Monday, April 15, 2024

Why Billionaires Are Dumping Nvidia for These ‘Magnificent Seven’ Stocks

HomeStock-MarketWhy Billionaires Are Dumping Nvidia for These 'Magnificent Seven' Stocks

Wall Street’s Wealthiest Money Managers Rotate Out of Soaring Chip Stock Into E-Commerce Giant

In a surprising shift among the ultra-wealthy investment elite, a number of prominent billionaire fund managers dumped shares of red-hot artificial intelligence chipmaker Nvidia last quarter in favor of established tech titan Amazon. The move represents a calculated pivot by some of the savviest minds on Wall Street away from one of the market’s biggest recent success stories.

Nvidia, the semiconductor firm whose powerful graphics processing units (GPUs) have become the backbone of the AI revolution, has seen its stock price skyrocket over 180% in just the past year. The company’s chips are in immense demand from tech giants like Microsoft, Amazon, Alphabet, and Meta to power their AI data centers and innovative new products and services.

Yet according to the latest quarterly filings, multiple billionaire investors headed for the exits on Nvidia in the final months of 2023. Among the high-profile mega-money managers selling massive chunks of Nvidia stock were:

  • Israel Englander of $57 billion hedge fund Millennium Management (1.69 million shares sold)
  • Jeff Yass of $37 billion quant trader Susquehanna International (1.17 million shares)
  • Legendary stock picker Steve Cohen of $22 billion Point72 (1.09 million shares)
  • Billionaire David Tepper of $16 billion Appaloosa Management (235,000 shares)

So why are some of the market’s shrewdest billionaire investors cashing in on the AI boom’s biggest apparent winner? Multiple potential headwinds may be giving the smart money pause.

For one, heightened competition is on the horizon that could threaten Nvidia’s current dominance atop the AI accelerator chip market. Both Intel and AMD have next-gen GPUs and specialized AI chips in the pipeline designed to take on Nvidia’s current offerings head-to-head, with more formidable challenges likely coming from other chipmakers as well.

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But an even bigger danger could come from some of Nvidia’s biggest customers themselves – the tech titans like Microsoft, Amazon, Alphabet, and Meta that collectively account for roughly 40% of the company’s data center chip sales. These deep-pocketed megacap firms are all developing their own proprietary AI chips in-house, potentially reducing or eliminating their future need for Nvidia’s products down the road.

There are also growing regulatory risks specific to Nvidia’s business after the U.S. government imposed tough new export restrictions on AI chips to China. The curbs initially forced Nvidia to create lower-performance versions of its flagship AI GPUs like the A800 for the Chinese market. But more recent rules have gone even further, preventing the sale of those downgraded models as well and threatening to cut off a key growth area.

Finally, as Nvidia ramps up production of its in-demand GPUs amid easing supply chain constraints, the company’s once-astronomical pricing power and lofty gross margins seem likely to come under pressure. With rivals increasing competition and more chips available, Nvidia may have to accept slimmer profits per unit to maintain its market share advantage.

While views appear mixed on Nvidia’s longer-term outlook, many of those same billionaire sellers had a clear consensus buy in the fourth quarter: e-commerce and cloud computing juggernaut Amazon.

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Ken Griffin’s $63 billion Citadel empire added over 4.3 million Amazon shares to its holdings in Q4, by far the biggest purchase. Renowned quant trader Jim Simons and his $130 billion Renaissance Technologies fund was another massive buyer, scooping up 4.3 million shares itself.

Other multi-billion dollar fund managers making sizable new bets on Amazon included:

  • Chase Coleman’s $33 billion Tiger Global (947,440 shares purchased)
  • Billionaire Ken Fisher’s $120 billion Fisher Asset Management (888,369 shares)
  • Quantitative giants John Overdeck and David Siegel of $60 billion Two Sigma (726,854 shares)
  • Steve Cohen of Point72 (462,179 shares added despite selling Nvidia)

So what makes Amazon so compelling to Wall Street’s elite billionaire class at the moment? Perhaps counterintuitively, it may have little to do with the company’s original e-commerce operations.

While solid growth is still expected from Amazon’s world-leading online retail business, the real fuel driving the bullish billionaire purchases seems to be the profit engines of the company’s higher-margin cloud computing, online advertising, and subscription services segments.

In cloud computing, Amazon Web Services (AWS) remains the global market share leader taking in nearly a third of worldwide enterprise cloud spend. And with businesses and organizations still relatively early in their mass adoption of migrating data and workflows to the cloud, AWS is positioned for many more years of strong double-digit growth ahead.

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On the advertising front, Amazon has evolved into one of the most trafficked digital properties on the internet, drawing between 2.3 billion and 2.7 billion unique visitors per month in late 2023. That gives the company tremendous opportunity to monetize those users through targeted marketing given the high purchase intent common to Amazon’s devoted online shopping audience.

Even Amazon’s more mature subscription services business, led by its Prime free shipping and streaming video offerings, remains on an impressive trajectory. After surpassing 200 million global Prime members two years ago, that figure has likely continued climbing higher thanks to the addition of exclusive NFL content like Thursday Night Football.

While not as flashy as the AI uprising or trading at triple-digit conventional valuation multiples, Amazon’s diverse collection of profitable revenue streams and resilient competitive advantages appear to resonate with the elite billionaire investment set. So while Nvidia may still have plenty of blue sky ahead, the smart money is increasingly rotating into the relatively-safer stability of the reigning cloud and e-commerce champion, at least for now.

The unexpected billionaire investment rotation highlights the always-fluid nature of Wall Street’s market darling stocks, even for revolutionary technologies like AI. Today’s disruptors can quickly become tomorrow’s discarded fads in the fast-moving world of tech and finance. For visionary companies like Amazon that have already achieved sustained dominance across multiple sectors, however, the smart money appears happy to buy and hold patiently for the long-run.

Mezhar Alee
Mezhar Alee
Mezhar Alee is a prolific author who provides commentary and analysis on business, finance, politics, sports, and current events on his website Opportuneist. With over a decade of experience in journalism and blogging, Mezhar aims to deliver well-researched insights and thought-provoking perspectives on important local and global issues in society.

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