The first half of 2024 is officially over and the bulls remain firmly in control on Wall Street. Since the beginning of this year, the iconic Dow Jones Industrial Averagereference S&P 500and widely followed Nasdaq Composite Index have all reached new historic highs.
While specific trends have been identified as clear catalysts for this bull market recovery, including the rise of artificial intelligence (AI) and companies adopting risk control measures, Stock distributionThe dominant theme has been investors’ propensity to gravitate toward growth stocks. This trend has not escaped the smartest (and richest) investors on Wall Street.
No later than 45 days after the end of a quarter, institutional investors with at least $100 million in assets under management must file Form 13F with the Securities and Exchange Commission (SEC). Form 13F gives investors a glimpse into what Wall Street billionaires have been buying and selling.
The latest round of 13F filings show that billionaire money managers were particularly active in high-growth stocks during the quarter ended March. Specifically, they were busy dumping shares of Wall Street’s most prized high-growth stocks and investing heavily in two other hypergrowth companies.
That’s life, Nvidia!
There’s probably no hotter stock on Wall Street right now than the king of AI. Nvidia (NASDAQ: NVDA)At its peak two weeks ago, Nvidia briefly surpassed Microsoft And Apple to earn the title of “most valuable public company.” Since the beginning of 2023, Nvidia’s market capitalization has jumped by $3 trillion, which required a 10-for-1 stock split last month.
The catalyst for Nvidia’s monumental stock rise is its market-leading artificial intelligence hardware. The company’s AI-driven graphics processing units (GPUs) have quickly become the standard in high-computing data centers. With Nvidia set to roll out its next-generation AI-GPU architecture (Blackwell) later this year, it should have no trouble maintaining its compute advantage.
Despite this seemingly flawless run-up in its operations, eight prominent billionaire investors sold shares of the market leader during the first quarter, including (total shares sold in parentheses):
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 entirely plausible that these eight billionaires simply rode the gains after Nvidia’s meteoric rise. But it’s also possible that headwinds are starting to surface and are being recognized by Wall Street’s savviest billionaire money managers.
For example, Nvidia is about to face its first real competition. Intel is expected to begin shipping its Gaudi 3 AI accelerator chip at scale this quarter, while Advanced microsystems Intel has continued to ramp up production of its MI300X AI GPU. With enterprise demand for AI GPUs far outstripping supply, it shouldn’t be difficult for Intel and AMD to take market share from Nvidia.
Additionally, Nvidia faces internal competition. Its four largest customers, which account for about 40% of its net revenue, are developing their own AI GPUs. While these chips aren’t likely to outperform Nvidia’s in terms of compute, the development of these chips is a clear sign that its major customers are looking to reduce their reliance on the AI pivot.
Perhaps the biggest warning sign for Nvidia is that every breakthrough innovation and technology in the last 30 years has been through a startup bubble. That means investors have been systematically overestimating the adoption of the next big thing for three decades. AI is unlikely to break that trend.
More than half a dozen billionaires are making waves at sea
Although the stock market is historically expensive, billionaire Wall Street investors have hit the buy button on a few hypergrowth stocks, particularly those based in Singapore. Limited Sea (NYSE: SE)In the first quarter, eight billionaire asset managers bought stocks (total shares purchased in parentheses):
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 attractive investment for billionaires is that it has three unique and fast-growing operating segments.
The division that has consistently been the most profitable is the digital entertainment business, known as “Garena.” As you can imagine, mobile gaming has been exceptionally popular during the COVID-19 pandemic. While the percentage of paying users, relative to quarterly active users, has dropped from its peak at the height of the pandemic, the 8.2% of users who were paying customers in the first quarter is well above the paid gaming average for the mobile gaming industry.
The second fastest growing business segment is SeaMoney, which covers digital financial services. Many of the countries in which Sea operates suffer from a chronic lack of banking services, with consumers and businesses lacking access to digital banking and basic financial services. SeaMoney helps facilitate these transactions in emerging market economies.
The third and arguably largest business segment is e-commerce platform Shopee. Gross merchandise value (GMV) through its platform totaled $23.6 billion in the first quarter, which equates to $94.4 billion on an annual basis. As a reminder, Shopee recorded $10.3 billion in GMV for the full year of 2018. This demonstrates how quickly Sea’s online marketplace has grown and explains why billionaire investors are so excited about the company’s prospects.
A trio of high-profile billionaires have gobbled up shares of Arm
The other hypergrowth stock that billionaires were busy buying instead of Nvidia is semiconductor giant Fire arms (NASDAQ: ARM)In the first quarter, three billionaires added to their holdings or opened a position, including two who were big sellers of Nvidia shares (total shares purchased in parentheses):
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 also a buyer of Arm shares, but I’ve left the well-known quantitative hedge fund off the list since its billionaire founder Jim Simons died in May.
Arm Holdings’ appeal to billionaire investors lies in the company’s gulf from its competitors. Arm is responsible for designing central processing units (CPUs), GPUs, and other forms of intellectual property (IP) for which it receives royalties and licensing revenue. In other words, industry giants like Nvidia and Microsoft are using Arm’s designs to develop the chips that will train large language models and oversee generative AI solutions for years to come. Arm makes all of its revenue from royalties and licensing.
In addition to having the most influential companies use its intellectual property, Arm stands to benefit from the development of more energy-efficient solutions for the AI revolution and data center economics. If Arm can continue to save its customers money, it will further cement its status as a founding company.
Perhaps the biggest challenge Arm will face will be convincing Wall Street and investors that its stock is worth a fortune. heavy premium. Although Arm has beaten Wall Street’s earnings per share (EPS) forecasts in all three quarters since its IPO last year, it is currently valued at 80 times its full-year earnings. While some premium seems justified given its competitive advantage, a multiple of 80 times consensus EPS for the full year, with revenue growth of about 20%, leaves little room for error.
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Sean Williams has positions in Intel. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Microsoft, Nvidia, and Sea Limited. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short August 2024 $35 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a position in Intel. disclosure policy.
Forget Nvidia: Top Billionaires Are Selling It and Buying These Two Hypergrowth Stocks Instead was originally published by The Motley Fool
