Over the last 30 years, Wall Street and investors have seen no shortage of next-big-thing investment trends come and go. But no promised high-growth trend has come anywhere close to matching what the advent of the internet did for corporate America -- that is, until now.
According to the analysts at PwC, artificial intelligence (AI) is forecast to add $15.7 trillion to the global economy by 2030 through a combination of consumption-side effects and production improvements.
AI involves the use of software and systems in place of humans. What makes AI such a groundbreaking technology is the ability for these systems to "learn" over time without human intervention. This should, in theory, make AI-driven software and systems more proficient at their tasks over time, as well as allow these systems to potentially learn new tasks.
At the forefront of the artificial intelligence revolution is none other than Nvidia (NVDA -0.36%), whose stock has vaulted higher by more than $2.6 trillion in market value since the start of 2023.
Image source: Getty Images.
While Nvidia has absolutely made some of Wall Street's brightest investors richer, not all billionaires are sold on the AI kingpin. Based on the latest round of Form 13F filings with the Securities and Exchange Commission -- a 13F gives investors an under-the-hood look at what top money managers bought and sold in the latest quarter -- billionaires were active sellers of Nvidia stock. But at the same time, they couldn't stop buying shares of one of its chief AI rivals.
Eight billionaire money managers showed Nvidia to the door
On paper, Nvidia can do no wrong. The company's graphics processing units (GPUs) account for around a 90% share of AI-GPUs currently deployed in the high-compute data centers that are overseeing generative AI solutions and training large language models (LLMs). Nvidia's chips are in such high demand that its recently unveiled Blackwell chip is believed, by some analysts, to be booked well into 2025.
Despite these first-mover advantages in the hottest trend since the internet became mainstream, eight billionaire money managers chose to send at least some of their Nvidia shares to the chopping block during the March-ended quarter, including (total shares sold in parenthesis):
- Philippe Laffont of Coatue Management (2,937,060 shares)
- Ken Griffin of Citadel Advisors (2,462,716 shares)
- Israel Englander of Millennium Management (720,004 shares)
- Stanley Druckenmiller of Duquesne Family Office (441,551 shares)
- David Siegel and John Overdeck of Two Sigma Investments (420,801 shares)
- David Tepper of Appaloosa Management (348,000 shares)
- Steven Cohen of Point72 Asset Management (304,505 shares)
Technically, there were nine billionaire sellers, but I've omitted Jim Simons of Renaissance Technologies following his passing last month.
One of the reasons eight of Wall Street's top asset managers chose to sell may be as simple as profit-taking. Shares of the company have gained more than 700% since the beginning of 2023, and we've never witnessed a megacap stock scale at the rate Nvidia has over the last year and change. Taking some profits off the table, especially during an election year, is never a bad idea.
But perhaps an even more-compelling reason billionaires headed for the exit is history. Although history rarely repeats to a "t" on Wall Street, it often rhymes.
For example, every next-big-innovation over the last three decades has navigated its way through an early innings bubble. This is to say that investors have consistently overestimated the rollout and adoption of new technology and innovations. Even though artificial intelligence is the buzz on Wall Street right now, there's a good likelihood that the technology will need time to mature. In short, an AI-bubble bursting event may await.
To add to the above, Nvidia's trailing-12-month price-to-sales ratio is nearly identical to then-market leaders Cisco Systems and Amazon prior to the dot-com bubble bursting.
The final piece of the puzzle that may have encouraged these eight billionaires to lighten their stakes in Nvidia is growing competition. While most investors are well aware of the external competitors that'll be bringing AI chips to market, they might have overlooked that Nvidia's four-largest customers, which account for approximately 40% of its net sales, are developing AI-GPUs of their own. This suggests we're likely witnessing a peak in orders and gross margin for this AI titan.
Image source: Getty Images.
Billionaire investors are piling into a core AI rival of Nvidia
But here's where things get interesting. While more than a half-dozen of the smartest and most-successful asset managers dumped shares of Nvidia, six billionaire investors (four of which sold shares of Nvidia) were piling into one of its top artificial intelligence rivals. I'm talking about legacy semiconductor giant Intel (INTC 1.24%).
There's no beating around the bush that Intel has challenges it needs to work through. Weaker sales of personal computers (PCs) in the wake of the COVID-19 pandemic have hindered demand for the company's central processing units (CPUs). Intel is also contending with a resurgent Advanced Micro Devices, which has (pardon the too-perfect pun) been avidly chipping away at its CPU share in PCs and traditional data centers.
Yet in spite of these headwinds, we learned that a half-dozen billionaires bought Intel stock hand over fist during the first quarter, including (total shares purchased in parenthesis):
- Jeff Yass of Susquehanna International (4,836,516 shares)
- Ken Griffin of Citadel Advisors (1,757,626 shares)
- David Siegel and John Overdeck of Two Sigma Investments (1,345,269 shares)
- Israel Englander of Millennium Management (413,507 shares)
- Ray Dalio of Bridgewater Associates (411,473 shares)
The obvious reason billionaires are excited about Intel's future is because it has an opportunity to take advantage of exceptionally high demand for AI-GPUs. Recently, Intel unveiled its Gaudi 3 AI-accelerator chip, which will be a direct competitor to Nvidia's H100 GPU in data centers focused on training LLMs and running generative AI solutions. With AI-GPU demand swamping supply, Gaudi 3 should be gobbled up by businesses aiming to take advantage of the rise of AI. A general rollout of Gaudi 3 is expected during the third quarter.
Another catalyst that might be enticing billionaire money managers to take the proverbial plunge into Intel stock is the company's Foundry Services segment.
Right now, it's costing Intel an arm and a leg to build its chip fabrication segment from the ground up to mass production. But with two plants under construction in Ohio, and another slated to come online later this decade in Germany, a foundation has been laid for Intel to become the world's No. 2 foundry by the turn of the decade. In other words, earnings per share (EPS) has likely troughed and should meaningfully improve during the second-half of the decade.
Lastly, it's important to recognize that Intel's legacy CPU segments are still nothing short of cash cows. Even with modest market share losses in PCs and data centers to AMD, Intel's share is still dominant -- and that's unlikely to change anytime soon. The predictable operating cash flow provided by CPU sales in PCs, mobile, and traditional centers allow Intel to redirect cash to higher-growth initiatives, which include AI and its Foundry Services segment.
