Since the dawn of the internet three decades ago, no next-big-thing investment trend has turned heads quite like artificial intelligence (AI).
With AI, software and systems have the ability to learn and evolve over time without human intervention, which gives the technology application in virtually all sectors and industries. It's the reason PwC's analysts believe artificial intelligence could add close to $16 trillion to global gross domestic product by 2030.
Although numerous companies within and outside the tech sector stand to benefit from the rise of AI, it's semiconductor colossus Nvidia (NVDA -0.52%) that's become the face of this technological revolution. Nvidia's high-powered graphics processing units (GPUs) have quickly become the standard in AI-accelerated data centers. According to semiconductor analysis company TechInsights, Nvidia accounted for 98% of the 3.85 million AI-GPUs shipped in 2023.
With enterprise demand for these chips outpacing supply, Nvidia has also enjoyed otherworldly pricing power for its H100 GPU. During the fiscal first quarter (ended April 28), Nvidia reported a better-than-quintupling in sales and an adjusted gross margin that topped 78%.
Image source: Getty Images.
Despite seemingly doing everything right from an operating standpoint and generating plenty of buzz with a 10-for-1 stock split, Nvidia stock has, nonetheless, been shown to the door by more than a half-dozen billionaire investors.
Eight billionaire money managers have given the world's AI leader the heave-ho
No later than 45 calendar days following the end to a quarter, institutional investors with at least $100 million in assets under management are required to file Form 13F with the Securities and Exchange Commission. This filing provides an in-depth look at what Wall Street's brightest money managers bought and sold in the latest quarter. Based on the most recent round of 13F filings, eight prominent billionaires were sellers of Nvidia stock, 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)
- John Overdeck and David Siegel of Two Sigma Investments (420,801 shares)
- David Tepper of Appaloosa Management (348,000 shares)
- Steven Cohen of Point72 Asset Management (304,505 shares)
The second consecutive quarter of top-tier billionaire investors selling Nvidia stock might represent nothing more than simple profit-taking. After all, Nvidia has been the best-performing megacap stock, and we've simply never witnessed a company this large scale this quickly before.
But it's also hard to ignore the role history has played in next-big-thing investments trends, as well as the growing competition in the AI arena.
Including the advent of the internet in the mid-1990s, there hasn't been a game-changing technology, innovation, or trend for three decades that didn't endure an early stage bubble. Without fail, professional and everyday investors overestimate the uptake or utility of innovative trends, which eventually leads to disappointment and lofty valuations contracting in a big way. History is most-definitely not in Nvidia's corner.
Increasing competition is also worrisome for Nvidia. Even if Nvidia's GPUs retain compute advantages over its external competition, the company's inability to satisfy an overwhelming amount of demand for AI chips should allow other AI-GPU developers to succeed and "chip away" at its market share.
Furthermore, Nvidia's four largest customers are all developing AI-GPUs of their own. This signals a clear desire by Wall Street's biggest and most-influential businesses to lessen their reliance on Nvidia's hardware.
Image source: Getty Images.
These are the top buys of billionaires who were selling Nvidia stock
But just because eight prominent billionaires were selling shares of Nvidia, it doesn't mean they weren't putting their capital to work elsewhere. Here are the seven stocks these billionaires were piling into during the first quarter.
1. Philippe Laffont: Taiwan Semiconductor Manufacturing (10,027,552 shares purchased)
Interestingly, Nvidia's biggest seller in the March-ended quarter chose to gobble up shares of the world's leading chip-fabrication company, Taiwan Semiconductor Manufacturing (TSM 1.31%). Taiwan Semi has rapidly increased its chip-on-wafer-on-substrate capacity, which is a necessity for the high-bandwidth memory packaging that makes AI-accelerated data centers tick.
Although Acts of God (e.g., Taiwan's major earthquake in April) and geopolitical tensions with China threaten to disrupt a still-fragile semiconductor supply chain, Taiwan Semi has a relatively clear path to consistent demand given the rise of the data-center economy.
2. Ken Griffin: Hess (8,815,580 shares purchased)
The second-biggest seller of Nvidia stock in the first quarter, billionaire Ken Griffin, was a busy buyer of oil and gas stock Hess (HES 0.66%). It's an intriguing purchase, to say the least, given that Hess agreed to be acquired by Chevron in a $53 billion all-share dea.
While macro factors have constrained the global supply of oil and are helping juice the margins of Hess's drilling segment, it's possible Griffin's stake has more to do with an arbitrage opportunity. Based on the proposed deal of 1.025 shares of Chevron for each share of Hess, the latter is currently trading at 8% below the implied deal value, as of the closing bell on June 21.
3. Israel Englander: Merck (4,021,500 shares purchased)
Instead of next-generation tech stocks, Millennium's billionaire fund manager opted to buy more than 4 million shares of cutting-edge pharmaceutical company Merck (MRK -0.99%). Merck is the developer of the best-selling cancer immunotherapy in the world, Keytruda, which is pacing more than $27 billion in annualized run-rate revenue, through March 2024.
Merck's extensive oncology pipeline and foundational operating segments, including vaccines and its animal health division, set the stage for predictable cash flow and steady earnings growth.
4. Stanley Druckenmiller: Coherent (2,525.070 shares purchased)
Billionaire Stanley Druckenmiller was the top buyer of optoelectronics company Coherent (COHR 1.33%) in the first quarter. Coherent is a manufacturer of silicon carbide wafers, which are believed to be a next-generation solution for the electric vehicle (EV) industry. When compared to traditional silicon-based solutions, silicon carbide offers higher efficiency, superior thermal conductivity, and top-tier electrical properties. In short, it could meaningfully improve the driving range for EVs.
To boot, Coherent appointed Jim Anderson as its new CEO (only the fourth in the company's 53-year history) three weeks ago. Anderson is credited with turning around semiconductor solutions provider Lattice Semiconductor.
5. John Overdeck and David Siegel: Pfizer (8,419,014 shares purchased)
While selling shares of Nvidia, Two Sigma's billionaire duo of John Overdeck and David Siegel were big-time buyers of pharmaceutical giant Pfizer (PFE 0.84%). Even though sales from Pfizer's blockbuster COVID-19 vaccine (Comirnaty) and oral therapy (Paxlovid) are set to come in at a combined $8 billion in 2024, down from more than $56 billion (combined) in 2022, the company's overall drug portfolio, sans COVID-19 therapies, has continued to grow.
Additionally, the $43 billion acquisition of cancer-drug developer Seagen vastly expands Pfizer's oncology pipeline and should result in meaningful cost savings and earnings per share improvement beginning next year.
6. David Tepper: Alibaba (6,900,000 shares purchased)
Appaloosa's billionaire boss looked overseas and absolutely piled into China's leader in e-commerce, Alibaba (BABA -0.47%). Last year, the International Trade Administration pegged Taobao's and Tmall's combined share of China's online retail sales at nearly 51%!
Alibaba is also China's leading cloud infrastructure services platform. With enterprise spending on cloud services still in its relative infancy in China, the expectation would be for Alibaba Cloud to become a significant cash-flow driver in the second-half of the decade. Keep in mind that Alibaba ended March with over $85 billion in cash, cash equivalents, and various investments on its balance sheet.
7. Steven Cohen: Broadcom (470,365 shares purchased)
The seventh top-notch buy during the first quarter by Nvidia's biggest billionaire sellers was semiconductor networking solutions provider Broadcom (AVGO 0.49%). Point72 Asset Management's Steven Cohen grabbed more than 470,000 shares of Wall Street's newest stock-split stock.
Broadcom's solutions are proving critical to getting the most out of Nvidia's advanced GPUs. For instance, Broadcom's Jericho 3 AI chip is reducing tail latency and optimizing compute capacity by connecting up to 32,000 AI-GPUs.
I'd be remiss if I didn't also mention that Broadcom is a key provider of wireless chips and accessories used in next-generation smartphones and vehicles.
