Billionaire Ken Griffin is the founder and CEO of Citadel Advisors, the most profitable hedge fund in history as measured by net income, according to LCH Investments. That makes Mr. Griffin one of Wall Street’s most successful asset managers, and investors should consider following his trades in the quarterly magazine Forms 13F.
During the second quarter, Mr. Griffin sold 9.2 million shares of Nvidia stock. (NASDAQ:NVDA)reduced his exposure by 79%. During that time, he bought 98,752 shares of Super Microcomputer. (NASDAQ:SMCI)increasing his position by 96%. Currently, Citadel still has more capital invested in Nvidia than Supermacro, but the deal is still worth noting as it could signal a change in sentiment.
Here’s what investors need to know about each of these companies.
Nvidia
Nvidia is best known for its graphics processing units (GPUs), chips used to accelerate data center workloads such as training large language models and running artificial intelligence (AI) applications. I am. According to Forrester Research analysts, “Nvidia is setting the pace for AI infrastructure around the world. Without Nvidia GPUs, modern AI would not be possible.”
In fact, Nvidia has about 90% of the market share for AI chips, and analysts expect it to maintain the same level of dominance for at least two to three years. There are probably two reasons.
First, developers prefer Nvidia GPUs because they are not only the fastest accelerators on the market, but are backed by a more robust ecosystem of software development tools than their competitors. Second, Nvidia provides adjacent data center hardware, such as central processing units (CPUs) and network switches, designed for AI. The company also provides software and cloud services to support AI application development. This means NVIDIA can innovate across the entire data center computing stack, resulting in better performing systems with lower energy requirements, CEO Jensen Huang said.
Importantly, when Ken Griffin was selling stocks in the second quarter, the average valuation of NVIDIA stock was 67 times P/E, and the high was around 79 times P/E. However, Nvidia’s June quarter profits more than doubled, which lowered its valuation multiple. The company currently trades at a price-to-earnings ratio of 64 times, slightly lower than it was when Griffin sold it.
Additionally, Wall Street expects Nvidia’s revenue to grow at a rate of 37% annually over the next three years. This is an upward revision from the average consensus of 34% in the second quarter.
In other words, NVIDIA stock is expected to be a little cheaper and earnings to grow a little faster than it was when Ken Griffin was selling his shares. Mr. Griffin may have further strengthened Citadel’s position within Nvidia after the end of the second quarter, as these changes made the stock more attractive.
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super microcomputer
The super micro computer manufacturer produces servers, including complete server racks with storage and networking, and provides turnkey solutions for data center infrastructure. The company’s in-house engineering capabilities and modular approach to product design allow it to bring new technologies to market faster than its competitors. This advantage has allowed Supermicro to secure a leadership position in AI servers.
Importantly, while the market is likely to become more competitive as Dell Technologies and other equipment manufacturers lean into AI infrastructure demand, Supermicro’s leadership in direct liquid cooling (DLC) technology This means that they may be able to protect their position on the server. DLC can reduce power consumption in data centers by 40% compared to traditional air cooling, so the proportion of liquid cooling equipment is expected to rapidly increase with the introduction of AI servers.
Supermicro reported mixed financial results for the fourth quarter of fiscal 2024 (ended June 30). Sales increased 143% to $5.3 billion. However, gross margin fell nearly 6 percentage points to 11.2%, and non-GAAP (generally accepted accounting principles) profits rose only 78%, much slower than sales growth. While this may indicate reduced pricing power due to increased competition, management said gross margins will return to normal (14%-17%) by the end of FY2025.
Importantly, Ken Griffin bought Supermicro stock in the second quarter, but his stance on the company has changed since short seller Hindenburg Research accused Supermicro of accounting manipulation in August. This means that there is a possibility that it has changed. CEO Charles Liang said the accusations were “false or inaccurate statements.” However, the company has delayed filing its Form 10-K for fiscal year 2024 and has not yet fixed the issue.
For readers with a sense of déjà vu, Supermicro was fined $17.5 million in 2020 for violations similar to those outlined by Hindenburg, including premature recognition of revenue and understatement of expenses. . The incident occurred between 2014 and 2017, with the company filing a 10-K for fiscal year 2017 approximately two years after the deadline, resulting in the company’s stock being temporarily delisted from the Nasdaq Stock Exchange. It became.
In September, the Wall Street Journal reported that the Justice Department was investigating Supermicro based on allegations from former employees. The charges are similar to those brought by Hindenburg, but the investigation is in its early stages and details are scant. Still, investors should be aware of the risks.
Looking ahead, Statista predicts AI server sales to grow 30% annually through 2033, and Wall Street expects Supermicro’s adjusted earnings to grow 54% over the next 12 months. Based on these estimates, the company’s current valuation of 22 times adjusted earnings looks cheap. However, given the widespread regulatory issues, I wouldn’t be surprised if Ken Griffin reduced his position at Supermicro after the second quarter.
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Trevor Jennewine has a position at Nvidia. The Motley Fool has a position in and recommends Nvidia. The Motley Fool has a disclosure policy.
Billionaire Ken Griffin is selling most of Citadel’s Nvidia shares and buying AI stock in this split instead Original article published by The Motley Fool
