service teams. It can also assist commerce teams in developing digital storefronts, and it can help marketing teams create advertising campaigns.
CRM spending is forecast to grow at 13.9% annually through 2030, according to Grand View Research. Salesforce should benefit from that tailwind in any case, but especially because Data Cloud and Einstein Copilot add value to pre-existing products and create cross-sell opportunities for the company. Indeed, Benioff said he believes “Data Cloud will become the heart and soul” of the Salesforce CRM platform as businesses invest in AI, simply because AI must be rooted in good data to be effective.
Wall Street analysts expect Salesforce to grow earnings per share at 21% annually over the next three to five years. That makes its current valuation of 64.8 times earnings looks quite pricey. Of course, Salesforce may grow earnings more quickly than analysts expect, but I would wait for a cheaper valuation multiple before buying this stock.
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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. Trevor Jennewine has positions in Amazon and Nvidia. The Motley Fool has positions in and recommends Amazon, Nvidia, and Salesforce. The Motley Fool has a disclosure policy.
Billionaires Are Selling Nvidia Stock and Buying These 2 Artificial Intelligence (AI) Stocks Instead was originally published by The Motley Fool
Source: finance.yahoo.com