On Wall Street, important data releases are a common occurrence. Monthly inflation and jobs reports, coupled with Wall Street’s leading businesses reporting their quarterly operating results over a six-week stretch every quarter, can make it easy for a key data release to slip under the radar.
Aug. 14 marked what can arguably be described as the most important data dump of the third quarter. This was the last day to for institutional investors and wealthy asset managers to file Form 13F with the Securities and Exchange Commission. A 13F details which stocks Wall Street’s smartest and most-successful money managers purchased and sold in the latest quarter (i.e., the June-ended quarter).
It was a particularly busy quarter of additions and subtractions for billionaire Philippe Laffont at Coatue Management. Laffont’s hedge fund, which is primarily focused on higher-growth tech stocks, oversees more than $25 billion in assets spread across 74 holdings.
What’s most noteworthy about Laffont’s trading activity has been his continued selling of former top holding Nvidia (NASDAQ: NVDA), as well as his purchasing of shares of a company that’s a leader in two industries.
Laffont’s fund has shed nearly three-quarters of its Nvidia stake in 15 months
When March 2023 came to a close, Coatue Management held a split-adjusted 49,802,020 shares of Nvidia stock. I say “split-adjusted,” because the king of artificial intelligence (AI) completed a historic 10-for-1 forward stock split in June 2024.
But when the curtain closed on the second quarter, Laffont’s fund was holding “just” 13,754,447 shares of Nvidia. This equates to a 72% decline over 15 months and dropped Nvidia from Coatue’s top holding by market value to No. 4.
Profit-taking may explain some of Laffont’s persistent selling. Since the start of 2023, Nvidia’s shares have increased by nearly 750%, with the company tacking on around $2.7 trillion in market value. We’ve never witnessed the valuation of a market-leading businesses expand so quickly, which may be encouraging Laffont and his team to ring the register.
But there may be more to this selling than meets the eye.
For example, every game-changing innovation, technology, and trend since the advent of the internet has endured an early innings bubble. These bubbles consistently occur because investors overestimate how quickly a new technology or innovation will be adopted by consumers and/or businesses. Invariably, every one of these new technologies, innovations, and trends needs time to mature, which is seemingly never baked into investor expectations. More than likely, AI is the next in a long line of overhyped innovations that will need time to mature.
Additionally, Nvidia’s management team and board aren’t giving billionaires or everyday investors reasons to be excited. Not one Nvidia insider has purchased shares of their company on the open market since Chief Financial Officer Colette Kress in December 2020. Almost four years without insider buying sends a crystal-clear message to Wall Street that shares aren’t attractive.
Laffont and his advisors may also be anticipating competitive pressures picking up for Nvidia in the coming quarters. A number of chipmakers have debuted or are in the process of developing AI-graphics processing units (GPUs) that will compete directly with Nvidia’s popular H100 and coming Blackwell GPU architecture.
Furthermore, all four of Nvidia’s top customers by net sales are internally developing GPU platforms of their own. Even if these customers choose to simply complement the Nvidia hardware they’ve purchased, this looks to be a clear signal that future order opportunities will be limited.
But while Philippe Laffont has been dumping shares of Nvidia, he’s been piling into a historically cheap company that sits at the top of the pecking order in two industries.
Billionaire Philippe Laffont can’t get enough of this historically inexpensive dual-industry leader
Although Laffont and his team added to 21 existing positions and opened stakes in six others during the June-ended quarter, the purchase that really stands out is the 702,235 shares added to Coatue’s existing position in Amazon (NASDAQ: AMZN). The roughly 10.77 million shares of Amazon held by Coatue equates to more than 7% of invested assets (as of June 30), and is the fund’s second-largest holding by market value, behind only Meta Platforms.
Most investors are familiar with Amazon because it’s the undisputed e-commerce leader. In 2023, it accounted for nearly 38% of domestic online retail market share, which is more than 31 percentage points ahead of Walmart, which occupied the No. 2 spot.
While Amazon’s e-commerce presence is the face of the company and helps to draw more than 3 billion visits each month, online retail sales generate menial margins and minimal operating cash flow. The bulk of what makes Amazon special can be traced to its three ancillary operating segments, none of which is more important than Amazon Web Services (AWS).
According to data from tech analysis firm Canalys, AWS accounted for a 33% share of global spend for cloud infrastructure service platforms in the June-ended quarter. This is well ahead of the 20% market share for Microsoft‘s Azure, which is the No. 2 cloud infrastructure service provider.
Enterprise cloud-service spending is still in its relatively early stages of expansion. To boot, the AI revolution is sparking plenty of interest in generative AI solutions and large language models, which are being incorporated into AWS for clients. AWS consistently accounts for 50% to 100% of Amazon’s operating income on a quarterly basis and is responsible for a sizable percentage of the company’s rapid growth in cash flow.
The other two ancillary segments of importance include advertising services and subscription services. With over 3 billion visitors each month and an expanding content library, Amazon is having no trouble commanding strong ad-pricing power.
Meanwhile, Amazon recently landed an 11-year streaming rights deal with the NBA and WNBA, and is the exclusive streaming partner of the NFL’s Thursday Night Football. Securing popular sports packages will only increase the value of Prime subscriptions.
The final piece of the puzzle that looks to have Laffont favoring Amazon over Nvidia is its historically cheap valuation. Throughout the 2010s, investors paid a median of 30 times cash flow to own shares of Amazon. As of this writing on Sept. 26, shares are valued at less than 13 times cash flow for 2025.
With a valuation that’s more compelling than, arguably, any point in its publicly traded existence, Amazon has the tools and intangibles needed to outpace Nvidia in the return department.
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Billionaire Philippe Laffont Sold 72% of Coatue’s Stake in Nvidia and Is Piling Into This Historically Cheap Dual-Industry Leader was originally published by The Motley Fool
Source: finance.yahoo.com