There’s no doubt about it. Nvidia (NASDAQ: NVDA) is the most popular stock from the era of generative artificial intelligence (AI).
The graphics processing unit (GPU) and AI hardware specialist has added more than $2 trillion to its market cap since the launch of ChatGPT, well ahead of any other stock, and its shares are up around 700% since the start of 2023.
While some billionaires caught this trend early and bought Nvidia stock as the disruptive potential of generative AI became apparent, it now appears that many of those investors are starting to think the wave is coming to an end. According to hedge fund tracker WhaleWisdom, more top investors reduced their holdings in Nvidia in the first quarter than added: 207 hedge funds increased their holdings in Nvidia in the first quarter, up from 269 in the fourth quarter. Meanwhile, 336 hedge funds have reduced their positions in the chip giant, about 60% more than the number of hedge funds that have added to their positions.
Among the billionaires who sold Nvidia stock were Ken Griffin of Citadel, Israel Englander of Millennium Management and Paul Tudor Jones of Tudor Investment Group.
That pattern appears to be a sign of stock fatigue, and these hedge fund managers are taking the opportunity to lock in their gains.
Reasons to sell
Hedge fund managers’ 13F filings contain no commentary, but investors can make some good guesses about why these Wall Street stars are selling this stock.
Taking some profits off the table seems the most obvious reason, especially given recent rumors that capital gains taxes on the wealthy could be increased. Berkshire Hathaway CEO Warren Buffett said this was one of the reasons his company sold shares Apple in the first quarter.
Another reason is that more competition is coming. Advanced micro devices And Intel have both launched competing data center GPUs, and tech companies such as Metaplatforms And Microsoft are also developing their own AI-enabled chips in-house to reduce their dependence on Nvidia.
One billionaire investor, Stanley Druckenmiller, explained his decision to reduce his stake in Nvidia, saying that much of what his company had previously recognized in the stock is now being recognized by the broader market. Indeed, Nvidia’s dominance in the AI chip sector and skyrocketing growth have become evident.
What billionaire investors are buying instead
The hedge fund managers selling Nvidia stock are instead buying a wide range of companies, but you might be surprised to learn that one of the choices to replace Nvidia has been Ford Motor Company (NYSE:F).
Citadel, Millennium Management and Tudor Investment Group were all among the hedge funds that bought Ford last quarter. Citadel added 5.45 million shares and Millennium Management added 7.34 million shares. Tudor added 1.76 million shares, but that made Ford one of the biggest purchases in the quarter.
Ford was also the more favored among hedge funds, with 116 funds adding to their holdings in the automaker, while only 92 sold their shares.
Ford has been struggling lately, but it could be at the intersection of some favorable trends. First, pure electric vehicle (EV) manufacturers are struggling as EV demand growth slows and valuations in that sector fall. That has made traditional auto stocks more popular, and while Ford’s EV business has yet to turn a profit, the company is seeing success with hybrids.
Ford should also benefit from the expected drop in interest rates later this year, which will make cars more affordable. Finally, the company has growth potential in areas such as electric vehicles, hybrids and autonomy, and the shares are cheap, with a price-to-earnings ratio of 6.
Yet Ford has a low rating for good reason. Investors assume it will be disrupted by fast-growing rivals such as the US Tesla.
However, for investors looking to move from a growth stock like Nvidia to a cyclical dividend stock with upside potential, Ford seems like a good choice, especially considering its 5% dividend yield at the current share price.
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Billionaires are selling Nvidia stock and buying up these shares instead. originally published by The Motley Fool
