Billionaire investors have been flocking to artificial intelligence (AI) stocks lately, with many making big wins with early bets on today’s market giant Nvidia. (NVDA 2.15%). Shares of the leading AI chipmaker are expected to rise about 170% this year and have risen 2,300% over the past five years. This is thanks to Nvidia’s triple-digit revenue growth every quarter and the company’s commitment to innovation to stay ahead of its competitors.
But now some of the world’s most successful investors are exiting Nvidia stock and turning to other AI companies that could skyrocket in the coming quarters. Billionaires Ray Dalio of Bridgewater Associates, Philip Laffont of Cortue Management and Stanley Druckenmiller of Duquesne Family Office have all made similar moves. They sold their Nvidia shares in favor of AI companies that, like Nvidia, completed stock splits this year.
Although the company’s stock has risen about 40% in 2024, its valuation remains lower than Nvidia’s, suggesting the AI company’s stock may have plenty of upside. Let’s take a closer look at the billionaires’ moves and the potential of this stock they piled up in Q3.
Image source: Getty Images.
Network giants benefit from AI demand
So which stock do these investors see as potentially the next AI winner? The answer is Broadcom (AVGO 1.51%)is a networking giant whose products are in high demand with the AI boom. Before we get into the Broadcom story, here are some details on the billionaire’s recent moves.
Bridgewater’s Ray Dalio sold 27% of his Nvidia holdings and now owns 4,754,271 shares. He has increased his stake in Broadcom by more than 290% and now owns 955,433 shares. Coatue’s Philippe Laffont sold 26% of his position in Nvidia and now owns 10,138,161 shares. He increased his stake in Broadcom by 52% and now owns 4,323,026 shares. Stanley Druckenmiller of the Duquesne Family Office has sold all of his Nvidia stock. He opened a new position in Broadcom, holding 239,980 shares.
It’s important to note that Dalio and Laffont still own millions of Nvidia shares. Clearly, they continue to believe in the company’s profit potential. In fact, Druckenmiller said in an interview with Bloomberg that he regrets selling Nvidia and would consider buying the stock again at a reasonable valuation. In other words, these investors have not given up on the AI chip powerhouse.
That said, they are betting that Broadcom could be one of the next winners of this AI revolution. Broadcom is a company that powers much of the technology around us, selling thousands of products used in data center networking, home connectivity, smartphones, and more.
The next big growth driver
While this has contributed to the company’s revenue growth, AI is starting to become the next big growth driver in recent quarters. In the most recent quarter, for example, Broadcom said demand for AI networking and custom AI accelerators from major cloud service providers contributed to a 47% increase in revenue. This is because these customers build and scale their businesses. Considering the overall growth outlook of the AI market, it is predicted to be a $1 trillion market by the end of 2020, and there will be plenty of growth in the future. Broadcom has already upped its near-term expectations, forecasting AI revenue of $12 billion in fiscal 2024, up from its previous estimate of $11 billion.
Broadcom completed a 10-for-1 stock split this year, but it doesn’t change the fundamentals of the company. However, this is a positive thing, as lowering the price per share opens up investment opportunities to a wider range of investors.
Meanwhile, despite this year’s gains, Broadcom’s stock trades at just 25 times forward earnings, making it a bargain given its prospects for the high-growth AI market over the next few years. And Broadcom looks especially cheap compared to Nvidia, which trades at about 45 times forward earnings.
All of this means it’s no surprise that the billionaire has secured some stake in Nvidia stock and turned to Broadcom as a new source of potential growth. And the great news is you don’t have to be a billionaire to pick up some Broadcom stock today and bet on the company’s future in the exciting AI market.
Adria Cimino has no position in any stocks mentioned. The Motley Fool has a position in and recommends Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
