The past 30 years have been filled with no shortage of next-big-thing investment opportunities. While nothing has surpassed the advent of the Internet in terms of its game-changing potential for American business, the rise of artificial intelligence (AI) may well give the country a run for its money.
When I talk about AI, I’m talking about using software and systems instead of people. With machine learning, these systems can evolve over time without human intervention to become more proficient at their tasks, or perhaps expand their scope to include entirely new tasks.
Last year, PwC analysts released a report (“Sizing the Prize, PwC’s Global Artificial Intelligence Study: Exploiting the AI Revolution”) that estimated that AI would add nearly $16 trillion to the global economy by the turn of the century. If this prediction is anywhere close to what will actually happen six years from now, AI stocks have the potential to skyrocket.
No publicly traded company has arguably benefited more from the AI revolution than semiconductor titan Nvidia (NASDAQ: NVDA).
Wall Street billionaires’ top money managers are parting ways with Nvidia
Seemingly overnight, Nvidia’s graphics processing units (GPUs) became the talk of companies looking to harness the power of AI. Currently, the company’s A100 and H100 GPUs have a border monopoly on GPUs deployed in high-computing data centers.
Nvidia also has the luxury of exceptional pricing power. Enterprise demand for the company’s GPUs has completely overwhelmed the supply of these products. The law of supply and demand suggests that if there is a shortage of a high-demand product, the price of that product will rise until demand decreases.
But not all Wall Street pros are sold on the idea that Nvidia is the AI stock to own. During the quarter ending in December, eight high-profile billionaires cut their respective fund’s stakes in the infrastructure backbone of the AI movement, including (total shares sold in brackets):
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Israel Englander of Millennium Management (1,689,322 shares)
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Jeff Yass of Susquehanna International (1,170,611 shares)
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Steven Cohen of Point72 Asset Management (1,088,821 shares)
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David Tepper of Appaloosa Management (235,000 shares)
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Philippe Laffont of Coatue Management (218,839 shares)
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Chase Coleman of Tiger Global Management (142,900 shares)
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John Overdeck and David Siegel of Two Sigma Investments (30,663 shares)
While a lot has gone right for Nvidia since the opening bell rang in 2023, the company now faces a growing list of headwinds.
For starters, its impeccable pricing power is likely to diminish in the coming quarters. Nvidia is increasing production of AI-focused GPUs and will face an influx of competition. Much of the 217% revenue growth recorded in Nvidia’s data center segment in fiscal 2024 (ending January 28, 2024) was the result of strong pricing power related to GPU scarcity. This scarcity will not be the wind at our backs for much longer.
To add to the above, Nvidia has more than just external competition to worry about. The four largest customers by revenue — Microsoft, Metaplatforms, AmazonAnd Alphabet — develop internal AI chips for their respective data centers. This is about 40% of Nvidia’s net revenue at risk of being lost or reduced.
The regulators haven’t helped either. On two separate occasions, US regulators have restricted exports of Nvidia’s high-performance GPUs to China, the world’s second-largest economy. This includes the toned-down A800 and H800 GPUs that Nvidia designed specifically for its Chinese customers.
Finally, every “next big thing” innovation of the past thirty years has worked its way through an early period of euphoria. In other words, bubbles are the expectation when investors jump into a new trend, and AI is unlikely to be an exception.
Billionaires are piling into two of Nvidia’s biggest rivals in artificial intelligence
But while billionaire investors were busy calling the registers at Nvidia in the fourth quarter, they were also piling in, interestingly, at two of the company’s top architectural rivals.
Advanced micro devices
The first core competitor found in AI-accelerated data centers that top billionaire asset managers flocked to in the quarter is Advanced micro devices (NASDAQ: AMD). Form 13F filings show four billionaires were buyers, including (total shares purchased in brackets):
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Ole Andreas Halvorsen of Viking Global Investors (4,737,399 shares)
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Ken Griffin of Citadel Advisors (3,506,881 shares)
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Ken Fisher of Fisher Asset Management (570,035 shares)
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Philippe Laffont of Coatue Management (23,383 shares)
The driving force behind this excitement appears to be the emergence of AMD’s MI300X AI GPU. When AMD unveiled its flagship MI300X in June, it was billed as a “generative AI accelerator.” This is a fancy way of saying that it will work closely with Nvidia’s H100 to power generative AI solutions and train large language models (LLMs) for enterprises. Although the rollout of the MI300X began last year, production was not expected to increase meaningfully until this year.
But what investors may overlook is that AMD has more to offer than just its AI ambitions. It has been steadily ‘crumbling’ over the past decade Intel‘S (NASDAQ: INTC) central processing unit (CPU) shares the lead in personal computers (PCs) and data centers. While CPUs aren’t growing at nearly the same pace as GPUs, AMD’s market share gains in these segments are providing a strong boost to operating cash flow.
Furthermore, the PC market should see a bit of a recovery in the not-too-distant future. Although demand for PCs soared and then plummeted during the COVID-19 pandemic, AMD notes that client segment revenue rose 62% in the fourth quarter compared to the same period last year. It appears that a stabilization of PC sales is well underway.
Billionaires could also be excited about AMD’s growth prospects versus Nvidia. While the Wall Street consensus calls for Nvidia to grow earnings per share (EPS) by 24.6% next year, the forecast for AMD is for earnings per share of 26%.
Intel
The second artificial intelligence rival to Nvidia that billionaires can’t stop buying is Intel. During the quarter ending in December, five billionaire money managers bought shares, including (total shares purchased in parentheses):
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Jim Simons of Renaissance Technologies (1,735,308 shares)
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Israel Englander of Millennium Management (1,532,812 shares)
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Philippe Laffont of Coatue Management (817,955 shares)
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John Overdeck and David Siegel of Two Sigma Investments (452,556 shares)
Like AMD, Intel is trying to grab its share of the AI-accelerated data center market with the introduction of Gaudi 3. The company officially unveiled its H100 competitor last week as a tool that will scale LLMs and generative AI solutions for broad enterprises.
What’s particularly interesting about Intel’s GPU series is that it has developed a compatible version for export to China that meets the conditions set by US regulators. Neither Nvidia nor AMD have products or plans in place to make that happen yet. While Nvidia is the undisputed market leader in high-compute data centers domestically, Intel could reasonably become the preferred choice in the world’s second-largest economy.
In addition to AI, Intel also has its legacy CPU business to fall back on. While AMD has been gaining market share in recent years, Intel remains the runaway leader in PC and data center CPU stocks. This means it generates enough cash flow to fund other fast-growing initiatives.
Additionally, Intel is building its foundry services segment from the ground up. Even though its foundry business is expected to generate significant losses in the near future, Intel’s aggressive investments in chip manufacturing put the company on track to become the world’s second-largest foundry by the turn of the century.
Intel is one of the few semiconductor stocks that would likely be well insulated if the AI bubble burst — and billionaire asset managers probably know it.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. 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 in Alphabet, Amazon, Intel and Meta Platforms. The Motley Fool holds positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft , and briefly May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
Forget Nvidia: Billionaires are selling it and instead buying two of the biggest rivals in artificial intelligence (AI) originally published by The Motley Fool
