With all eyes on the Federal Reserve and earnings season, investors may have missed what was arguably the most important data release of the quarter five weeks ago.
On May 15, institutions with at least $100 million in assets under management filed Form 13F with the Securities and Exchange Commission. A 13F provides investors with insight into what Wall Street’s smartest and most successful investors have been buying and selling. It’s actually a model that allows investors to see which stocks, sectors and trends have piqued the interest of top fund managers.
Not surprisingly, Q1 13F showed strong trading activity in artificial intelligence (AI) stocks.
Companies involved in AI use software and systems to manage tasks that would normally be overseen by humans. What gives AI such utility is the ability of AI-driven software and systems to learn without human intervention. This evolution of AI systems is expected to improve efficiency and enable the learning of new tasks.
Despite the considerable potential associated with AI – PwC analysts predict that AI will add nearly $16 trillion to the global economy by 2030 – Wall Street’s billionaire investors have mixed views on the companies who will adopt this technology.
Based on the latest 13F series, which covers business activity in the quarter ended March, a number of prominent billionaires were active sellers of the AI pivot Nvidia (NASDAQ:NVDA). At the same time, these same billionaire fund managers were buying shares of four other promising artificial intelligence stocks.
Top Billionaire Fund Managers Ditched Nvidia Stock
Since the start of 2023, Nvidia shares have soared 802%, through the June 14 close, translating to nearly $2.9 trillion in added market value. This helps explain why it was a no-brainer for the company’s board to approve a 10-for-1 stock split, which was finalized on June 7.
Nvidia’s outperformance is entirely due to the dominance of its graphics processing units (GPUs) in high-computing data centers. According to semiconductor analytics firm TechInsights, Nvidia was responsible for 3.76 million of the 3.85 million AI GPUs shipped last year.
Additionally, demand for Nvidia’s AI-accelerated chips has completely outpaced supply. This caused the selling price of Nvidia’s GPUs to skyrocket and significantly increased its adjusted gross margin.
But despite Nvidia’s first-mover advantages, two high-profile billionaires sold more than 2 million shares of the company during the first quarter (total shares sold in parentheses):
Philippe Laffont of Coatue Management (2,937,060 shares)
Ken Griffin of Citadel Advisors (2,462,716 shares)
While simple profit-taking could explain some of this selling activity, there could be other catalysts behind Laffont and Griffin’s decision to decisively reduce their respective stakes in Nvidia.
As I have pointed out several times before, history has not been kind to the most significant innovations of the last 30 years. No revolutionary innovation has avoided the bursting of a bubble. Investors typically overestimate how quickly a new technology or innovation will become mainstream, and they will likely do so again with artificial intelligence. Since no company has benefited more directly from AI, Nvidia would likely be hit hardest if the AI bubble burst.
It will also be increasingly difficult for Nvidia to maintain its growth trajectory and adjust its gross margin in the face of competition from all angles. Unable to honor all its orders, external competitors like Advanced microsystems And Intel can gain market share by default.
To add to this point, Nvidia’s major customers are all working on their own AI GPUs. Even though these chips are simply intended to complement Nvidia’s valuable H100 GPU, it signals a deliberate decrease in reliance on the company’s data center GPU architecture over time.
Billionaire Philippe Laffont ventures into AI networking and cloud businesses
But as Philippe Laffont reduced Coatue’s stake in Nvidia by 68% during the first quarter, he and his team were simultaneously gobbling up shares of the AI networking solutions company. Broadcom (NASDAQ:AVGO)as well as a provider of cloud-based customer relationship management (CRM) software Selling power (NYSE:CRM). Coatue purchased 416,460 shares of Broadcom and 2,556,774 shares of Salesforce.
Broadcom, which announced a 10-for-1 forward stock split last week, is a rising star in AI-accelerated networking solutions. The company’s Jericho 3 chip has the capacity to connect up to 32,000 GPUs, which can optimize processing speeds and reduce tail latency. In simpler terms, Broadcom’s AI solutions accelerate the processing needs of enterprise data centers responsible for training large language models (LLMs) and running generative AI solutions.
But Broadcom also has a lot of momentum outside of the AI space. It remains a dominant player in next-generation wireless chips and accessories used in smartphones, and also offers an assortment of connectivity and sensor solutions for industrial equipment and new vehicles. The company’s backlog and consistency of cash flow are hard to beat in the technology sector.
Meanwhile, Salesforce is harnessing the power of AI to personalize its marketing efforts, automate certain repetitive tasks (e.g. data entry), and help it target new customers to increase its own sales. After all, CRM software is designed to improve existing customer relationships and increase sales. Predicting which existing customers are likely to purchase a new product or service can be improved using AI.
There is no doubt that Salesforce’s long-term success is tied to its dominance in the CRM space. A recent IDC report found that Salesforce will account for 21.7% of global cloud-based CRM spending in 2023. With a market share more than three times that of its closest competitor (Microsoft at 5.9%), it should have no trouble maintaining this competitive advantage for many years to come.
Billionaire Ken Griffin chose something a little more “Magnificent”
Since its inception in 1990, Ken Griffin’s hedge fund has generated $74 billion in total gains. No other hedge fund has been able to match this mark. That’s what makes Citadel selling about 2.46 million shares of Nvidia stock all the more interesting, as well as the decision by Griffin and his teams to buy two AI-inspired “Magnificent Seven” stocks.
In the quarter ended March, Citadel Advisors added 352,453 shares of the e-commerce titan Amazon (NASDAQ:AMZN)as well as 747,887 technology stocks Apple (NASDAQ:AAPL).
In addition to designing its own AI chips, Amazon is aggressively deploying generative AI solutions across its various operating segments. For example, the company has made generative AI solutions available to its Amazon Web Services (AWS) customers, who can use the technology to do everything from personalizing AI virtual assistants to training LLMs. AWS is one of Amazon’s fastest-growing segments and often accounts for the lion’s share of its operating profit.
Don’t neglect subscription services or advertising either. Amazon attracts approximately 2.5 billion visitors to its site each month, generating considerable advertising revenue. Meanwhile, the company surpassed 200 million Prime subscribers worldwide in April 2021 and has most likely added to that total since becoming the exclusive streaming partner of Thursday Night Football.
As for Apple, it made waves at its 2024 developers conference by introducing “Apple Intelligence” – the collective term the company uses for a series of AI-inspired upgrades to its various products and services. This includes everything from emoji generation based on input text to the integration of OpenAI’s ChatGPT-4o virtual chatbot later this year.
More than any of the companies mentioned here, Apple brings predictability to cash flow. It has an extremely loyal customer base, a well-known brand and has often been at the forefront of innovation. Apple has also repurchased $674 billion of its common stock since the start of 2013, more than any other public company. These buybacks have undoubtedly helped increase its earnings per share and made the company more attractive to fundamentally driven investors.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Sean Williams has positions in Amazon and Intel. The Motley Fool ranks and recommends Advanced Micro Devices, Amazon, Apple, Microsoft, Nvidia, and Salesforce. The Motley Fool recommends Broadcom and 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 405 calls $ in January 2026 on Microsoft. The Motley Fool has a disclosure policy.
Forget Nvidia: Prominent Billionaires Are Selling It and Piling Into These 4 Artificial Intelligence (AI) Stocks Instead was originally published by The Motley Fool
