More than half a dozen prominent billionaire investors are selling shares of Wall Street darling Nvidia in favor of two fast-growing artificial intelligence (AI) stocks.
Wall Street has been waiting for decades for the next radical innovation to rival what the Internet brought to American businesses in the mid-1990s. After a long wait, artificial intelligence (AI) appears to have answered the call.
AI-driven software and systems can become more proficient at tasks over time and learn new skills without human intervention, giving the technology nearly limitless possibilities. According to Sizing the award, PwC analysts believe that AI will add $15.7 trillion to the global economy by 2030 through a variety of production improvements and consumption side effects.
Image source: Getty Images.
But no company has benefited more directly from the rise of AI than semiconductor giant Nvidia. (NVDA 0.80%)the billionaire’s money managers have consistently picked two other AI stocks over Wall Street’s darling, according to its quarterly Form 13F filings with the Securities and Exchange Commission.
More than 6 billionaire investors are short sellers of Nvidia stock
Nvidia has been able to increase its market capitalization by nearly $3.2 trillion since the beginning of 2023 thanks to its first-mover advantage. To date, the company’s AI graphics processing units (GPUs) have truly dominated market share in high-computing data centers. .
Despite this competitiveness, more than half a dozen billionaires decisively sold their Nvidia stock during the quarter ending in June. This includes the following people (total number of shares sold in parentheses):
Jeff Yass of Susquehanna International (52,497,275 shares) Ken Griffin of Citadel Advisors (9,282,018 shares) David Tepper of Appaloosa (3,730,000 shares) Stanley Druckenmiller of Duquesne Family Office (1,545,370 shares) AQR Cliff Anes of Capital Management (1,360,215 shares) Mill’s Israel Englander Enium management team (676,24 shares) Stephen Cohen of Point72 Asset Management (409,042 shares) Philippe Lafon of Coatue Management (96,963 shares)
Given Nvidia’s historic rally of well over 800% in about 22 months, some of this selling activity can be attributed to profit taking. But there may be more to this selloff than meets the eye.
For example, U.S. regulators have limited Nvidia’s revenue and profit potential over the past two years. Regulators have restricted exports of Nvidia’s high-performance AI chips to China, one of its most expensive markets.
Insider activity is also hurting Nvidia. While there are many reasons for high-level executives and board members to sell, some of them benign, the only reason insiders buy stock is because they expect the stock price to rise. It means that there is. December marks four years since the last open market acquisition by Nvidia insiders. Meanwhile, there were 83 insider sales in the last twelve months.
Nvidia also expects competitors to gradually chip away at its key data center market share. New entrants into the AI-GPU space, coupled with Nvidia’s largest customer developing its own AI chips, are expected to negatively impact Nvidia’s otherworldly pricing power and profit margins so far will be done.
Finally, over the past 30 years, not a single market leader in the next big innovation has avoided a bubble burst. Investors have a terrible habit of overvaluing the introduction of new technologies, and there is nothing to suggest that AI will be an exception.
Rather than owning NVIDIA stock, billionaire money managers have consistently chosen to buy two artificial intelligence stocks instead:
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super microcomputer
The first AI stock that billionaires clearly preferred over Nvidia in the second quarter was Super Micro Computer, a specialist in customizable rack server and storage solutions. (SMCI 2.25%). According to the latest 13F filing, six billionaire money managers have bought Supermicro (number of shares purchased in parentheses, total after adjusting for the company’s 10-for-1 stock split at the end of September).
Israel Englander of Millennium Management (5,533,230 shares) Jeff Yass of Susquehanna International (5,088,140 shares) Ken Griffin of Citadel Advisors (987,520 shares) Stephen Cohen of Point72 Asset Management (450,660 shares) ) Ray Dalio of Bridgewater Associates (157,770 shares) Cliff Annes of AQR Capital Management (10,400 shares)
The rationale for investors to buy into Super Micro’s growth story is that companies seeking first-mover advantage in the AI space need to rapidly expand their data center infrastructure. Super Micro’s 110% net sales growth in fiscal 2024 (ending June 30) and projected 87% sales growth based on the midpoint of guidance. It’s a logical choice to achieve that. Current fiscal year.
What makes this a bit of an odd choice for the billionaire is that Super Micro Computer’s rack servers include Nvidia’s H100 GPUs. On the one hand, this acts as a hanging carrot that keeps infrastructure demand high. Conversely, Super Micro will be at the mercy of suppliers, including Nvidia, which is dealing with a backlog of GPUs.
I would also be remiss if I didn’t mention that Hindenburg Research, a prominent short seller, released a report in late August alleging “accounting manipulation” at Supermicro. The company has denied these allegations, but reports have surfaced that the U.S. Department of Justice is conducting an early-stage investigation. To make matters worse, Supermicro has delayed filing its annual report, raising eyebrows on Wall Street, and not in a good way.
There’s no question that supermicrocomputer stock is historically cheap, based on estimates of future earnings per share (EPS). But there are also some very big questions that need answers before this stock can prove its health.
microsoft
The second artificial intelligence stock that billionaires consistently choose over Nvidia is Microsoft, one of only three companies worth $3 trillion. (MSFT 0.80%). Eight prominent billionaire wealth managers bought Microsoft stock during the quarter ending June. These include the following (the total number of purchased shares is in parentheses):
Ken Fisher of Fisher Asset Management (1,340,392 shares) Ole Andreas Halvorsen of Viking Global Investors (695,444 shares) Ray Dalio of Bridgewater Associates (510,822 shares) Israel Englander of Millennium Management (240,624 shares) David Siegel and John Overdeck of Two Sigma Investments (177,726 shares) Stephen Mandel of Lone Pine Capital (90,287 shares) Philippe Laffont of Coatue Management (20,684 shares)
While Nvidia and Super Micro Computer represent the backbone of the AI revolution, Microsoft is seen as a beneficiary based on the usefulness of the AI solutions it incorporates into its services. For example, Microsoft has built AI into its search engine (Bing) and web browser (Edge) with help from OpenAI, which developed the hugely popular chatbot ChatGPT. Microsoft is a prominent investor in OpenAI.
Additionally, Microsoft plans to rely on AI solutions within Azure, the rapidly growing cloud infrastructure services platform. Providing enterprise clients with the ability to build and train language models at scale and run generative AI solutions helps Azure maintain double-digit revenue growth and become the world’s second-largest cloud infrastructure at worst. It should help maintain its status as a service platform.
Beyond AI, the billionaire money manager may be impressed by Microsoft’s Cash Flow Machine. While traditional segments such as Office and Windows are not the growth stories they once were, they continue to maintain impressive market shares and strong profit margins.
The exorbitant cash generated by Microsoft’s operations allows the company to take risks. Microsoft is no stranger to making big acquisitions, ending fiscal year 2024 (June 30) with more than $75 billion in cash, cash equivalents and short-term investments.
Even if the AI bubble bursts, Microsoft will have the sales channels and capital to weather the storm much better than Nvidia.
