Nvidia (NVDA -1.69%) has seen the value of its shares skyrocket over the past two years as the biggest chip supplier in the race for artificial intelligence (AI) supremacy.
Several hedge fund managers spotted the potential for Nvidia in AI early and made considerable bets on the semiconductor stock. Stan Druckenmiller accumulated a sizable position in the stock in late 2022 and early 2023 as OpenAI's ChatGPT took the world by storm. At one point, Nvidia stock accounted for 16% of his portfolio. David Tepper, owner of the NFL's Carolina Panthers, likewise built a huge position in the stock in the first half of 2023.
But billionaires, as a group, have started selling off their Nvidia shares. That's in large part due to the incredible run the stock has been on. It's up over 160% this year already, and it was briefly the most valuable company in the world.
Here are some of the billionaires selling their positions in Nvidia:
- Stan Druckenmiller (Duquesne Family Office) sold 441,551 shares and all 4,895 call options, reducing his total exposure to the stock by about 84%.
- Philippe Laffont (Coatue Management) sold 2.9 million shares, cutting his position by 68%.
- David Tepper (Appaloosa) sold 348,000 shares, trimming his position by 44%.
- Israel Englander (Millennium Management) sold 720,004 shares and 6,910 calls, cutting his bullish position by about one-third. He also trimmed Millennium's put options, but by less than 20%, leaning more bearish.
Billionaires are smart to take some of their money off the table and reinvest into other assets as a way to diversify their portfolios and potentially find the next big winners. The ones listed above put a lot of the money from selling Nvidia into some undervalued exchange-traded funds (ETFs) that both diversify away from Nvidia and provide a lot of potential upside.
Image source: Getty Images.
Betting big on small stocks
Both Druckenmiller and Englander added exposure to the iShares Russell 2000 ETF (IWM 0.08%). It tracks the Russell 2000 index, which is the most commonly used index for small-cap stocks.
Druckenmiller bought 31,579 call options on the ETF, which had a total value of $664 million as of the end of the first quarter. That makes the ETF his largest position, representing 15% of his portfolio. Englander, meanwhile, pared back on puts while adding a substantial number of calls and shares of the ETF itself.
There's good reason to be more bullish on small caps these days. While large-cap stocks like those found in the S&P 500 have fully recovered from the 2022 bear market, small-cap stocks like those in the Russell 2000 or S&P 600 aren't back to all-time highs. The current high interest rates are much more challenging for small caps, which often rely on revolving debt to fund their growth instead of long-term bonds or existing cash flows.
As such, the valuation of small-cap stocks remains depressed relative to the large-cap market. The gap between the forward price-to-earnings ratio of the S&P 500 and the S&P 600 is the largest it's been since 2001. That could make it a stellar opportunity to invest in small-cap stocks right now. Druckenmiller is going big, and Englander is also coming around to the idea.
Finding value in China
Tepper and Laffont are looking to the world's second-largest economy for investment opportunities. Both added shares of the iShares China Large-Cap ETF (FXI 0.75%). It tracks the performance of the FTSE China 50 Index, which follows 50 of the largest and most liquid Chinese companies trading on the Hong Kong Stock Exchange.
Tepper bought 6.4 million shares of the ETF, which had a value of $153.4 million as of the end of the first quarter, representing about 2.3% of his portfolio. Laffont added 2.1 million shares, worth about $50 million, or 0.2% of Coatue's portfolio.
Tepper is extremely bullish on China, adding many large-cap tech names from the country last quarter, including Alibaba Group, Baidu, PDD Holdings, and JD.com. Most can be found in the iShares ETF.
China was slow to reopen as COVID-19 pressures eased, and it now faces a property crisis, slow economic growth, and deflation as consumers slow their spending. It also faces political tensions. Stock prices declined for a third consecutive year in 2023. While prices have recovered somewhat in 2024, the China Large-Cap ETF is still down nearly 50% from the all-time high reached in early 2021.
But the tide might be turning for China. Pandemic-related restrictions have eased up, and the government is enacting stimulus measures to support the property sector and get Chinese consumers spending again. The efforts began in earnest in February, and the impact on the stock market is evident. Tepper and Laffont's new favorite ETF is up 22% since the start of February.
Considering how far Chinese stocks have fallen, there's still a long way for them to come back. Valuations remain attractive, but there's still a lot of uncertainty about how strongly China can rebound. With the attractive prices for some of the leading names in their industries, however, it could be worth taking a closer look at the Chinese stock ETF.
