Nvidia (NASDAQ:NVDA) has seen its stock value skyrocket over the past two years as the largest chip supplier in the race for artificial intelligence (AI) supremacy.
Several hedge fund managers spotted Nvidia’s potential in the AI space early and made sizable bets on the future of AI. semiconductor stocks. Stan Druckenmiller built a large position in the stock in late 2022 and early 2023 as OpenAI’s ChatGPT took the world by storm. At one point, Nvidia shares made up 16% of his portfolio. David Tepper, owner of the NFL’s Carolina Panthers, also built a huge position in the stock in the first half of 2023.
But billionaires, as a group, have started selling their Nvidia shares. This is largely due to the incredible movement of the stock. It’s already up more than 160% this year and was briefly the most valuable company in the world.
Here are some 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 approximately 84%.
Philippe Laffont (Coatue Management) sold 2.9 million shares, reducing his position by 68%.
David Tepper (Appaloosa) sold 348,000 shares, reducing his position by 44%.
Israel Englander (Millennium Management) sold 720,004 shares and 6,910 call options, reducing his bullish position by about a third. He also reduced Millennium’s put options, but by less than 20%, putting him in a more bearish position.
Billionaires have the smart idea of taking some of their money off the table and reinvesting it in other assets to diversify their portfolios and potentially find the next big winners. The billionaires mentioned above have invested much of the money from the Nvidia sale into undervalued exchange-traded funds (ETFs) that diversify their investments away from Nvidia and offer significant upside potential.
Betting big on small stocks
Both Druckenmiller and Englander added visibility to the iShares Russell 2000 ETF (NYSE: IWM)He follows the Russell 2000 index, which is the most commonly used index for small-cap stocks.
Druckenmiller bought 31,579 calls on the ETF, worth $664 million at the end of the first quarter. The ETF is his largest position, accounting for 15% of his portfolio. Englander, meanwhile, reduced his 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&P600 have not returned to historic highs. Today’s high interest rates are much more difficult for small caps, which often rely on revolving debt to fund growth rather than long-term bonds or existing cash flow.
Thus, the valuation of small-cap stocks remains depressed relative to the large-cap stock market. gap between the forward price/earnings ratio of the S&P 500 and the S&P 600 is the largest since 2001. This could make it a great opportunity to invest in small-cap stocks right now. Druckenmiller sees the big picture, and Englander begins to buy into the idea as well.
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 (NYSEMKT:FXI). It tracks the performance of the FTSE China 50 Index, which tracks 50 of the largest and most liquid Chinese companies traded on the market. Hong Kong Stock Exchange.
Tepper purchased 6.4 million shares of the ETF, worth $153.4 million, at 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 of the country’s large-cap tech names last quarter, including Alibaba Group, Baidu, PDD HoldingsAnd JD.comMost of them are in the iShares ETF.
China was slow to reopen as COVID-19 pressures eased, and it now faces a housing crisis, slow economic growth and deflation as consumers slow their spending. She also faces political tensions. Stock prices fell for a third consecutive year in 2023. Although prices have recovered somewhat in 2024, the China large-cap ETF is still down almost 50% from the all-time high reached in early 2021 .
But the tide may be turning for China. Pandemic restrictions have eased, and the government is pushing for stimulus measures to support the real estate sector and get Chinese consumers spending again. The efforts began in earnest in February, and the impact on the stock market is clear. Tepper and Laffont’s new favorite ETF is up 22% since the start of February.
Given the extent to which Chinese stocks have fallen, they still have a long way to go to recover. Valuations remain attractive, but there is still much uncertainty about China’s ability to rebound. Given the attractive pricing of some of the leading names in their sector, however, it might be worth taking a closer look at the China Stock ETF.
Should you invest $1,000 in Nvidia right now?
Before buying Nvidia stock, consider this:
THE Motley Fool Stock Advisor The team of analysts has just identified what they believe to be the 10 best stocks Investors need to buy now…and Nvidia isn’t one of them. The 10 selected stocks could generate monstrous returns in the years to come.
Consider when Nvidia made this list on April 15, 2005…if you had invested $1,000 at the time of our recommendation, you would have $757,001!*
Stock Advisor provides investors with an easy-to-follow plan for success, including portfolio building advice, regular analyst updates, and two new stock picks each month. THE Securities Advisor the service has more than quadrupled the return of the S&P 500 since 2002*.
*Stock Advisor returns as of June 24, 2024
Adam Levy has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Baidu, JD.com, and Nvidia. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
Billionaires Are Selling Nvidia, Buying These Undervalued ETFs Instead was originally published by The Motley Fool
