Over the last 30 years, no shortage of next-big-thing investment trends have graced Wall Street. Since the advent of the internet in the mid-1990s, no innovation, technology, or trend has come close to having the impact on corporate growth rates as the internet… until now.
According to the analysts at PwC, the artificial intelligence (AI) revolution has the ability to increase global gross domestic product by more than $15 trillion in 2030. This is a mammoth addressable market that can support multiple big-time winners.
Yet in spite of the euphoria surrounding AI on Wall Street, quarterly filed Form 13Fs with the Securities and Exchange Commission point to mixed feelings for artificial intelligence-inspired stocks. A 13F provides investors with a concise snapshot of which stocks the smartest and most-successful money managers have been buying and selling.
In the June-ended quarter, billionaire investors sent shares of AI leader Nvidia (NASDAQ: NVDA) to the chopping block and decisively piled into what can be considered their new favorite artificial intelligence stock.
Nvidia had billionaires running for the exit for a third consecutive quarter
What’s particularly interesting about the selling activity in Nvidia is it marks the third straight quarter of selling by at least a half-dozen prominent billionaires. The June-ended quarter saw seven billionaire investors lighten their load, including (total shares sold in parenthesis):
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Ken Griffin of Citadel Advisors (9,282,018 shares)
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David Tepper of Appaloosa (3,730,000 shares)
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Stanley Druckenmiller of Duquesne Family Office (1,545,370 shares)
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Cliff Asness of AQR Capital Management (1,360,215 shares)
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Israel Englander of Millennium Management (676,242 shares)
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Steven Cohen of Point72 Asset Management (409,042 shares)
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Philippe Laffont of Coatue Management (96,963 shares)
Profit-taking and the need to diversify are two possible answers as to why some or all of these billionaires felt the need to reduce their stakes in Nvidia.
Since 2023 began, Nvidia’s market cap has grown by $2.75 trillion, as of the closing bell on Aug. 23, 2024, which led to the company’s largest-ever stock split (10-for-1) in June. This increase is due to the company’s H100 graphics processing unit (GPU) becoming the standard in AI-accelerated data centers, as well as Nvidia possessing jaw-dropping pricing power, which is reflective of enterprise demand for its AI-GPUs overwhelming supply.
But there are far more reasons than just profit-taking that might explain this ongoing billionaire exodus from Nvidia.
One of the more logical conclusions to draw is that at least some of these billionaires are concerned about competitive pressures following its parabolic climb. Advanced Micro Devices (NASDAQ: AMD) is ramping up production of its MI300X AI-GPU and doesn’t have the same chip-fabrication supply constraints as Nvidia. Further, AMD’s chip typically sells for $10,000 to $15,000, which is far below the $30,000 to $40,000 Nvidia is commanding for the H100.
Competitive pressures can manifest from within, as well. Nvidia’s four largest customers by net sales — Microsoft, Meta Platforms, Amazon, and Alphabet — have developed in-house AI-GPUs for use in their data centers. Even though these in-house chips won’t have the same computing capacity as Nvidia’s H100, they’re going to take up valuable data center “real estate” and minimize Nvidia’s opportunities moving forward.
These seven billionaire sellers might also be concerned about history. At no point over the last three decades has there been a hyped innovation, technology, or trend that managed to avoid an early stage bubble-bursting event. Without exception, investors always overestimate the utility and adoption of new innovations.
Despite all the buzz with artificial intelligence, very few businesses have well-defined game plans as to how they’re going to generate a positive return on their data center investment. This is a glaring warning that investors have, once again, overestimated the uptake of this technology. If and when the AI bubble bursts, no company is likely to be hit harder than Nvidia.
Move over, Nvidia: This is now the favorite AI stock of billionaire money managers
But while billionaires were showing shares of Nvidia to the door, they were avidly scooping up shares of what can arguably be described as their new favorite AI stock. A total of seven billionaire money managers were buyers of shares of AI networking solutions specialist Broadcom (NASDAQ: AVGO) during the second quarter, including (total shares purchased in parenthesis):
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Ole Andreas Halvorsen of Viking Global Investors (2,930,970 shares)
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Jeff Yass of Susquehanna International (2,347,500 shares)
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Israel Englander of Millenium Management (2,096,440 shares)
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Ken Griffin of Citadel Advisors (1,880,740 shares)
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John Overdeck and David Siegel of Two Sigma Investments (1,332,230 shares)
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Ken Fisher of Fisher Asset Management (865,090 shares)
Keep in mind that the above share counts have been adjusted for Broadcom’s 10-for-1 stock split, which occurred after the close of trading on July 12.
Just as Nvidia’s hardware has become a staple in high-compute data centers, Broadcom has quickly asserted its dominance as a key AI networking solutions provider. For instance, its Jericho3-AI fabric is capable of connecting up to 32,000 GPUs, with the goal of reducing tail latency and maximizing the computing capacity of these chips.
While AI has undoubtedly been a catalyst, the reason I suspect billionaires have made Broadcom their favorite AI stock is that, unlike Nvidia, it’s not entirely reliant on AI for growth. If the AI bubble bursts, Broadcom has a multitude of other revenue channels it can turn to as a cushion.
For example, Broadcom has a leading position as a provider of wireless chips and accessories used in next-generation smartphones. Wireless companies have willingly spent billions to upgrade their networks to support 5G download speeds. In turn, this has led to a steady device-replacement cycle that’s spurred demand for Broadcom’s products.
Beyond smartphones, you’ll find Broadcom supplying networking solutions to businesses from all sectors and industries, along with cybersecurity solutions and financial software, to name some of its other ventures.
Broadcom has also leaned on acquisitions as a way to expand its product and service ecosystem, promote cross-selling opportunities, and grow its bottom line. Its $69 billion buyout of cloud virtualization software provider VMware, which closed in November, is a perfect example of Broadcom broadening its reach in private and hybrid enterprise clouds.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Sean Williams has positions in Alphabet, Amazon, and Meta Platforms. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Move Over, Nvidia: Billionaires Have a New Favorite Artificial Intelligence (AI) Stock was originally published by The Motley Fool
Source: finance.yahoo.com