Over the past thirty years, Wall Street and investors have seen no shortage of the next big investing trends to come and go. But so far, no promised rapid growth trend has come close to what the advent of the Internet has done for corporate America.
According to analysts at PwC, artificial intelligence (AI) is expected to add $15.7 trillion to the global economy by 2030 through a combination of consumption side effects and production improvements.
AI involves the use of software and systems instead of people. What makes AI such a breakthrough technology is the ability of these systems to “learn” over time without human intervention. This should, in theory, allow AI-powered software and systems to become more proficient at their tasks over time, and potentially allow these systems to learn new tasks.
None other than the vanguard of the artificial intelligence revolution Nvidia (NASDAQ: NVDA)whose shares have increased in market value by more than $2.6 trillion since the beginning of 2023.
While Nvidia has definitely made some of Wall Street’s smartest investors richer, not all billionaires are sold on the AI queen. Based on the latest round of Form 13F filings with the Securities and Exchange Commission (a 13F gives investors an under-the-hood look at what top money managers bought and sold in the last quarter), billionaires were active sellers of Nvidia stock. But at the same time, they couldn’t stop buying shares of one of the main AI rivals.
Eight billionaire money managers showed Nvidia the door
On paper, Nvidia can do no wrong. The company’s graphics processing units (GPUs) account for approximately 90% of the AI GPUs currently deployed in the high-compute data centers that oversee generative AI solutions and train large language models (LLMs). There’s such high demand for Nvidia’s chips that some analysts think the recently unveiled Blackwell chip will be booked well into 2025.
Despite these pioneering advantages in the hottest trend since the Internet went mainstream, eight billionaire money managers chose to send at least some of their Nvidia stock to the chopping block during the quarter ended in March, including (total shares sold in brackets):
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Philippe Laffont of Coatue Management (2,937,060 shares)
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Ken Griffin of Citadel Advisors (2,462,716 shares)
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Israel Englander of Millennium Management (720,004 shares)
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Stanley Druckenmiller of Duquesne Family Office (441,551 shares)
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David Siegel and John Overdeck of Two Sigma Investments (420,801 shares)
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David Tepper of Appaloosa Management (348,000 shares)
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Steven Cohen of Point72 Asset Management (304,505 shares)
Technically there were nine billionaire salespeople, but I left out Jim Simons of Renaissance Technologies after his death last month.
One of the reasons why eight of Wall Street’s top money managers chose to sell could be as simple as taking profits. The company’s shares are up more than 700% since the start of 2023, and we’ve never witnessed a mega-cap stock scale to the extent that Nvidia has had and changed over the past year. Taking some profits off the table, especially during an election year, is never a bad idea.
But perhaps history is an even more compelling reason why billionaires are heading for the exit. While history rarely repeats itself with a “t” on Wall Street, it often rhymes.
For example, every subsequent major innovation over the past thirty years has worked its way through an early innings bubble. This means that investors have consistently overestimated the rollout and adoption of new technology and innovations. Even though artificial intelligence is currently all the rage on Wall Street, chances are the technology will take time to mature. In short, an AI bubble burst could happen.
To add to the above, Nvidia’s price-to-sales ratio over the last twelve months is virtually identical to that of the then market leaders Cisco systems And Amazon before the dotcom bubble burst.
The final piece of the puzzle that may have encouraged these eight billionaires to reduce their stake in Nvidia is increasing competition. While most investors are well aware of the outside competitors that will bring AI chips to market, they may have overlooked the fact that Nvidia’s four largest customers, which account for about 40% of net sales, develop their own AI GPUs. This suggests that we are likely to witness a spike in orders and gross margins for this AI titan.
Billionaire investors are piling in on a core AI rival to Nvidia
But here’s where it gets interesting. While more than half a dozen of the smartest and most successful asset managers dumped Nvidia stock, six billionaire investors (four of whom sold Nvidia stock) pounced on one of its biggest rivals in artificial intelligence. I’m talking about the old semiconductor giant Intel (NASDAQ: INTC).
It is not self-evident that Intel has challenges it needs to work on. Weaker sales of personal computers (PCs) in the wake of the COVID-19 pandemic have hampered demand for the company’s central processing units (CPUs). Intel is also experiencing a revival Advanced micro deviceswhich (pardon the all-too-perfect pun) has been eagerly chipping away at its CPU share in PCs and traditional data centers.
But despite these headwinds, we learned that half a dozen billionaires manually bought shares of Intel in the first quarter, including (total shares purchased in brackets):
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Jeff Yass of Susquehanna International (4,836,516 shares)
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Ken Griffin of Citadel Advisors (1,757,626 shares)
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David Siegel and John Overdeck of Two Sigma Investments (1,345,269 shares)
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Israel Englander of Millennium Management (413,507 shares)
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Ray Dalio of Bridgewater Associates (411,473 shares)
The obvious reason billionaires are excited about Intel’s future is because Intel has the opportunity to capitalize on the exceptionally high demand for AI GPUs. Recently, Intel unveiled its Gaudi 3 AI accelerator chip, which will be a direct competitor to Nvidia’s H100 GPU in data centers focused on training LLMs and running generative AI solutions. With AI GPU demand swamping supply, Gaudi 3 should be gobbled up by companies looking to capitalize on the rise of AI. A general rollout of Gaudi 3 is expected in the third quarter.
Another catalyst that could tempt billionaire money managers to take the proverbial plunge into Intel stock is the company’s Foundry Services segment.
Right now, it’s costing Intel an arm and a leg to build its chip manufacturing segment from the ground up to mass production. But with two factories under construction in Ohio, and another slated to open in Germany later this decade, a foundation has been laid for Intel to become the world’s second-largest foundry by the turn of the century. In other words, earnings per share (EPS) have probably bottomed out and should improve significantly in the second half of this decade.
Finally, it’s important to recognize that Intel’s old CPU segments are still nothing short of cash cows. Even with modest market share losses in PCs and data centers versus AMD, Intel’s share is still dominant – and this is unlikely to change any time soon. The predictable operating cash flow generated by CPU sales in PCs, mobile devices and traditional centers allows Intel to focus on higher growth initiatives, including AI and the Foundry Services segment.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Sean Williams has positions at Amazon and Intel. The Motley Fool holds positions in and recommends Advanced Micro Devices, Amazon, Cisco Systems, and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls to Intel and short August 2024 $35 calls to Intel. The Motley Fool has a disclosure policy.
Forget Nvidia: billionaires are selling out and buying this top artificial intelligence (AI) rival and handing over the fist. originally published by The Motley Fool
