NVIDIA (NASDAQ: NVDA) It’s been at the epicenter of the artificial intelligence (AI) boom, but these hedge fund billionaires trimmed their Nvidia holdings in the second quarter while buying shares of Super Micro Computer. (NASDAQ:SMCI).
Cliff Anness of AQR Capital Management sold 1.3 million shares of Nvidia, reducing his holdings by 8%, and bought 1,040 shares of Supermicro, increasing his holdings by 2%.
Millennium Management’s Israel Englander sold 676,242 shares of Nvidia, reducing his holdings by 5%, and bought 553,323 shares of Supermicro, increasing his holdings by 807%.
Citadel Advisors’ Ken Griffin sold 9.2 million shares of Nvidia, reducing his holdings by 79%, and bought an additional 98,752 shares of Supermicro, increasing his holdings by 96%.
David Shaw of DE Shaw & Co. sold 12.1 million shares of Nvidia stock, reducing his holdings by 52%, and also opened a new position in Supermicro.
The trades made by Griffin, Shaw and Englander are particularly notable because they run the three most successful hedge funds as measured by net profits since inception, according to LCH Investments. Importantly, all four fund managers still have significant exposure to Nvidia, so it’s unlikely they view the chipmaker as a bad investment.
But we can assume that fund managers see Supermicro as a value investment, and two Wall Street analysts apparently agree: Nehal Choksi of Northland Securities and Hans Mosesmann of Rosenblatt have 12-month price targets for Supermicro of $1,300 per share. These projections imply a 215% upside from the current share price of $413.
Here’s what investors need to know about Nvidia and Supermicro.
1. NVIDIA
Nvidia has more than 90% market share in data center graphics processing units (GPUs), chips that speed up the processing of complex workloads such as artificial intelligence (AI) applications. The company accounts for more than 70% of AI chip sales, and some analysts estimate the company’s revenue share to be more than 90%. Nvidia also dominates the market for generative AI networking, according to Morningstar.
While hardware leadership is impressive, Nvidia is expanding its ability to monetize AI through subscription software and cloud services, both of which generate recurring revenue. For example, the Nvidia AI Foundry platform supports the development of custom generative AI models, and the Nvidia AI Enterprise platform supports the development of AI applications across use cases such as robotics, recommendation systems and logistics route optimization.
Nvidia delivered strong results in the second quarter of fiscal 2025 (ended July), with revenue growing 122% to $30 billion thanks to robust demand for AI hardware and software, while non-GAAP earnings rose 152% to $0.68 per diluted share.
The story continues
CFO Colette Kress said production of Blackwell GPUs would ramp up in the fourth quarter, about three months later than initially expected. Blackwell is Nvidia’s next-generation data center chip. It promises up to four times faster AI training and up to 30 times faster AI inference than the company’s previous hopper architecture. “Our expectations for Blackwell are incredibly high,” CEO Jensen Huang told analysts.
Wall Street expects Nvidia to grow its earnings at 37% annually over the next three years. With this projection, the company’s current valuation of 50 times earnings seems reasonable. At this price, it wouldn’t be surprising to see the fund managers mentioned above buying Nvidia shares in the third quarter.
2. Supermicrocomputer
Supermicro develops high-performance computing platforms for enterprise and cloud data centers. Their products range from individual servers to full server racks with networking and storage. With in-house manufacturing capabilities and a modular approach to product development, the company has established itself as a leader in the AI server market.
These advantages allow the company to quickly build out a wide range of server products using the latest chips from suppliers like Nvidia. Supermicro is typically able to bring new technology to market faster than its competitors, often by two to six months. This time-to-market advantage should keep the company at the forefront of the AI server market.
Supermicro reported mixed results for its fourth fiscal quarter (ended June). Revenue rose 144% to $5.3 billion as demand for AI infrastructure hit a record high. But gross margins fell nearly 6 percentage points, and non-GAAP net income rose 78% to $6.25 per share. Management said the margin decline was due to temporary headwinds, but the stock still plummeted 20% the day after the fourth-quarter report was released.
Shortly thereafter, shareholders were hit with more bad news when short-seller Hindenburg Research released a report alleging “clear accounting red flags, evidence of undisclosed related-party transactions, sanctions and export control deficiencies, and customer issues.” Since the report was released in late August, Supermicro’s shares have plummeted 24% and are currently down 65% from their all-time high.
Hindenburg has reported on more than 20 companies for suspected misconduct over the past five years, with some of the impacts being lasting: Nikola’s stock price has plummeted 99% since short sellers accused the company of lying to shareholders in September 2020. But some of Hindenburg’s short-seller reports have not borne any fruit: fintech company Block’s stock price, for example, has risen 5% since short sellers targeted the company in March 2023.
Given the information available, JPMorgan’s Samik Chatterjee isn’t particularly concerned about the allegations surrounding Supermicro. “We believe the report contains few details regarding the alleged wrongdoing,” he wrote in a recent note. He also maintained his price target at $950 per share, implying an upside of 130%.
Looking at the broader picture, Wall Street still expects Supermicro to grow its earnings 46% annually over the next three years, which makes the company’s current valuation of 21 times earnings look cheap. These figures give the stock a price-to-earnings growth (PEG) ratio of 0.46, significantly cheaper than its three-year average of 0.89.
The bottom line is this: the stock won’t triple over the next 12 months, and there are certainly risks to short-term reporting, but the current price represents a reasonable entry point for patient investors, and Supermicro has a good chance of outperforming the market over the next three to five years.
Should I invest $1,000 in Nvidia right now?
Before you buy Nvidia stock, consider the following:
The analyst team at Motley Fool Stock Advisor has identified 10 stocks that investors should buy right now, and Nvidia is not among them. The 10 selected stocks have the potential to generate big gains over the next few years.
Let’s look back at April 15, 2005, when Nvidia made this list… if you had invested $1,000 at the time of our recommendation, you would have $656,938.!*
Stock Advisor offers investors an easy-to-follow blueprint for success, with portfolio construction guidance, regular updates from analysts and two new stock picks every month. Stock Advisor The service is More than 4 times S&P 500 Recovery Since 2002*.
View 10 stocks »
*Stock Advisor returns as of September 3, 2024
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool property. Trevor Jennewine invests in Block and Nvidia. The Motley Fool invests in and recommends Block, JPMorgan Chase and Nvidia. The Motley Fool has a disclosure policy.
Billionaires are selling Nvidia shares and buying the one AI stock that could rise 215%, according to Wall Street analysts. This was originally published by The Motley Fool.
