Billionaire Investors Shift Focus: Two Artificial Intelligence Stocks Over Nvidia

Several prominent billionaire investors are pulling back from their shares in Nvidia, long seen as a frontrunner in the technology sector, to invest in two rapidly growing artificial intelligence (AI) stocks.

For many years, investors on Wall Street have awaited a revolutionary technological breakthrough akin to the internet's transformative impact on global business in the 1990s. It seems that AI has finally risen to meet that challenge.

AI technology holds the promise of learning and evolving on its own, leading to unprecedented possibilities. Research by PwC suggests that AI could contribute an astounding $15.7 trillion to the global economy by 2030 through improvements in productivity and consumption.

Despite Nvidia's substantial growth and its pivotal role in the AI landscape, recent Form 13F filings with the Securities and Exchange Commission reveal that multiple billionaire investors have started favoring other AI candidates.

Billionaires Move Away from Nvidia

Nvidia has seen incredible success, with its market capitalization soaring nearly $3.2 trillion since the beginning of 2023. It enjoys a dominant position in the AI-graphics processing unit (GPU) market, particularly in high-performance data centers.

Yet, more than half a dozen billionaires have sold off shares in Nvidia during the latest quarter ending in June. Notable sellers include:

• Jeff Yass of Susquehanna International (52,497,275 shares)
• Ken Griffin of Citadel Advisors (9,282,018 shares)
• David Tepper of Appaloosa (3,730,000 shares)
• Stanley Druckenmiller of Duquesne Family Office (1,545,370 shares)
• Cliff Asness of AQR Capital Management (1,360,215 shares)
• Israel Englander of Millennium Management (676,240 shares)
• Steven Cohen of Point72 Asset Management (409,042 shares)
• Philippe Laffont of Coatue Management (96,963 shares)

This wave of selling could be attributed to profit-taking, given that Nvidia's stock has skyrocketed more than 800% in roughly 22 months. However, there are other compelling factors at play.

U.S. regulations have hindered Nvidia's sales potential, as restrictions on exports of its advanced AI chips to China, a significant market, limit growth opportunities.

The actions of Nvidia's insiders also raise eyebrows. Insiders tend to sell shares for various reasons, but purchases are often seen as a signal that they believe the stock price will rise. Notably, it's been almost four years since an insider bought Nvidia stock, while there have been 83 sales in the past year.

Moreover, as competition in the AI-GPU market heats up with new players entering the field and Nvidia's major clients opting to develop their own chips, the company may experience pressure on its market share and pricing power.

Lastly, throughout recent history, leaders in newly emerging technologies have often seen their stock prices correct sharply after initial bubbles. History suggests that AI may not be immune to similar trends.

As billionaires step away from Nvidia, they are increasingly investing in two specific AI stocks instead.

Super Micro Computer: A Preferred Choice

First among the AI stocks gaining traction among billionaires is Super Micro Computer (SMCI). During the second quarter, a notable group of billionaire investors purchased shares of Super Micro, including:

• Israel Englander of Millennium Management (5,533,230 shares)
• Jeff Yass of Susquehanna International (5,088,140 shares)
• Ken Griffin of Citadel Advisors (987,520 shares)
• Steven Cohen of Point72 Asset Management (450,660 shares)
• Ray Dalio of Bridgewater Associates (157,770 shares)
• Cliff Asness of AQR Capital Management (10,400 shares)

Investors are drawn to Super Micro as it specializes in customizable rack servers and storage solutions. As companies rush to enhance their data-center capabilities to capitalize on AI advancements, Super Micro's massive growth, shown by a 110% increase in net sales for fiscal 2024, makes it an attractive option. The company is expected to see sales grow by 87% in the current fiscal year.

Interestingly, Super Micro's servers utilize Nvidia's H100 GPUs, which can lead to strong demand. However, this reliance also exposes them to Nvidia's production challenges.

There are concerns surrounding Super Micro as well. A report by Hindenburg Research suggested potential “accounting manipulation,” which the company has denied. Furthermore, an investigation by the U.S. Justice Department could indicate deeper issues. Delays in filing their annual report have not helped their reputation in the financial community.

Although Super Micro appears undervalued based on future earnings estimates, investors must remain cautious regarding these unresolved questions.

Microsoft: Leveraging AI for Growth

Another notable stock that billionaires are favoring over Nvidia is the tech giant Microsoft (MSFT). In the same quarter, eight billionaire investors decided to invest in Microsoft, including:

• Ken Fisher of Fisher Asset Management (1,340,392 shares)
• Ole Andreas Halvorsen of Viking Global Investors (695,444 shares)
• Ray Dalio of Bridgewater Associates (510,822 shares)
• Israel Englander of Millennium Management (240,624 shares)
• David Siegel and John Overdeck of Two Sigma Investments (177,726 shares)
• Stephen Mandel of Lone Pine Capital (90,287 shares)
• Philippe Laffont of Coatue Management (20,684 shares)

Microsoft, valued at over $3 trillion, is recognized not just for its role as an AI infrastructure provider but also for incorporating AI functionality into its existing products. The integration of AI into services like its search engine, Bing, and the Edge web browser, in partnership with OpenAI (creators of the popular ChatGPT), positions Microsoft as a leader in harnessing AI for consumer applications.

The company is also enhancing its cloud services via Azure, enabling businesses to utilize AI tools for building and training large-scale language models. This should help maintain steady revenue growth in its cloud sector.

Investors are likely attracted to Microsoft’s consistent cash flow. Even though some older divisions, like Office and Windows, may not grow as rapidly as before, they still bring in significant profits. With ample cash reserves, Microsoft is well-equipped to navigate potential market downturns better than Nvidia.

In conclusion, as AI continues to evolve, the investment strategies of billionaire money managers are shifting. They are increasingly favoring stocks like Microsoft and Super Micro Computer over Nvidia, reflecting a broader search for value and stability in the evolving tech landscape.

stocks, AI, investors