Wall Street’s smartest and wealthiest money managers are continuing to pare their stakes in artificial intelligence giant Nvidia while funneling money into two other high-octane, stock-splitting stocks.
Artificial intelligence (AI) has been all the rage on Wall Street since the start of 2023, but the technology has struggled this year amid the frenzy surrounding stock splits.
A stock split allows a public company to cosmetically change its stock price and the number of shares outstanding to the same extent. Stock splits are cosmetic changes in the sense that they do not change the company’s market capitalization and do not have any impact on the underlying financial performance.
There are two types of stock splits: forward and reverse, and investors are typically drawn to companies that implement forward splits. This type of split is intended to lower a company’s stock price so that it is nominally more affordable for investors who cannot purchase fractional shares through a broker. Companies that implement forward splits typically outperform their competitors in terms of execution and innovation.
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So far in 2024, a dozen or so major companies have announced or completed stock splits, and all but one of those were forward splits.
But the outlook for these major stock splitting stocks is mixed among Wall Street’s smartest and wealthiest investors. Billionaires have decided to sell cutting-edge AI stock Nvidia, according to its latest Form 13F filing with the Securities and Exchange Commission. (NVDA -0.03%) In the second quarter, the company was an avid buyer of two other high-growth stocks that were splitting stock.
Billionaires continue to cut investments in Wall Street’s AI darling
At least seven billionaire money managers have sold Nvidia shares for three consecutive quarters since the beginning of October 2023. Seven billionaires sold in the quarter that ended in June (total number of shares sold in parentheses).
The investors include Citadel’s Ken Griffin (9,282,018 shares), Appaloosa Management’s David Tepper (3,730,000 shares), Duquesne Family Office’s Stanley Druckenmiller (1,545,370 shares), AQR Capital Management’s Cliff Asness (1,360,215 shares), Millennium Management’s Israel Englander (676,242 shares), Point72 Asset Management’s Steven Cohen (409,042 shares), and Coatue Management’s Philippe Lafon (96,963 shares).
With Nvidia completing its largest stock split ever (10-for-1) in June, these billionaires may have chosen to buy more shares and diversify their portfolios, but there seems to be more to this story than just profit-taking.
Nvidia has undoubtedly enjoyed first-mover advantage as the preeminent supplier of AI graphics processing units (GPUs), but competition is now closing in from all angles.
With the debut of Nvidia’s Blackwell chips delayed by at least three months due to reported design flaws and supply chain issues, and the company’s vaunted H100 GPUs in a backlog, it should be relatively easy for outside competitors such as Advanced Micro Devices to find strong demand for their AI GPUs.
What’s more, Nvidia’s major customers have signaled their intention to eventually reduce their reliance on the AI giant: Its four largest customers by net revenue are all developing AI GPUs that they plan to use in their own data centers, making it clear that these customers intend to use cheaper hardware they develop themselves, even if Nvidia’s chips maintain their computing dominance.
The billionaires may also be spooked by ongoing insider buying and selling at NVIDIA. While not all insider buying and selling is necessarily nefarious (insiders sometimes sell shares to pay taxes, for example), it’s worth noting that none of the company’s officers or directors have bought shares on the open market since December 2020.
Finally, billionaire money managers might be concerned that history will teach them: Since the advent of the internet some 30 years ago, every next big trend has survived an early stage bubble, and AI is unlikely to be an exception.
But while the billionaires were shelling out Nvidia, they were busy buying up stock splits of two other high-growth stocks.
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Super Microcomputer
The first stock splitting stock to catch the interest of six billionaire money managers in the second quarter was Supermicro. (SMCI 3.40%)Specialists in customizable rack server and storage solutions. These billionaire buyers are:
Millennium Management’s Israel Englander (553,323 shares), Susquehanna International Group’s Jeff Yass (508,814 shares), Citadel’s Ken Griffin (98,752 shares), Point72 Asset Management’s Steven Cohen (45,066 shares), Bridgewater Associates’ Ray Dalio (15,777 shares), and AQR Capital Management’s Cliff Asness (1,040 shares).
With the stock price topping $1,200 in the first quarter, it’s not at all surprising that Supermicro’s board of directors approved a 10-for-1 stock split to take effect after the close of trading on September 30.
But the prospect of a stock split isn’t the main reason billionaires are drawn to Supermicro. The attraction is the insatiable demand from companies that want to be the first to benefit from the AI revolution by training large-scale language models and running generative AI solutions. To do that, they need to have the necessary infrastructure in place, which Supermicro can provide.
The company’s financial performance is also a reason to get billionaires excited: Net sales are expected to rise 110% to $14.9 billion in fiscal 2024 (the company’s fiscal year ends June 30), with the midpoint of guidance calling for $28 billion in net revenue this fiscal year. The projections suggest demand is out of whack at the moment.
But that won’t be easy: Supermicro uses Nvidia’s H100 GPUs in its customizable data center rack servers, but with a backlog of H100 GPUs, the company is at the mercy of its supplier.
The company has also been the target of a Hindenburg Research report aimed at short sellers alleging accounting manipulation. Though management has denied the allegations, it has delayed filing its annual earnings report, doing little to ease investor concerns.
Despite its relatively cheap valuation, Supermicrocomputer has a lot to prove to Wall Street and investors.
Broadcom
Another stock-splitting stock that billionaires clearly preferred over Nvidia in the quarter ending June was AI networking solutions and services provider Broadcom. (AVGO 1.90%)The following seven billionaire investors made investments in the second quarter:
Ole Andreas Halvorsen of Viking Global Investors (2,930,970 shares), Jeff Yass of Susquehanna International Group (2,347,500 shares), Israel Englander of Millennium Management (2,096,440 shares), Ken Griffin of Citadel (1,880,740 shares), John Overdeck and David Siegel of Two Sigma Investments (1,332,230 shares), and Ken Fisher of Fisher Investments (865,090 shares).
In keeping with the theme of this list, Broadcom also announced a 10-for-1 stock split (the first in the company’s history), which was completed in mid-July.
Broadcom’s connection to AI has undoubtedly been a driving force behind the company’s recent growth. In particular, its networking solutions connect large numbers of AI GPUs to reduce tail latency and maximize the computing power of the AI acceleration hardware. As enterprises continue to buy AI GPUs in large quantities, demand for the company’s AI networking solutions is likely to remain strong.
But billionaires may be equally excited by the fact that Broadcom has strong foundations that go far beyond artificial intelligence: The company generates significant revenue and profits from the wireless chips and accessories it provides to next-generation smartphones. It’s also a major provider of optical components used in automated industrial equipment and networking solutions for next-generation automobiles.
Finally, billionaires may be impressed by the company’s track record of making revenue-accelerating acquisitions. For example, its November 2023 purchase of cloud-based virtualization software company VMware for $69 billion puts Broadcom in a prime position to become a key player in helping enterprises with their private and hybrid cloud needs.
Broadcom has more diverse revenue streams than Nvidia and Super Micro Computer, so it will be in the best position to weather the AI bubble if it were to burst.
