With all eyes on the Federal Reserve and earnings season, investors may have missed what may have been the most important numbers from the quarter five weeks ago.
On May 15, institutions with at least $100 million in assets under management filed Form 13F with the Securities and Exchange Commission. A 13F gives investors a snapshot of what Wall Street’s smartest and most successful investors have been buying and selling. It’s essentially a blueprint that allows investors to see which stocks, sectors and trends have captured the interest of leading money managers.
It should come as no surprise that there was a lot of trading activity in artificial intelligence (AI) stocks in the first quarter of 13F.
Companies involved in AI use software and systems to perform tasks that would normally be overseen by humans. What gives AI such a broad reach is the ability of software and AI-driven systems to learn without human intervention. This evolution of AI systems should improve efficiency and enable new tasks to be learned.
Despite the big dollar potential associated with AI—PwC analysts project that AI will add nearly $16 trillion to the global economy by 2030—billionaire investors on Wall Street have mixed opinions about the companies embracing this technology.
Based on the latest round of 13Fs, which covers trading activity during the quarter ended March, a number of prominent billionaires were active sellers of AI kingpin Nvidia (NASDAQ: NVDA). At the same time, those same billionaire money managers bought shares of four other promising artificial intelligence stocks.
Top billionaire money managers have dumped Nvidia stock
Since the start of 2023, Nvidia shares have skyrocketed 802% as of the closing bell on June 14, translating into nearly $2.9 trillion in added market value. This helps explain why it was a no-brainer for the company’s board to approve a 10-for-1 stock split, which closed on June 7.
Nvidia’s outperformance has everything to do with the fact that graphics processing units (GPUs) dominate in high-performance data centers. According to semiconductor analytics firm TechInsights, Nvidia was responsible for 3.76 million of the 3.85 million AI GPUs shipped last year.
Furthermore, demand for Nvidia’s AI-accelerated chips has completely overwhelmed supply. This has driven up the selling price of Nvidia’s GPUs and significantly increased its adjusted gross margin.
But despite Nvidia’s pioneering advantages, two prominent billionaires dumped more than 2 million shares of the company in the first quarter (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)
While simple profit-taking could explain some of this selling activity, there may be other catalysts behind Laffont and Griffin’s decision to decisively reduce their respective stakes in Nvidia.
As I’ve pointed out many times before, history has not been kind to the next big innovations over the past thirty years. No breakthrough innovation has prevented a bubble-bursting event. Investors often overestimate how quickly a new technology or innovation will become mainstream, and they’re likely to do so again with artificial intelligence. Since no company has benefited more directly from AI, Nvidia would likely be hit hardest if the AI bubble bursts.
It will also become increasingly difficult for Nvidia to maintain its growth trajectory and adjusted gross margin as competition comes at the company from all sides. Because it can’t meet all its orders, outside competitors like it Advanced micro devices And Intel can be market share winners by default.
To further reinforce this point, Nvidia’s top customers are all working on their own AI GPUs. Even if these chips merely complement Nvidia’s prized H100 GPU, this signals a deliberate reduction in the company’s data center’s GPU architecture dependence.
Billionaire Philippe Laffont jumped into AI networking and cloud companies
But while Philippe Laffont cut Coatue’s stake in Nvidia by 68% in the first quarter, he and his team simultaneously gobbled up shares in the AI networking solutions company. Broadcom (NASDAQ:AVGO)as well as a cloud-based customer relationship management (CRM) software provider. Sales team (NYSE: CRM). Coatue bought 416,460 shares of Broadcom and 2,556,774 shares of Salesforce.
Broadcom, which announced its own 10-for-1 stock split last week, is a rising star in AI-accelerated networking solutions. The company’s Jericho 3 chip can connect up to 32,000 GPUs, which can optimize processing speed and reduce tail latency. In plainer English, Broadcom’s AI solutions accelerate the processing needs of enterprise data centers responsible for training large language models (LLMs) and running generative AI solutions.
But Broadcom also has a lot of momentum outside the AI arena. It remains a dominant player in next-generation wireless chips and accessories used in smartphones, and also offers a range of connectivity solutions and sensors for industrial equipment and new vehicles. The company’s backlog and cash flow consistency are hard to beat in the technology sector.
Meanwhile, Salesforce is leveraging the power of AI to personalize its marketing efforts, automate certain repetitive tasks (e.g. data entry) and help new customers grow its own revenue. After all, CRM software is designed to improve existing customer relationships and grow sales. Predicting which existing customers might buy a new product or service can be improved with AI.
There’s little doubt that Salesforce’s long-term success has to do with its dominance in the CRM space. A recent report from IDC shows that Salesforce will account for a whopping 21.7% of global cloud-based CRM spending by 2023. With more than three times the market share of its nearest competitor (Microsoft at 5.9%) it should have no problem maintaining this competitive advantage for many years to come.
Billionaire Ken Griffin opted for something ‘magnificent’
Since its founding in 1990, Ken Griffin’s hedge fund has generated a total of $74 billion in profits. No other hedge fund has come close to this figure. That makes Citadel selling approximately 2.46 million shares of Nvidia all the more interesting – as does Griffin and his teams’ decision to buy two AI-inspired ‘Magnificent Seven’ shares.
During the quarter ended March, Citadel Advisors added 352,453 shares of e-commerce titan Amazon (NASDAQ: AMZN)as well as 747,887 shares of technology stocks Apple (NASDAQ: AAPL).
In addition to designing its own AI chips, Amazon is aggressively deploying generative AI solutions across its various operating segments. For example, it has made generative AI solutions available to its Amazon Web Services (AWS) customers, who can use the technology to do everything from customizing AI virtual assistants to training LLMs. AWS is one of Amazon’s fastest growing segments and is often responsible for the lion’s share of the company’s revenue.
Don’t forget subscription services and advertisements either. Amazon attracts almost 2.5 billion visitors to its site every month, which generates quite a bit of advertising revenue. Meanwhile, the company surpassed 200 million global Prime subscribers in April 2021 and has more than likely increased that number since becoming the exclusive streaming partner of Thursday night football.
As for Apple, it made waves at its 2024 developer conference when it introduced ‘Apple Intelligence’ – the company’s catch-all term for a series of AI-inspired upgrades to its various products and services. This includes everything from generating emojis from input text to the integration of OpenAI’s virtual chatbot ChatGPT-4o later this year.
More than any of the companies mentioned here, Apple brings cash flow predictability. It has an extremely loyal customer base, a well-known brand and has often been at the forefront of innovation. Apple has also repurchased $674 billion in common stock since the start of 2013, which is more than any other publicly traded company. These buybacks have undoubtedly contributed to the increase in earnings per share and made the company more attractive to fundamental-oriented investors.
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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, Apple, Microsoft, Nvidia, and Salesforce. The Motley Fool recommends Broadcom and Intel and recommends the following options: long January 2025 $45 calls to Intel, long January 2026 $395 calls to Microsoft, short August 2024 $35 calls to Intel, and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Forget Nvidia: Prominent Billionaires Are Selling It and Piling On These 4 Artificial Intelligence (AI) Stocks was originally published by The Motley Fool
