The first half of 2024 is officially in the books, and the bulls remain in firm control on Wall Street. Since this year began, the iconic Dow Jones Industrial Average, benchmark S&P 500, and widely followed Nasdaq Composite have all leaped to fresh, all-time highs.
While specific trends have been singled out as clear-cut catalysts for this bull market rally, including the rise of artificial intelligence (AI) and companies enacting stock splits, the prevailing theme has been investors' willingness to gravitate to growth stocks. This is a trend not lost by Wall Street's smartest (and richest) investors.
Image source: Getty Images.
No later than 45 days following the end to a quarter, institutional investors with at least $100 million in assets under management (AUM) are required to file Form 13F with the Securities and Exchange Commission (SEC). A 13F allows investors an over-the-shoulder look at what Wall Street's billionaires have been buying and selling.
The latest round of 13Fs show that billionaire money managers were especially active in high-growth stocks during the March-ended quarter. More specifically, they were busy dumping shares of Wall Street's hottest megacap growth stock and absolutely piling into two other hypergrowth companies.
C'est la vie, Nvidia!
There's probably not a hotter stock on Wall Street right now than AI kingpin Nvidia (NVDA +2.59%). At its peak two weeks ago, Nvidia briefly surpassed Microsoft and Apple to gain the title of "most-valuable public company." Since the start of 2023, Nvidia's market cap surged by as much as $3 trillion, which necessitated a 10-for-1 stock split last month.
The catalyst behind this monumental run in Nvidia's stock is its market-leading AI hardware. The company's AI-driven graphics processing units (GPUs) rapidly became the standard in high-compute data centers. With Nvidia set to roll out its next-generation AI-GPU architecture (Blackwell) later this year, it should have no trouble sustaining its compute advantage.
NASDAQ: NVDA
Key Data Points
Despite this seemingly flawless ramp in its operations, eight prominent billionaire investors dumped shares of this market leader during the first 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).
- John Overdeck and David Siegel of Two Sigma Investments (420,801 shares).
- David Tepper of Appaloosa (348,000 shares).
- Steven Cohen of Point72 Asset Management (304,505 shares).
It's certainly plausible that these eight billionaires were simply locking in gains after a monster run higher by Nvidia. But it's also possible that headwinds are beginning to surface and becoming recognized by Wall Street's wisest billionaire money managers.
For example, Nvidia is set to face its first real bout of competition. Intel should begin shipping its Gaudi 3 AI-accelerator chip on a broad scale sometime this quarter, while Advanced Micro Devices has continued to ramp up production of its MI300X AI-GPU. With enterprise demand for AI-GPUs overwhelming supply, it shouldn't be difficult for Intel and AMD to grab market share from Nvidia.
What's more, Nvidia is facing competition from within. Its four top customers, which account for approximately 40% of its net sales, are developing AI-GPUs of their own. While these chips aren't going to outperform Nvidia's on a compute basis, the development of these chips represents a clear sign that its leading customers are aiming to lessen their reliance on the AI kingpin.
Perhaps the biggest warning for Nvidia is that every game-changing innovation and technology for 30 years has navigated its way through an early-stage bubble. This is to say that investors have consistently overestimated the adoption of next-big-thing innovations for three decades. Artificial intelligence is unlikely to break this trend.
Image source: Getty Images.
More than a half-dozen billionaires are making waves in Sea
Although the stock market is historically pricey, Wall Street's billionaire investors did mash the buy button for a couple of hypergrowth stocks, including Singapore-based Sea Limited (SE +0.61%). Q1 saw eight billionaire asset managers buy shares (total shares purchased in parenthesis):
- Steven Cohen of Point72 Asset Management (1,527,446 shares).
- Philippe Laffont of Coatue Management (678,308 shares).
- Chase Coleman of Tiger Global Management (675,900 shares).
- John Overdeck and David Siegel of Two Sigma Investments (338,720 shares).
- Leon Cooperman of Omega Advisors (240,000 shares).
- Ken Griffin of Citadel Advisors (190,432 shares).
- Jeff Yass of Susquehanna International (17,902 shares).
What makes Sea such an appealing investment to billionaires is that it has three unique, fast-growing operating segments.
The division that's historically been the most profitable is its digital-entertainment operations, known as "Garena." As you can imagine, mobile gaming was exceptionally popular during the COVID-19 pandemic. Though the percentage of paying users, relative to quarterly active users, has dipped from its peak during the height of the pandemic, the 8.2% of users who were paying customers during Q1 is many multiples higher than the pay-to-play average for the mobile-gaming industry.
NYSE: SE
Key Data Points
The second rapidly growing operating segment is SeaMoney, which covers digital-financial services. Many of the countries Sea operates in are chronically underbanked, with consumers and businesses lacking access to digital banking and basic financial services. SeaMoney is helping to facilitate these transactions in emerging-market economies.
The third, and arguably most important, operating segment is e-commerce platform Shopee. Gross merchandise value (GMV) traversing its platform totaled $23.6 billion in Q1, which equates to $94.4 billion on an annual run rate basis. For some context, Shopee saw $10.3 billion in GMV for the entirety of 2018. This demonstrates just how quickly Sea's online marketplace has scaled and explains why billionaire investors are so excited about the company's prospects.
A trio of top-tier billionaires have gobbled up shares of Arm
The other hypergrowth stock that billionaires were busy buying instead of Nvidia is semiconductor juggernaut Arm Holdings (ARM 0.58%). Q1 saw three billionaires beef up their stakes or open a position, including two who were big-time sellers of Nvidia's stock (total shares purchased in parenthesis):
- Ken Griffin of Citadel Advisors (1,170,604 shares).
- Israel Englander of Millennium Management (424,329 shares).
- Jeff Yass of Susquehanna International (127,848 shares).
Renaissance Technologies was a buyer of Arm shares as well, but I left this well-known quantitative hedge fund off the list since its billionaire founder Jim Simons passed away in May.
NASDAQ: ARM
Key Data Points
The allure of Arm Holdings for billionaire investors is the company's moat. Arm is responsible for designing central processing units (CPUs), GPUs, and other forms of intellectual property (IP) for which it receives royalty and licensing revenue. In other words, industry giants like Nvidia and Microsoft are using Arm designs to develop the chips that will power the training of large language models and oversee generative AI solutions for years to come. Arm brings in all of its revenue from royalties and licensing.
Aside from having the most-influential businesses utilizing its IP, Arm should benefit from developing more energy-efficient solutions for the AI revolution and data-center economy. If Arm can continue to deliver cost savings for its customers, it'll further solidify its moat as a foundational company.
Perhaps the biggest challenge Arm is going to face is convincing Wall Street and investors that its stock is worth a hefty premium. Despite surpassing Wall Street's consensus earnings-per-share (EPS) forecast in all three quarters since going public last year, Arm is currently valued at 80 times forward-year earnings. While some level of premium appears warranted given its competitive edge, a multiple of 80 times consensus EPS for the upcoming year, with revenue growth of around 20%, leaves little margin for error.
