More than a half-dozen prominent billionaire investors are selling shares of Wall Street darling Nvidia in favor of two fast-growing artificial intelligence (AI) stocks.
Wall Street has been waiting for decades for the next breakthrough innovation to rival what the Internet did for corporate America in the mid-1990s. After a long wait, artificial intelligence (AI) seems to have answered the call.
The ability of AI-powered software and systems to become more proficient at their tasks over time and learn new skills without human intervention gives this technology virtually unlimited potential. According to Determine the priceAccording to PwC analysts, AI will add $15.7 trillion to the global economy by 2030 through various production improvements and consumption side effects.
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But while no company has benefited more directly from the rise of AI than semiconductor titan Nvidia (NVDA 0.61%)Quarterly Form 13F filings with the Securities and Exchange Commission show that billionaire money managers consistently favor two other AI stocks over Wall Street’s darling.
More than half a dozen billionaire investors are sellers of Nvidia stock
Nvidia has leveraged its first mover advantages to a market cap increase of nearly $3.2 trillion since early 2023. To date, its AI graphics processing units (GPUs) have a true market share monopoly in high-compute data centers. .
Despite this competitive advantage, more than six billionaires were decisive sellers of Nvidia stock during the quarter ending in June, including (total shares sold in parentheses):
- Jeff Yass of Susquehanna International (52,497,275 shares)
- Ken Griffin of Citadel Advisors (9,282,018 shares)
- David Tepper of Appaloosa (3,730,000 shares)
- Stanley Druckenmiller of Duquesne Family Office (1,545,370 shares)
- Cliff Asness of AQR Capital Management (1,360,215 shares)
- Israel Englander of Millennium Management (676.24 shares)
- Steven Cohen of Point72 Asset Management (409,042 shares)
- Philippe Laffont of Coatue Management (96,963 shares)
Considering Nvidia’s historic rise of over 800% in about 22 months, profit-taking is likely responsible for some of this selling activity. But there may be more to this sale than meets the eye.
For example, US regulators have limited Nvidia’s revenue and profit potential over the past two years. Regulators have restricted exports of the company’s powerful AI chips to China, one of Nvidia’s biggest dollar markets.
Insider activity was another sore point for Nvidia. While there are plenty of reasons for high-ranking executives and board members to sell, some of which are benign, there is only one reason for insiders to buy shares: they expect the share price to rise. This December will mark four years since the last open market purchase by an Nvidia insider. Meanwhile, 83 insider sales have taken place in the past twelve months.
Nvidia can also expect competition to slowly chip away at its leading data center market share. New entrants into the AI GPU arena, coupled with Nvidia’s largest customers who are all developing their own AI chips in-house, are expected to negatively impact Nvidia’s, to date, otherworldly pricing power and margins.
Finally, no industry leader in the next big innovation has been able to avoid a bubble burst in the last thirty years. Investors have a terrible habit of overestimating the adoption of new technologies, and there is no indication that AI will be the exception.
Instead of holding shares of Nvidia, billionaire money managers have consistently opted to buy the following two artificial intelligence stocks instead.
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Super microcomputer
The first AI stock that billionaires clearly preferred over Nvidia in the second quarter is a specialist in customizable rack servers and storage solutions Super microcomputer (SMCI 1.92%). Based on the latest 13F filings, a half-dozen billionaire asset managers were buyers of Super Micro, including (total shares purchased in brackets and adjusted for the company’s 10-to-1 stock split in late September):
- Israel Englander of Millennium Management (5,533,230 shares)
- Jeff Yass of Susquehanna International (5,088,140 shares)
- Ken Griffin of Citadel Advisors (987,520 shares)
- Steven Cohen of Point72 Asset Management (450,660 shares)
- Ray Dalio of Bridgewater Associates (157,770 shares)
- Cliff Asness of AQR Capital Management (10,400 shares)
The logical reason for investors to believe in Super Micro’s growth story is that companies that want pioneering advantages in AI will need to rapidly expand their data center infrastructure. Super Micro is the natural choice to make that happen, as evidenced by the 110% net sales growth the company achieved in fiscal 2024 (ending June 30), and 87% sales growth based on the midpoint of the expectations, which is expected for the coming years. current financial year.
What makes this somewhat of an odd choice for billionaires is that Super Micro Computer’s rack servers contain Nvidia’s H100 GPUs. On the one hand, this acts as a dangling carrot that keeps its infrastructure in high demand. Conversely, it leaves Super Micro at the mercy of its suppliers, including Nvidia, which is dealing with backlogs of orders for its GPUs.
I would be remiss if I didn’t also mention that noted short seller Hindenburg Research released a report in late August alleging “accounting manipulation” at Super Micro. Although the company denies these allegations, reports have emerged that the US Department of Justice is conducting an early-stage investigation. Additionally, Super Micro has delayed the filing of its annual report, which is raising eyebrows on Wall Street – and not in a good way.
There’s no doubt that Super Micro Computer stock is historically cheap, based on earnings per share (EPS) estimates for the coming year; but there are also some very big questions that need to be answered before this stock gets a clean bill of health.
Microsoft
A second AI billionaires consistently choose Nvidia and is one of only three companies valued at $3 trillion. Microsoft (MSFT 0.03%). During the quarter ended June, eight prominent billionaire money managers purchased shares of Microsoft, including (total shares purchased in brackets):
- Ken Fisher of Fisher Asset Management (1,340,392 shares)
- Ole Andreas Halvorsen of Viking Global Investors (695,444 shares)
- Ray Dalio of Bridgewater Associates (510,822 shares)
- Israel Englander of Millennium Management (240,624 shares)
- David Siegel and John Overdeck of Two Sigma Investments (177,726 shares)
- Stephen Mandel of Lone Pine Capital (90,287 shares)
- Philippe Laffont of Coatue Management (20,684 shares)
While Nvidia and Super Micro Computer represent the backbone of the AI revolution, Microsoft is seen as a beneficiary based on the usefulness of the AI solutions it integrates into its services. For example, Microsoft has integrated AI into its search engine (Bing) and web browser (Edge) with the help of OpenAI, the company behind the ultra-popular chatbot ChatGPT. Microsoft happens to be a notable investor in OpenAI.
In addition, Microsoft plans to lean on AI solutions within its fast-growing cloud infrastructure service platform, Azure. Giving its enterprise customers the ability to build and train large language models and run generative AI solutions should help Azure maintain double-digit revenue growth and, in the worst-case scenario, its position as the global number one 2 cloud infrastructure service platform.
Beyond AI, billionaire asset managers are likely impressed by Microsoft’s cash flow machine. While legacy segments like Office and Windows are no longer the growth stories they once were, their impressive market share and juicy margins continue to pay off.
The exorbitant amount of money generated from Microsoft’s operations gives the company the opportunity to take risks. Microsoft is no stranger to making major acquisitions, ending fiscal 2024 (June 30) with more than $75 billion in cash, cash equivalents and short-term investments.
If the AI bubble were to burst, Microsoft would have the sales channels and money to weather the storm much better than Nvidia.
