Billionaire Steven Cohen has sold Point72’s entire stake in Supermicro and is instead piling into this groundbreaking artificial intelligence (AI) stock

To add to the above, Super Micro Computer has integrated this Nvidia‘S (NASDAQ: NVDA) powerful graphics processing units (GPUs) in its rack servers. Nvidia’s hardware has proven superior to the competition on a compute basis, further increasing demand for Supermicro’s data center infrastructure.

According to the company, sales rose 110% to just under $15 billion in fiscal 2024 (ending June 30). Meanwhile, Wall Street’s consensus estimate calls for a scorching 67% revenue growth in the current fiscal year to about $25 billion.

But there were also some obvious reasons for Point72’s brightest investing minds, including Cohen, to ring the bell and head for the exit.

In late August, short seller Hindenburg Research published a report accusing Supermicro of “accounting manipulation, sibling self-dealing and sanctions evasion.” Although the company quickly refuted Hindenburg’s allegations, it nonetheless delayed the filing of its annual report and The Wall Street Journalis facing an early-stage investigation of its accounting practices by federal regulators.

To make matters worse, Super Micro Computer’s accountant, Ernst & Young, who had previously raised concerns about the company’s internal controls, resigned in late October. Although Supermicro announced earlier this week that a review by an independent special committee expected no adjustment to the company’s financials, there are simply no guarantees until the new accountant signs off on the financial statements and the company files its annual report.

Wall Street and billionaire investors hate uncertainty, which is likely why this hyper-growth stock was sent to the chopping block in the third quarter.

As Steven Cohen showed Super Micro Computer at the door, he stuffed Point72’s proverbial pockets with shares of Wall Street’s most advanced AI stock, Nvidia.

Cohen’s fund bought 1,574,796 shares in the third quarter, increasing its holdings by as much as 75% in three months. It should be noted that Point72 also owns call options in Nvidia, which were cut by 89% during the quarter ended September. In other words, some of this increase may be due to Cohen and his team exercising these call options and increasing the number of common shares owned.

The most logical reason to buy Nvidia stock, as I alluded to earlier, is that the hardware is in high demand and superior from a computing perspective. Orders for the company’s flagship H100 GPU (commonly referred to as the “Hopper”) and its successor Blackwell GPU architecture have lagged. It’s easy to understand why Nvidia’s share of the AI ​​GPU market has been monopoly-like until now.

There’s little doubt that Nvidia has been able to use the AI ​​GPU scarcity to its advantage. With demand for the company’s hardware far exceeding supply, the company has been able to secure $30,000 to $40,000 for each Hopper chip. For some contexts this is double to quadruple the price Advanced micro devices Understanding MI300X GPU. A significant price increase has pushed Nvidia’s gross margin to the mid-70s, sending sales through the roof.

Credit must also be given to Nvidia’s CUDA platform. CUDA is the software toolkit that developers use to build large language models and maximize the computing potential of their Nvidia GPUs. It has essentially been an umbrella that kept customers within Nvidia’s ecosystem of products and services.

But even Nvidia has its shortcomings and may not be the successful investment that Wall Street and billionaire Steven Cohen think it will be. For example, Nvidia will likely lose its outlandish pricing power and GPU scarcity advantages in the coming year. In addition to AMD’s rapidly increasing production, many of Nvidia’s largest customers by net revenue, who are members of the “Magnificent Seven,” are developing their own AI GPUs in-house.

While these chips won’t have the same computing potential as Nvidia’s hardware, they will be significantly cheaper and easier to access. In other words, it creates a situation where Nvidia could lose valuable data center real estate in the coming quarters.

The other serious problem for Nvidia is that no breakthrough technology or innovation in the past thirty years has prevented an early-stage bubble. Investors have consistently overestimated how quickly a new technology would become useful and adopted. The lesson is that all technologies take time to mature, and artificial intelligence is unlikely to be an exception. If the euphoria surrounding AI fades, Nvidia and its shareholders will likely feel the pinch.

Consider the following before buying shares in Nvidia:

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Sean Williams has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, Berkshire Hathaway, and Nvidia. The Motley Fool has a disclosure policy.

Billionaire Steven Cohen sold Point72’s entire stake in Supermicro and is getting into this groundbreaking artificial intelligence (AI) stock. was originally published by The Motley Fool