Since the inception of the Internet thirty years ago, no investment trend has attracted as much attention as artificial intelligence (AI).
With AI, software and systems have the ability to learn and evolve over time without human intervention, making the technology applicable across virtually all sectors and industries. It’s why analysts at PwC believe artificial intelligence could add nearly $16 trillion to the global gross domestic product by 2030.
While countless companies inside and outside the technology sector stand to benefit from the rise of AI, it is a semiconductor giant Nvidia (NASDAQ: NVDA) that has become the face of this technological revolution. Nvidia’s powerful graphics processing units (GPUs) have quickly become the standard in AI-accelerated data centers. Nvidia was responsible for 98% of the 3.85 million AI GPUs shipped in 2023, according to semiconductor analytics firm TechInsights.
With corporate demand for these chips exceeding supply, Nvidia has also enjoyed out-of-this-world pricing power for its H100 GPU. During its first fiscal quarter (ended April 28), Nvidia reported a more than fivefold increase in revenue and an adjusted gross margin of more than 78%.
Despite seemingly doing everything right from an operational standpoint and generating a lot of buzz with a 10-for-1 stock split, Nvidia shares have still been shown the door by more than half a dozen billionaire investors.
Eight billionaire money managers have laid fire on the world’s AI leader
No later than 45 calendar days after the end of a quarter, institutional investors with at least $100 million in assets under management must file Form 13F with the Securities and Exchange Commission. This document provides an in-depth look at what Wall Street’s smartest money managers bought and sold last quarter. Based on the most recent round of 13F filings, eight prominent billionaires were sellers of Nvidia stock, including (total shares sold in parentheses):
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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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John Overdeck and David Siegel 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)
The second straight quarter of top billionaire investors selling Nvidia stock could be nothing more than pure profit-taking. After all, Nvidia is the best-performing mega-cap stock, and we’ve simply never seen a company of this size move so quickly.
But it’s also hard to ignore the role that history has played in the next big investment trends, as well as the growing competition in AI.
Including the advent of the Internet in the mid-1990s, there hasn’t been a breakthrough technology, innovation, or trend in the past thirty years that hasn’t survived an early-stage bubble. Without a doubt, professional and everyday investors overestimate the adoption or usefulness of innovative trends, ultimately leading to disappointment and lofty valuations that shrink sharply. History is certainly not in Nvidia’s corner.
The increasing competition is also worrying for Nvidia. Even if Nvidia’s GPUs maintain computational advantages over outside competition, the company’s inability to meet an overwhelming amount of demand for AI chips should allow other AI GPU developers to succeed and gain market share. “take away”.
Additionally, Nvidia’s four largest customers are all developing their own AI GPUs. This signals a clear desire by Wall Street’s largest and most influential companies to reduce their dependence on Nvidia’s hardware.
These are the top buys from billionaires who sold Nvidia stock
But just because eight prominent billionaires sold Nvidia stock doesn’t mean they’re not putting their capital to work elsewhere. Here are the seven stocks these billionaires piled into during the first quarter.
1. Philippe Laffont: Taiwan Semiconductor Manufacturing (10,027,552 shares purchased)
Interestingly, Nvidia’s biggest seller in the quarter ended March opted to gobble up shares of the world’s largest chipmaker. Taiwanese semiconductor manufacturing (NYSE: TSM). Taiwan Semi has been rapidly increasing its chip-on-wafer-on-substrate capacity, a necessity for the high-bandwidth memory packaging that powers AI-accelerated data centers.
While acts of God (e.g., April’s major earthquake in Taiwan) and geopolitical tensions with China threaten to disrupt a still-fragile semiconductor supply chain, Taiwan Semi has a relatively clear path to consistent demand given the rise of the data center economy.
2. Ken Griffin: Hess (8,815,580 shares purchased)
The second-biggest seller of Nvidia stock in the first quarter, billionaire Ken Griffin, was a busy buyer of oil and gas stocks Hess (NYSE: HES). It’s an intriguing purchase to say the least, considering Hess agreed to be acquired Chevron in a $53 billion stock deal.
While macro factors have curtailed global oil supply and undermined Hess’ drilling segment margins, it’s possible that Griffin’s stock has more to do with an arbitrage opportunity. Based on the proposed deal of 1,025 shares of Chevron for each share of Hess, the latter is currently trading at 8% below the implied deal value, as of the closing bell on June 21.
3. Israel Englander: Merck (4,021,500 shares purchased)
Instead of next-generation technology stocks, Millennium’s billionaire fund manager chose to buy more than 4 million shares of a leading pharmaceutical company Merck (NYSE:MRK). Merck is the developer of the world’s best-selling cancer immunotherapy, Keytruda, which generates more than $27 billion in annual run-rate revenue through March 2024.
Merck’s extensive oncology pipeline and fundamental operating segments, including vaccines and the animal health division, set the stage for predictable cash flow and steady earnings growth.
4. Stanley Druckenmiller: Coherent (2,525,070 shares purchased)
Billionaire Stanley Druckenmiller was the largest buyer of the optoelectronics company Coherent (NYSE: COHR) in the first quarter. Coherent is a manufacturer of silicon carbide wafers, believed to be a next-generation solution for the electric vehicle (EV) industry. Compared to traditional silicon-based solutions, silicon carbide offers higher efficiency, superior thermal conductivity and high-performance electrical properties. In short, it could significantly improve the driving range of electric vehicles.
Additionally, three weeks ago, Coherent named Jim Anderson its new CEO (only the fourth in the company’s 53-year history). Anderson is credited with turning around the semiconductor solutions provider Grid semiconductor.
5. John Overdeck and David Siegel: Pfizer (8,419,014 shares purchased)
While selling off Nvidia’s stock, billionaire duo John Overdeck and David Siegel of Two Sigma were big buyers of the pharmaceutical giant Pfizer (NYSE:PFE). While sales of Pfizer’s blockbuster COVID-19 vaccine (Comirnaty) and oral therapy (Paxlovid) are expected to reach $8 billion combined in 2024, up from more than $56 billion (combined) in 2022, the company’s overall drug portfolio remains, without COVID-19 therapies, has continued to grow.
In addition, the $43 billion acquisition of cancer drug developer Seagen vastly expands Pfizer’s oncology pipeline and should result in significant cost savings and earnings per share improvement starting next year.
6. David Tepper: Alibaba (6,900,000 shares purchased)
Appaloosa’s billionaire boss looked abroad and absolutely dove into China’s e-commerce leader. Alibaba.com (NYSE: BABA). Last year, the International Trade Administration estimated Taobao and Tmall’s combined share of Chinese online retail sales at nearly 51%!
Alibaba is also China’s leading cloud infrastructure services platform. With corporate spending on cloud services in China still in its infancy, Alibaba Cloud is expected to become a major cash flow driver in the second half of the decade. Keep in mind that Alibaba ended March with more than $85 billion in cash, cash equivalents, and miscellaneous investments on its balance sheet.
7. Steven Cohen: Broadcom (470,365 shares purchased)
The seventh top purchase during the first quarter by Nvidia’s largest billionaire vendors was a semiconductor networking solutions provider Broadcom (NASDAQ:AVGO). Steven Cohen of Point72 Asset Management scooped up more than 470,000 shares of Wall Street’s latest stock split.
Broadcom’s solutions prove crucial to getting the most out of Nvidia’s advanced GPUs. For example, Broadcom’s Jericho 3 AI chip reduces tail latency and optimizes compute capacity by connecting up to 32,000 AI GPUs.
I’d be remiss if I didn’t also mention that Broadcom is a major supplier of wireless chips and accessories used in next-generation smartphones and vehicles.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Chevron, Merck, Nvidia, Pfizer and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Alibaba Group, Broadcom and Coherent. The Motley Fool has a disclosure policy.
Forget Nvidia: Prominent Billionaires Are Selling It in Favor of These 7 Top Stocks was originally published by The Motley Fool
