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The most important data of the quarter came earlier this week – and I’m not talking about the highly anticipated July inflation report.
Institutional investors with at least $100 million in assets under management must apply no later than 45 calendar days after the end of a quarter Form 13F with the Securities and Exchange Commission. A 13F provides an under-the-hood look at what stocks Wall Street’s smartest, most successful, and wealthiest investors have been buying and selling.
Despite the limitations of 13Fs (for example, they can be 45 days old when stored, meaning the data you see may be old for active fund managers) they provide valuable clues as to what stocks, industries, sectors and trends are. which piques the interest of Wall Street’s smartest asset managers.
While there has been a lot of buying and selling activity for companies involved in what is currently the hottest investment opportunity, artificial intelligence (AI), the theme for the latest round of 13Fs is for Wall Street’s billionaire investors to up their stakes in AI keep tapering, darling. Nvidia (NASDAQ: NVDA).
Nvidia has become the hardware backbone of the artificial intelligence movement
Since turning the page to 2023, Nvidia shares are up 709% as of the closing bell on August 14, which This translates into an increase in market capitalization of more than $2.5 trillion. Quite a few billionaire investors and their funds have benefited enormously from this rise.
The catalyst behind these historic gains for a leading company is the company’s data center hardware. More specifically, Nvidia’s H100 graphics processing unit (GPU) has become the brains that power the split-second decision making needed in enterprise data centers running generative AI solutions and training large language models. According to TechInsights, Nvidia’s chips had a near-monopoly (98% share) of GPUs shipped to data centers by 2023.
The great thing about having a high-demand product is the exceptional pricing power that usually comes with it. With demand for the H100 exceeding supply, Nvidia has managed to increase the retail price of its AI GPU to between $30,000 and $40,000. The end result is a big increase in the company’s adjusted gross margin.
But not all money managers believe Wall Street’s AI leader still has enough gas in the proverbial tank to supply investors.
Billionaire money managers sold Nvidia stock for the third quarter in a row
According to newly filed 13Fs on August 14, seven prominent billionaire asset managers were sellers of Nvidia stock during the quarter ended June (total shares sold in parentheses):
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Ken Griffin of Citadel Advisors (9,282,018 shares)
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David Tepper of Appaloosa (3,730,000 shares)
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Stanley Druckenmiller of Duquesne Family Office (1,545,370 shares)
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Cliff Asness of AQR Capital Management (1,360,215 shares)
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Israel Englander of Millennium Management (676,242 shares)
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Steven Cohen of Point72 Asset Management (409,042 shares)
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Philippe Laffont of Coatue Management (96,963 shares)
During the March quarter, eight billionaire investors — nine, if you count Jim Simons of Renaissance Technologies, who died in May — sent Nvidia shares to the chopping block, while eight select billionaires were also sellers in the quarter that ended in December. .
While profit-taking after a monstrous run is a logical explanation for this exodus of billionaire investors, there are half a dozen other factors that could shed more light on why money managers keep heading for the exit.
Five reasons why billionaires can’t stop selling Nvidia stock
History is perhaps the clearest reason why billionaires are steadily moving to the sidelines. Every new technology and trend of the past thirty years has pushed its way through an early stage bubble.
In other words, investor expectations for adoption and usability have far exceeded reality for every vibrant innovation or trend of the past thirty years. Since most companies don’t have a well-defined blueprint on how they will generate positive returns on their AI investments, it seems likely that AI will be the next in a long line of next big bubbles. If the AI bubble bursts, no stock would be hit harder than Nvidia.
The expectation of a meaningful increase in competition is another reason why billionaires may show Nvidia stock at the door. Given the huge addressable market for AI, a number of third-party competitors are entering the picture with their own AI GPUs.
In addition, Nvidia’s four largest customers by net revenue are developing AI chips internally for their data centers. These complementary chips will minimize the “real estate” in high-compute data centers for Nvidia’s hardware.
Third, billionaires wisely do not overlook the cap that regulators have set. In 2022, and again in 2023, US regulators imposed export restrictions on China for Nvidia’s powerful AI chips. After the first round of restrictions in 2022, Nvidia developed the toned-down H800 and A800 chips for the world’s second-largest economy. Unfortunately, these GPUs were added to the export restriction list last year. These restrictions could cost Nvidia billions of dollars in quarterly revenue.
A fourth catalyst behind this continued selling by billionaires could have to do with the lack of buying we’ve witnessed from company insiders. There has not been an open market purchase of Nvidia shares by a director or board member since December 2020. Meanwhile, CEO Jensen Huang has been selling his company’s shares like crazy since mid-June.
While not all insider sales are bad news (some sales may be made for tax purposes), a complete lack of buying activity suggests that none of Nvidia’s seniors believe shares are good value.
Finally, Nvidia’s valuation is an eyesore. While the price-to-earnings (P/E) ratio suggests that shares may actually be cheap, the trailing twelve-month price-to-earnings (P/S) ratio (TTM) reached levels in June that rivaled the TTM P. / S peaks observed by e.g Cisco systems And Amazon before the dotcom bubble burst.
Despite the euphoria surrounding artificial intelligence, the actions of some of Wall Street’s brightest investing minds seem to indicate that trouble lies ahead.
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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. The Motley Fool holds positions in and recommends Amazon, Cisco Systems, and Nvidia. The Motley Fool has one disclosure policy.
Billionaires are dumping Nvidia stock on artificial intelligence (AI) for the third quarter in a row – here’s why was originally published by The Motley Fool