Stanley Druckenmiller wowed investors year after year with his wins at the helm of Duquesne Capital Management. There he achieved an average annual return of 30% over a period of thirty years – and did not experience any monetary losses in a single year. This top investor closed the fund in 2010, but has since continued investing through the Duquesne Family Office – and one of his favorite stocks of late is the artificial intelligence (AI) giant. Nvidia(NASDAQ: NVDA).
Druckenmiller bought shares of the AI chip leader in the fourth quarter of 2022, as the AI boom was gaining momentum. Since then, until early this year, they have made a 400% gain. Earlier this year, this star investor started reducing his Nvidia stake, and in the third quarter he sold all his Nvidia shares.
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At the same time, Druckenmiller opened a $41 million position in a fast-growing AI player that, like Nvidia, also split its stock this year after huge gains. This represents the investor’s second largest new position in the quarter by value. Let’s find out more about this famous investor’s latest moves and consider whether you should follow them.
Image source: Getty Images.
First, let’s look at Druckenmiller’s sale of Nvidia. Does this mean he has lost faith in the AI leader?
Not at all. According to comments in press interviews, Druckenmiller believed that valuation had peaked – and that it was time to lock in the profits. Meanwhile, Nvidia continued to make progress and is now heading for an increase of more than 180% this year. In a Bloomberg interview last month, Druckenmiller even said that closing the Nvidia position was a mistake, and that if the price fell, he would consider picking up Nvidia stock again.
Although Druckenmiller sees Nvidia stock as a bit pricey, he remains confident in the Nvidia story and the potential for further growth in the future. If Nvidia’s valuation drops at some point in the future, it’s entirely possible the stock will find itself back in Druckenmiller’s portfolio.
Let’s move on to Druckenmiller’s recent AI addition. This company saw its shares rise more than 400% in five years, to above $1,000, and, like Nvidia, announced a 10-for-1 stock split this year to make the stock more accessible to a wide range of investors. A split doesn’t fundamentally change a company, but by issuing more shares to current holders it lowers the price per share.
This stock that caught Druckenmiller’s attention is Broadcom (NASDAQ:AVGO). The company is a networking giant, selling thousands of products used in areas from data center networking to home connectivity and factory automation. Now is a good time to get into Broadcom as it heads into a new era of growth, thanks to its AI business and the acquisition of cloud computing and virtualization company VMware.
In recent quarters, demand from major cloud service providers has fueled the growth of Broadcom’s AI networks and custom accelerators. In the last quarter, growth in custom AI accelerators more than tripled and Ethernet switching quadrupled. Given the pace of AI growth, with the current $200 billion market expected to reach $1 trillion by the end of this decade, there is reason to be optimistic about the continuation of these trends.
As for VMware, Broadcom says it is on track in the next fiscal year to reach or exceed its target of adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $8.5 billion within three years of the acquisition surpass. In the last quarter, Broadcom reported a 47% increase in revenue to $13 billion, thanks to AI demand and VMware, and the company predicts a 51% increase in revenue for the next quarter.
Now let’s talk about valuation. Broadcom is currently trading at about half Nvidia’s level relative to forward earnings estimates, making it a good time to get involved with this company. Like Nvidia, Broadcom will benefit from the AI boom in the long run.
NVDA price-to-earnings ratio (P/E) (forward) data according to YCharts.
Let’s get back to our question: Should you follow Stanley Druckenmiller’s moves in the third quarter? Before making a decision, it’s important to consider the top investor’s reason for buying or selling – as well as your own investment strategy.
Druckenmiller sold all of his Nvidia shares this year as its valuation rose and he locked in profits, but he has expressed regret about the move and remains optimistic about the company’s future. If you are a long-term investor, you may want to hold on to your Nvidia stock or even open a position in Nvidia.
As for Broadcom, you may want to follow Druckenmiller’s lead. This AI company is up double digits this year, but its valuation remains very reasonable and demand for the company’s products remains high. This means that there may be enough room for inventory over time.
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Adria Cimino has no positions in the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
Billionaire Stanley Druckenmiller just sold all his Nvidia stock and bought this fast-growing artificial intelligence. Stock-Split Stock was originally published by The Motley Fool
