Nvidia (NASDAQ: NVDA) has seen the value of its shares soar over the past two years as the largest chip supplier in the race for artificial intelligence (AI) supremacy.
Several hedge fund managers saw Nvidia’s potential in AI early on and made big bets on the semiconductor stock. Stan Druckenmiller amassed a significant position in the stock in late 2022 and early 2023 as OpenAI’s ChatGPT took the world by storm. At one point, Nvidia shares accounted for 16% of his portfolio. David Tepper, owner of the NFL’s Carolina Panthers, also built a huge position in the stock in the first half of 2023.
But billionaires have begun selling their Nvidia shares as a group. That’s largely because of the incredible run the stock has had. It’s up more than 160% this year and briefly became the most valuable company in the world.
Here are some billionaires selling their positions in Nvidia:
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Stan Druckenmiller (Duquesne Family Office) sold 441,551 shares and all 4,895 call options, reducing his total exposure to the stock by approximately 84%.
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Philippe Laffont (Coatue Management) sold 2.9 million shares, reducing his position by 68%.
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David Tepper (Appaloosa) sold 348,000 shares, reducing his position by 44%.
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Israel Englander (Millennium Management) sold 720,004 shares and 6,910 calls, reducing his bullish position by about a third. He also reduced Millennium’s put options, but by less than 20%, making the price more bearish.
Billionaires are smart to take some of their money off the table and reinvest it in other assets as a way to diversify their portfolios and potentially find the next big winners. The funds mentioned above are putting a lot of the money from Nvidia sales into a number of undervalued exchange-traded funds (ETFs) that both diversify away from Nvidia and offer a lot of potential upside.
Betting big on small stocks
Both Druckenmiller and Englander have increased their exposure iShares Russell 2000 ETF (NYSEMKT: IWM). It follows the Russel 2000 index, the most commonly used index for small-cap stocks.
Druckenmiller bought 31,579 call options on the ETF, which had a total value of $664 million at the end of the first quarter. That makes the ETF his largest position, accounting for 15% of his portfolio. Englander, meanwhile, has pared back his puts, while adding a substantial number of calls and shares of the ETF itself.
There is good reason to be more bullish on small caps these days. While large-cap stocks like those in the S&P500 have fully recovered from the 2022 bear market, small-cap stocks like those in the Russell 2000 or S&P600 are not back to record highs. Today’s high interest rates pose a much greater challenge for small caps, which often rely on revolving debt to finance their growth rather than long-term bonds or existing cash flows.
As such, small-cap stocks remain undervalued relative to the large-cap market. The gap between the forward price-to-earnings ratio of the S&P 500 and the S&P 600 is the widest since 2001. That could make it a great opportunity to invest in small-cap stocks now. Druckenmiller goes big, and Englander is getting in on the idea, too.
Finding value in China
Tepper and Laffont are looking to the world’s second-largest economy for investment opportunities. Both added shares of the iShares China Large Cap ETF (NYSEMKT: FXI). It tracks the performance of the FTSE China 50 Index, which tracks 50 of the largest and most liquid Chinese companies listed on the Hong Kong Stock Exchange.
Tepper bought 6.4 million shares of the ETF, worth $153.4 million at the end of the first quarter, representing about 2.3% of his portfolio. Laffont added 2.1 million shares, worth about $50 million, or 0.2% of Coatue’s portfolio.
Tepper is extremely bullish on China and has added many large tech companies from the country in the past quarter, including Alibaba Group, Baidu, PDD holdingsAnd JD.comMost can be found in the iShares ETF.
China was slow to reopen as COVID-19 pressures subsided, and the country is now grappling with a housing crisis, sluggish economic growth and deflation as consumers slow their spending. It also faces political tensions. Stock prices fell for the third year in a row in 2023. Although prices have recovered somewhat in 2024, the China Large-Cap ETF is still down nearly 50% from the all-time high reached in early 2021.
But the tide may be turning for China. Pandemic restrictions have been eased and the government is rolling out stimulus measures to support the real estate sector and get Chinese consumers spending again. The efforts began in earnest in February, and the impact on the stock market is clear. Tepper and Laffont’s new favorite ETF is up 22% since the start of February.
Considering how far Chinese stocks have fallen, there is still a long way to go before they come back. Valuations remain attractive, but there is still a lot of uncertainty about how strongly China can recover. However, with attractive prices for some of the leading names in their industries, it may be worth taking a closer look at the China stock ETF.
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Adam Levy has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Baidu, JD.com, and Nvidia. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
Billionaires Are Selling Nvidia, Buying These Undervalued ETFs Instead was originally published by The Motley Fool
