Over the past three decades, Wall Street has never been short of high-profile investment trends or innovations that could change the growth trajectory of the U.S. and global economies. Apparently nothing rivaled the advent of the Internet, in terms of revolutionary growth potential, until the artificial intelligence (AI) the revolution has arrived.
In its simplest form, AI involves using software and systems for tasks that would normally be overseen by humans. Giving software and systems the ability to learn and evolve over time (i.e. machine learning capabilities) without human intervention means that AI has theoretical utility in almost every sectors and industries. That’s why PwC analysts estimate that AI could add $15.7 trillion to the global economy by 2030.
When big numbers like this are thrown around, the brightest minds on Wall Street take notice. But while billionaires were eager to take advantage of the rise of AI by investing their money in high-octane growth stocks, they also did not hesitate to reduce their stakes in what I have come to call the “backbone infrastructure” of the AI movement.
Billionaire investors show AI’s most direct beneficiary at the door
No company has benefited more directly from artificial intelligence than semiconductor stocks Nvidia (NASDAQ:NVDA). Its A100 and H100 graphics processing units are the “brains” of AI-accelerated data centers that enable split-second decision-making through AI-driven software and systems. By some estimates, Nvidia controls at least 90% of all AI GPUs deployed in compute-intensive enterprise data centers.
Despite this dominance, eight high-profile billionaire investors reduced their respective funds’ stakes in Nvidia during the quarter ended December. Based on Form 13F filed with the Securities and Exchange Commission, these eight billionaire sellers include (total shares sold in parentheses):
Israel Englander of Millennium Management (1,689,322 shares)
Jeff Yass of Susquehanna International (1,170,611 shares)
Steven Cohen of Point72 Asset Management (1,088,821 shares)
David Tepper of Appaloosa Management (235,000 shares)
Philippe Laffont of Coatue Management (218,839 shares)
Chase Coleman of Tiger Global Management (142,900 shares)
John Overdeck and David Siegel of Two Sigma Investments (30,663 shares)
While profit-taking in 2023’s top-performing mega-cap stocks may partly explain why more than a half-dozen billionaires sent Nvidia to the chopping block, a wave of headwinds provides additional detail.
In fiscal 2024 (ended January 28), Nvidia reported 217% sales growth for its Data Center segment. Most of this growth was driven by higher prices for its A100 and H100 GPUs, as evidenced by a significantly lower 43% increase in cost of revenue (across all operating segments) compared to the previous year. With new competition entering and Nvidia increasing production of its own chips, the GPU shortage is expected to be less of a talking point by the second half of this year. As Nvidia’s pricing power weakens, so will its gross margin.
Additionally, Nvidia’s four largest customers, which account for about 40% of its total sales, are developing their own AI-focused GPUs. Although these chips will be used to complement Nvidia’s GPUs, this most likely signals a spike in orders from these four “Magnificent Seven” customers.
Billionaires might also be unhappy with the lack of help Nvidia is receiving from U.S. regulators. Nvidia developed AI GPUs specifically for the Chinese market – the A800 and H800 – after an initial round of export restrictions. Unfortunately, US regulators hit Nvidia last year with a new round of export restrictions that also affected the A800 and H800.
Finally, history has not been kind to the next big investment trends. Since the advent of the Internet, every “can’t-miss” trend has experienced an early bubble stage. History strongly suggests that AI will be no exception.
Palantir Technologies
While A-list billionaires were busy selling Nvidia stock in the fourth quarter, they were enthusiastic buyers of two hypergrowth AI-related companies. The first of these two is a data mining juggernaut Palantir Technologies (NYSE:PLTR). According to 13Fs, four successful billionaires purchased shares, including (total shares purchased in parentheses):
Israel Englander of Millennium Management (10,669,404 shares)
Philippe Laffont of Coatue Management (2,553,432 shares)
Jeff Yass of Susquehanna International (1,279,138 shares)
Ken Griffin of Citadel Advisors (1,028,089 shares)
You’ll notice that three of Nvidia’s biggest sellers (Englander, Laffont, and Yass) were among the biggest buyers of Palantir stock in the quarter ended December.
The main reason to buy Palantir stock is that the company, at scale, is irreplaceable. Palantir’s AI-powered Gotham platform helps federal governments with data collection and mission planning, among other tasks. Meanwhile, Foundry is a platform used by businesses to help them make sense of their data to streamline their operations. There is no perfect replacement for what Palantir offers federal governments and businesses across its portfolio of services.
For years, Gotham has been Palantir’s main growth engine. Government contracts won by Palantir are often spread over four or five years, leading to very predictable operating cash flows.
However, Gotham’s long-term ceiling is somewhat limited. There are some governments around the world that Palantir’s management team does not allow to use its AI-based platform. This is what makes the company’s growing Foundry platform so important for future growth.
Last year, commercial revenue increased 20% to $1 billion, with U.S. commercial sales increasing 36%. More importantly, the number of commercial customers jumped 44% to 375. While a 44% increase is impressive, the fact that Palantir only has 375 commercial customers shows how early in its history it is. business-driven expansion phase.
It’s clear that billionaires are attracted to the long-term prospects of Palantir’s Foundry segment.
Selling power
The other high-octane AI-related growth stock that billionaires were buying in the quarter ended December is the provider of cloud-based customer relationship management (CRM) software. Selling power (NYSE:CRM). Half a dozen high-profile billionaires have purchased Salesforce stock, including (total shares purchased in parentheses):
Philippe Laffont of Coatue Management (2,144,062 shares)
Ken Fisher of Fisher Asset Management (736,986 shares)
Israel Englander of Millennium Management (533,187 shares)
Ken Griffin of Citadel Advisors (198,007 shares)
Jeff Yass of Susquehanna International (97,603 shares)
Jim Simons of Renaissance Technologies (89,045 shares)
Like Palantir, Laffont, Englander and Yass were buyers of Salesforce stock and sellers of Nvidia stock.
Salesforce is the global leader in cloud-based CRM solutions. For those unfamiliar, CRM software helps consumer-facing businesses handle everything from simple data entry tasks to running complex models to determine which customers would be most likely to purchase a new product or service. It deploys AI to handle repetitive tasks, such as data entry, so that customer service representatives are free to handle more complex issues.
According to IDC, Salesforce’s CRM applications have been ranked #1 in global market share for 10 consecutive years, through the first half of 2023. In fact, its four closest competitors don’t even account for its market share global CRM solutions. . With its position at the top of the CRM rankings, double-digit sales growth is expected year-on-year.
Management has also helped the company by making regular, profit-generating targeted acquisitions. Under the leadership of co-founder and CEO Marc Benioff, Salesforce has completed a number of acquisitions, including Slack Technologies and Tableau Software. These agreements expand its ecosystem of services and provide more cross-selling opportunities for Salesforce.
Even if the AI bubble were to burst, Salesforce’s huge gap in CRM would insulate it from the downdraft.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool ranks and recommends Nvidia, Palantir Technologies and Salesforce. The Mad Motley has a disclosure policy.
Forget Nvidia: Billionaires Are Selling It and Buying These 2 High-Octane Artificial Intelligence (AI) Growth Stocks Instead was originally published by The Motley Fool
