In a striking move that highlights the frenzy around artificial intelligence, several of the world’s most successful hedge fund billionaires have been selling shares of chip maker Nvidia and snapping up stakes in AI companies Amazon and HubSpot instead.
The trades, revealed in recent securities filings, signal that some of the savviest money managers believe the current runup in Nvidia’s stock price may be overdone relative to the burgeoning potential of other players in the red-hot AI field.
“These billionaire investors are voting with their wallets,” said Yuan Li, a technology analyst at Capital Return in New York. “They see Amazon and HubSpot as better bets to profit from applied AI over the long-term.”
Nvidia, a maker of graphics processors now widely used for AI applications, has been one of the biggest corporate winners of the AI boom so far. Its stock has skyrocketed more than 500% just since January 2023 as semiconductor demand has gone through the roof.
Yet the fourth quarter sales shine a light on elite money managers pivoting away from the semiconductor company and towards software-focused AI firms like Amazon’s cloud computing division and HubSpot’s AI sales and marketing tools.
Leading the charge was Israel Englander’s $57 billion Millennium Management hedge fund, which sold nearly 1.7 million Nvidia shares in the fourth quarter, slashing its stake by 45%. The hugely profitable fund also initiated new positions in both Amazon and HubSpot during the same period.
Not to be outdone, billionaire managers Steven Cohen of Point72 Asset Management and David Tepper of Appaloosa Management respectively sold 66% and 23% of their Nvidia holdings from October through December.
Like Englander, both Cohen and Tepper rotated proceeds into Amazon stock. Tepper’s Appaloosa fund went one step further by establishing an entirely new position in HubSpot too.
All three billionaires – Englander, Cohen, and Tepper – rank among the top 15 most successful hedge fund managers in history and have outperformed the S&P 500 over the past three years. Their concentrated bets on AI companies beyond chips suggests a view that the industry’s future value creation lies further up the artificial intelligence stack.
Cloud Pioneer Amazon Muscles Into Generative AI
With a dominant position in cloud infrastructure and platform services already under its belt, Seattle-based Amazon sees generative artificial intelligence as the next frontier to extend its industry lead.
The e-commerce and tech titan recently launched two major AI services through its Amazon Web Services cloud computing division. The first, called Bedrock, enables companies to customize and build their own large language models and generative AI applications instead of licensing off-the-shelf software.
The second new service, dubbed Amazon Q, is a generative AI assistant that companies can use to query and summarize data from internal and external sources to aid with business operations, analysis, and decision making.
“Amazon is positioning itself as an AI enabler and the infrastructure underlying many generative AI applications,” said Paul Jackson, a cloud computing analyst at Bloomberg Intelligence. “They have a rich dataset and comprehensive suite of tools that developers can take advantage of.”
Amazon’s chief executive Andy Jassy believes generative AI presents a multi-billion dollar revenue opportunity for the company in just the next few years, highlighting the magnitude of its AI ambitions.
And that’s just the start. The company is also infusing AI across its other business lines like e-commerce search, digital advertising, and logistics to drive operational efficiencies.
Earlier this year, Amazon introduced an AI shopping assistant called Rufus that suggests products to online customers. It is also using machine learning models to optimize product recommendations, advertising targeting, inventory planning, and delivery routing.
A First-Mover in AI Sales Software, HubSpot Doubles Down
While perhaps lesser known than Amazon outside of marketing and sales circles, HubSpot has quietly built itself into a leading provider of AI software that helps businesses generate leads, make sales, and nurture customer relationships.
HubSpot’s suite of AI-powered applications including marketing automation, conversational chatbots, and predictive analytics tools have made it a go-to vendor for small and medium-sized companies looking to scale up sales and support operations. In particular, IT research firm Gartner recently recognized HubSpot as a global leader in marketing automation platforms, citing its AI investments as a key differentiator.
Not resting on its laurels, HubSpot plans to significantly expand its AI capabilities in 2024 by rolling out generative AI for tasks like automated content creation, data summarization, and predictive sales forecasting. Many of these new AI services will be limited to the company’s higher-end subscription tiers as it aims to drive adoption among larger enterprise customers.
“HubSpot has a big lead in applying AI to CRM essentials like marketing automation and lead scoring, especially for smaller businesses,” said Lilia Chu, an enterprise software analyst at Fact-Set. “Now they’re trying to move upmarket and cross-sell advanced AI tools to compliment their existing products.”
The AI pivot appears to already be paying dividends. HubSpot reported better-than-expected financial results for the fourth quarter, including a 23% year-over-year increase in total customers to over 205,000. Perhaps more importantly, revenue growth accelerated thanks to strong demand for AI sales software.
Riding the AI Wave to Riches
So why exactly are Wall Street’s elite turning the investment taps towards Amazon and HubSpot while taking profits in Nvidia? Most likely because they see applied artificial intelligence companies reaping the biggest financial windfall from the technology’s mainstream adoption, rather than firms solely supplying the processing power and chips.
“The semiconductor space is extremely competitive and commoditized, whereas companies providing full AI software stacks, cloud deployment, and enterprise integration have more defensible moats,” said Brian Schmitt, a technology portfolio manager at PMAM in San Francisco. “Billionaire money managers tend to have great instincts around recognizing long-term tech winners and losers.”
To be sure, Nvidia remains a key enabler and beneficiary of the AI revolution happening across industries. But as a fabless semiconductor manufacturer, its upside may be more limited compared to diversified platform and software providers taking AI applications straight to enterprises.
“HubSpot and Amazon are riding the AI wave into whole new markets from a position of strength, while Nvidia is more of a picks-and-shovels vendor levered to industry growth rates,” Schmitt added.
As international competition heats up to build bigger and better AI systems, billionaire fund titans appear to be betting that the largest spoils will flow to companies creating full-stack solutions and turnkey AI applications, not just supplying the nuts and bolts. Their moves herald a new phase in the AI arms race where software and services take center stage.
