Nvidia completed a 10-for-1 stock split after the market closed on Friday, June 7. This split follows a substantial price increase, driven by enthusiasm around artificial intelligence (AI). Nvidia shares are up more than 200% in the past year.
Still, several billionaire hedge fund managers trimmed their positions in Nvidia during the first quarter, before the stock split was announced, and reinvested the money in other AI companies.
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Philippe Laffont of Coatue Management sold 2.9 million Nvidia shares, reducing his stake by 68%. In the meantime he expanded his position Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) with 155%, making it the ninth largest holding in its portfolio.
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Steven Schonfeld of Schonfeld Strategic Advisors sold 96,793 shares of Nvidia, reducing his stake by 58%. Meanwhile, he increased his stake in Alphabet by 195%, making it the ninth largest holding in his portfolio, excluding options contracts.
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Paul Tudor Jones of Tudor Investment sold 103,337 shares of Nvidia, reducing his stake by 78%. As a caveat, Jones bought call options on Nvidia, allowing him to benefit from a price increase with smaller capital expenditures. In the meantime, he has increased his stake in the company Snowflake (NYSE: SNOW) with 54%, although it remains a relatively small position.
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Louis Bacon of Moore Capital Management sold 2,006 shares of Nvidia, reducing his stake by 19%. He also started positions in Alphabet and Snowflake, although neither is in the top 25.
These hedge fund managers’ trades don’t mean Nvidia is a bad investment. All four fund managers still have exposure to the chipmaker, as do many other wealthy investors. However, Alphabet and Snowflake deserve further consideration.
1. Alphabet
Alphabet is the largest ad technology company and the third largest provider of cloud infrastructure and platform services in the world. Its leadership in advertising is based on its ability to engage internet users and collect data through popular web platforms, such as Google Search, YouTube and Chrome. Likewise, its strong presence in cloud computing reflects its technological prowess and extensive data center footprint.
Alphabet is slowly losing ground in the field of digital advertising. Market share is expected to fall to 27.4% this year, compared to 28.1% last year. But Google Cloud Platform is actually gaining market share in cloud infrastructure and platform services, accounting for 11% of spending in the fourth quarter, up from 10% in the previous year.
Alphabet is integrating its latest AI model, Gemini, into both ecosystems to drive growth. For example, Gemini powers AI summaries designed to make Google Search more engaging and streamline ad campaign creation with a conversational interface. Gemini also automates tasks in Workspace applications, such as Google Docs and Google Sheets, and can be refined by Google Cloud customers to create custom generative AI applications.
Alphabet is particularly well positioned to generate revenue from AI through its cloud computing business. Forrester research recently ranked Google Cloud Platform as a leader in AI infrastructure solutions, giving the company the highest scores in terms of current offering, development strategy and market share. Forrester also ranked Google’s Gemini as the leading major language model, ahead of OpenAI’s GPT-4.
Alphabet reported encouraging financial results in the first quarter. Revenue rose 15% to $80.5 billion thanks to strong momentum in cloud computing and modest growth in advertising. Meanwhile, net income under generally accepted accounting principles (GAAP) rose 57% to $23.7 billion, helped by cost optimization efforts such as workforce reductions and the integration of different business teams.
Wall Street analysts estimate that Alphabet will grow earnings per share 17.2% annually over the next three to five years. That forecast makes the current valuation of 26.7 times earnings seem reasonable. From that price point, I think Alphabet can outperform the S&P500 in the next three to five years.
2. Snowflake
Snowflake is best known as a cloud data warehouse, a system that stores data optimized for queries and business intelligence. In fact, Forrester recently recognized the company as a leader in cloud data warehousing platforms. But Snowflake also functions as a data lake, a system that stores raw data for analysis and AI, and the platform supports data sharing.
In addition to this core functionality, Snowflake offers several adjacent solutions. The Snowpark developer framework supports the training of AI models, the Cortex service brings generative AI and machine learning models to Snowflake data, and the Native Application Framework allows companies to build and deploy applications on the platform. Snowflake is unique in its ability to support these features on a single platform across multiple public clouds.
The company reported mixed first-quarter financial results. Customer numbers increased by 21% to 9,822, and the average existing customer spent 28% more. In turn, revenue rose 33% to $829 million thanks to strong growth in core storage and analytics capabilities. But management also cited encouraging momentum with newer products. More than half of customers now use Snowpark and more than 750 customers have already used Cortex (which was launched in May).
The bottom line was more troubling. Non-GAAP operating margin fell one percentage point in the first quarter, and non-GAAP net income fell 7% to $0.14 per diluted share. Snowflake also lowered full-year margin guidance, but management attributed this to higher costs associated with developing AI products. CFO Michael Scarpelli told analysts: “We view these investments as key to unlocking additional revenue opportunities in the future.”
Going forward, the data lake and data warehousing markets are expected to grow 24% per year until 2030. Meanwhile, Wall Street expects Snowflake to grow revenue 23% annually over the next three years. Personally, I think there is room for gains if Snowflake is successful in its AI ambitions. But even if Wall Street is right, the current valuation of 14.4 times sales is quite reasonable. Snowflake has never traded at a lower valuation.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Trevor Jennevine has positions at Nvidia. The Motley Fool holds positions in and recommends Alphabet, Nvidia, and Snowflake. The Motley Fool has a disclosure policy.
Billionaires sold Nvidia stock (before stock split) and bought two artificial intelligence (AI) stocks instead was originally published by The Motley Fool
