In case you missed it, one of the most important data releases of the entire quarter took place on November 14th. While most investors were preoccupied with earnings releases and the October inflation report, institutional investors filed Form 13F with the Securities and Exchange Commission. .
A 13F is a required filing for institutional investors with at least $100 million in assets under management (AUM) and provides clues to investors as to which stocks these leading money managers bought and sold in the last quarter (in this case, the quarter ending September). ). While 13Fs have their shortcomings – since they are filed up to 45 days after a quarter’s end, they can present outdated holding data for active hedge funds – they still provide invaluable insight into which stocks, sectors, sectors and trends have the interest of the largest asset managers on Wall Street.
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Although Warren Buffett is the preeminent money manager of billionaires on Wall Street, he is far from the only billionaire that investors follow closely. For example, Ole Andreas Halvorsen of Viking Global Investors oversaw $27.4 billion across 83 stocks at the end of September. Halvorsen and his team are generally quite active, with a focus on the financial, technology and healthcare sectors.
What’s perhaps most remarkable about Halvorsen’s third-quarter trading activity is that he sold one of Wall Street’s hottest AI stocks and absolutely piled into a leading financial company that has grown tremendously since its 2008 IPO .
While mentioning profitable positions is nothing new for Halvorsen’s fund, it may still come as a surprise that the brightest minds at Viking Global chose to sell all 2,930,970 shares of AI networking giant. Broadcom (NASDAQ:AVGO) during the third quarter.
The excitement surrounding Broadcom’s capabilities in AI is great enough to cut with a knife. PwC analysts believe that artificial intelligence will add $15.7 trillion to the global economy by 2030, and Broadcom’s networking solutions have quickly risen to the forefront in enterprise data centers.
Last year, it introduced the Jericho3-AI fabric, which is capable of connecting up to 32,000 graphics processing units (GPUs) in AI-accelerated data centers. Broadcom’s tools are designed to maximize the computing potential of GPUs and minimize tail latency. The latter is especially important for AI-driven software and systems that rely on split-second decision making.
What’s more, Broadcom is much more than just an “AI stock.” It is a leading supplier of wireless chips and accessories used in next-generation smartphones. A steady device replacement cycle, fueled by wireless carriers upgrading their networks to support 5G download speeds, has been a growth driver for the company.
With Broadcom having so much to offer, you might be wondering why Halvorsen and his team cashed in their chips. One possibility is that Viking Global’s investment team is well aware of the history.
There hasn’t been a breakthrough innovation in 30 years that has avoided an early innings bubble-bursting event. Without a doubt, investors consistently overestimate the adoption and utility of next-big-thing innovations early on, ultimately leading to disappointment. If the AI bubble were to burst, it would undoubtedly be bad news for Broadcom’s fastest-growing initiative.
Another reason to consult the register is Wall Street’s historically expensive valuation. The S&P500The Shiller price-to-earnings ratio (P/E) is the third most expensive ever during a bull market, after backtesting to 1871. In addition, the ‘Buffett Indicator’ reached its highest value ever this month. Growth stocks are often hit hard during stock market corrections, and a few predictive valuation tools predict trouble ahead.
Finally, Broadcom is no longer the bargain it once was. While the company’s shares have averaged a fairly low price-to-earnings ratio of 16.5 over the past five years, Broadcom is currently valued at a 61% premium to this average.
At the other end of the spectrum is a stock that Halvorsen couldn’t stop buying during the quarter ending in September. I’m talking about the globally dominant payment processor Visa (NYSE:V)whose shares have risen almost 2,400% since its IPO in March 2008, including dividends.
Of Viking Global’s 23 new purchases during the third quarter, none was larger than Visa (3,505,747 shares), which became the fund’s fifth-largest holding by market value, and the second-largest financial holding, behind only American Bancorp.
One of the biggest investment catalysts for financial stocks is their ability to benefit from the non-linearity of the economic cycle. While recessions are both normal and inevitable, they have historically been short-lived.
Since the end of World War II in September 1945, only three of twelve recessions lasted longer than twelve months, and none lasted longer than eighteen months. By comparison, most growth periods have lasted several years, in rare cases even ten years. Financial stocks can benefit from these disproportionately long periods of growth.
Another reason why investors like Ole Andreas Halvorsen often invest in Visa is Visa’s dominant role as a payment processor. According to eMarketer, Visa accounted for approximately $6.45 trillion in purchase volume across its credit card network in the U.S. in 2023, which was more than double that of its next largest competitor. MasterCardfor $2.73 trillion. It is highly unlikely that Visa will relinquish its leading market share in domestic payment processing anytime soon.
Moreover, Visa may be able to maintain double-digit revenue and profit growth in the coming years thanks to its international capabilities. For the 2024 fiscal year ending September 30, Visa recorded cross-border payment volume growth of 15%! Most emerging markets still have a chronic shortage of banks, which should allow Visa to expand its reach organically or through acquisitions in the coming years.
Finally, Visa stock is still cheap. Despite the seemingly never-ending rally since the IPO, the shares are valued at 24.5 times full-year earnings. This represents a 14% discount to the average forward price-to-earnings ratio over the past five years.
While Visa is cyclical and susceptible to negative impacts if a recession occurs, the company’s competitive advantages far outweigh any near-term concerns.
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Sean Williams has positions in Mastercard, US Bancorp and Visa. The Motley Fool holds positions in and recommends Mastercard, US Bancorp, and Visa. The Motley Fool recommends Broadcom and recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.
Billionaire Ole Andreas Halvorsen has dumped Viking’s entire stake in Broadcom in favor of a globally dominant company that is up nearly 2,400% since its IPO was originally published by The Motley Fool
