An Alternative to Nvidia: Billionaires’ New AI Stock of Choice

Over the past 30 years, Wall Street has seen a steady stream of the next big investment trends emerge. Since the emergence of the Internet in the mid-1990s, no innovation, technology, or trend has had as much impact on the growth rate of companies as the Internet has…until now.

According to analysts at PwC, the artificial intelligence (AI) revolution could add more than $15 trillion to global gross domestic product in 2030. That’s a huge market with the potential to produce several big winners.

Image source: Getty Images.

But despite Wall Street’s enthusiasm for AI, quarterly 13F filings with the Securities and Exchange Commission suggest mixed feelings about artificial intelligence-inspired stocks. The 13Fs provide investors with a concise snapshot of which stocks the smartest and most successful money managers have been buying and selling.

In the quarter ending June, the billionaire investor bought shares of AI leader Nvidia. (NVDA -4.47%) They have decisively invested in what could be considered their new favorite artificial intelligence stock.

Nvidia loses billionaire to company for third straight quarter

What’s especially interesting about Nvidia’s selling activity is that it’s the third consecutive quarter in which at least six prominent billionaires have sold shares: In the quarter ending in June, seven billionaire investors sold shares (total number of shares sold in parentheses).

The investors include 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), Cliff Asness of AQR Capital Management (1,360,215 shares), Israel Englander of Millennium Management (676,242 shares), Steven Cohen of Point72 Asset Management (409,042 shares), and Philippe Lafon of Coatue Management (96,963 shares).

There are two likely reasons why some or all of these billionaires felt the need to reduce their Nvidia stakes: profit taking and the need for diversification.

So far in 2023, Nvidia’s market cap has increased by $2.75 trillion as of the close of trading on August 23, 2024, following the company’s largest stock split in history (10-for-1) in June. This increase is due to Nvidia’s incredible pricing power as its H100 graphics processing units (GPUs) become the standard in AI-accelerated data centers and enterprise demand for AI-GPUs in overwhelming supply.

But profit taking may not be the only reason for the exodus of billionaires from Nvidia.

One of the most logical conclusions is that at least some of these billionaires are concerned about the competitive pressures that come with their rapid rise. Advanced Micro Devices (AMD 0.45%) AMD is ramping up production of its MI300X AI-GPU and doesn’t have the chip manufacturing supply constraints that Nvidia has, plus AMD’s chips typically sell for $10,000-15,000, far below the $30,000-40,000 that Nvidia is asking for the H100.

Competitive pressures could also come from within the company. Nvidia’s top four customers by net revenue — Microsoft, Meta Platforms, Amazon and Alphabet — are building their own AI-GPUs for use in their own data centers. While these homegrown chips don’t have the same compute power as Nvidia’s H100, they do take up valuable data center “real estate,” minimizing Nvidia’s opportunities going forward.

These seven billionaire sellers might also be concerned about history. Over the past 30 years, no highly hyped innovation, technology or trend has managed to avoid an early stage bubble burst. Without exception, investors consistently overestimate the utility and adoption of new innovations.

Despite all the buzz around artificial intelligence, few companies have a clear strategy for how to generate profits from their data center investments. This is a clear warning that investors are once again overestimating the technology’s adoption. When the AI ​​bubble bursts, no company will be hit harder than Nvidia.

Image source: Getty Images.

Nvidia is out: It’s now a billionaire money manager’s favorite AI stock

But while billionaires were dumping Nvidia shares, they were also eagerly buying up what may be their new favorite AI stock: A total of seven billionaire money managers were buying shares of Broadcom, the AI ​​network solutions specialist. (AVGO 0.76%) During the second quarter, the Company acquired the following shares, including (total number of shares purchased is in parentheses):

Ole Andreas Halvorsen of Viking Global Investors (2,930,970 shares), Jeff Yass of Susquehanna International (2,347,500 shares), Israel Englander of Millennium Management (2,096,440 shares), Ken Griffin of Citadel Advisors (1,880,740 shares), John Overdeck and David Siegel of Two Sigma Investments (1,332,230 shares), and Ken Fisher of Fisher Asset Management (865,090 shares).

Please note that the share numbers above have been adjusted for Broadcom’s 1-for-10 stock split that took place after the close of trading on July 12th.

Just as Nvidia’s hardware has become a staple in high-computing data centers, Broadcom is quickly gaining ground as a leading AI networking solutions provider. For example, its Jericho3-AI fabric can connect up to 32,000 GPUs, aiming to reduce tail latency and maximize the computing power of these chips.

While AI is certainly a catalyst, I believe the reason billionaires have chosen Broadcom as their favorite AI stock is because, unlike Nvidia, it is not entirely dependent on AI for growth: If the AI ​​bubble bursts, Broadcom has plenty of other revenue channels to fall back on as a cushion.

For example, Broadcom is a leading provider of wireless chips and accessories for next-generation smartphones. Wireless companies have been willing to spend billions of dollars upgrading their networks to support 5G download speeds, resulting in a steady device replacement cycle that has stimulated demand for Broadcom’s products.

In addition to smartphones, Broadcom provides networking solutions to businesses across all sectors and industries, including cybersecurity solutions and financial software.

Broadcom is also emphasizing acquisitions as a way to expand its ecosystem of products and services, drive cross-selling opportunities and increase revenue. Its $69 billion acquisition of cloud virtualization software provider VMware, completed in November, is a perfect example of Broadcom’s expanding reach into private and hybrid enterprise clouds.