Finance

Billionaire sells 3 artificial intelligence (AI) stocks prematurely


In case you missed it, last week saw one of the most important data releases of the year. Wednesday, February 14 is the last day for filings by institutional investors with at least $100 million in assets under management Form 13F and the Securities and Exchange Commission.

13F provides investors with a detailed snapshot of what Wall Street’s top fund managers bought and sold during the most recent quarter, in this case the quarter ending in December. Even though it is 45 days old when filed, 13F can still provide clear clues about which stocks, industries and trends are attracting the attention of asset managers.

The outline of a human face emerges from a sea of ​​single pixels.

Image source: Getty Images.

No trend has captured the attention of investors and professional fund managers quite like this in more than a year Artificial Intelligence (AI)Broadly speaking, artificial intelligence involves the use of software and systems to oversee tasks typically assigned to humans. Through a combination of machine learning, these software and systems can learn and evolve over time to complete tasks more efficiently.

What makes artificial intelligence such an exciting investment theme is that nearly every sector and industry can benefit from the technology. According to a May 2023 report by PricewaterhouseCoopers, artificial intelligence could add $15.7 trillion to global gross domestic product by 2030.

While many of Wall Street’s smartest and most successful money managers have thrived through much of 2023 by owning artificial intelligence stocks, the latest round of 13Fs shows that many billionaires sold some of their high-flying stocks prematurely. Shares of artificial intelligence stocks.

Nvidia

The first AI stock to make a billionaire fund manager regret his decision to sell was none other than the foundational pillar of the AI ​​movement. Nvidia (Nasdaq: NVDA)In the fourth quarter, eight prominent billionaires reduced holdings in their funds, including (total number of 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)

  • David Siegel and John Overdeck of Two Sigma Investments (30,663 shares)

As of the close on February 16, Nvidia had gained nearly 47% so far this year, or nearly $231 per share. This means Englander’s fund will have at least $390 million left this year, if not more. , depending on when Millennium Management exits its nearly 1.69 million shares.

Two factors driving Nvidia higher are its innovation and pricing power. For the former, the company’s A100 and H100 graphics processing units (GPUs) have demonstrated incredible speed and efficiency in AI-accelerated data centers.Many of the biggest AI players, including Microsoft and meta platformhas placed large orders for Nvidia GPUs.

The second factor – Nvidia’s superior pricing power – is the result of strong demand for its GPUs. When demand for a product is high but supply is limited, the price of that product increases until demand levels off. The fact that Nvidia’s cost of revenue rose only slightly through the first nine months of fiscal 2024 (ending January 2024) while companywide sales surged 86% suggests that Nvidia’s pricing power is making a difference.

What will be interesting to watch in 2024 is whether Nvidia can maintain its stellar performance. Increased GPU production could eat into its own pricing power. Meanwhile, external and internal rivals are gathering at the proverbial door to challenge Nvidia.

super microcomputer

The second AI stock that may have billionaires kicking themselves are server and storage companies for selling too early super microcomputer (NASDAQ: SMCI)Four prominent billionaires sold shares in the quarter ended in December, including (total number of shares sold in brackets):

  • Steven Cohen of Point72 Asset Management (255,383 shares)

  • Ken Griffin of Citadel Advisors (144,833 shares)

  • Israel Englander of Millennium Management (93,827 shares)

  • Jeff Yass of Susquehanna International (72,237 shares)

In less than seven weeks since the start of the year, AMD’s stock price has soared 183%, or about $519 per share. AMD’s stock price has also risen an eye-popping 878% since the beginning of 2023. For Steven Cohen’s Point72, that means more than $132 million will be left in less than two months.

Super Micro has become a hot commodity among AI investors because it provides customizable rack-scale servers for enterprises running AI-accelerated data centers. Because Super Micro’s rack-scale servers use Nvidia’s top-tier GPUs, Super Micro’s success is somewhat tied to the fact that when one goes high, so does the other.

While Cohen, Griffin, Englund and Yas may feel the pain of missing out on some historic gains starting in 2024, their exits may ultimately prove prudent. Historically, every next big trend of the past three decades has experienced an early development-stage bubble. In fact, AMD failed years ago when the company’s growth expectations during the cloud boom failed to materialize. If history is correct, artificial intelligence demand will fall far short of investors’ extraordinary expectations for the technology – at least in its early stages.

Another problem for AMD is that it is completely dependent on suppliers, including Nvidia, and it will be difficult for AMD to meet its own needs as long as Nvidia’s supply of high-performance GPUs remains constrained.

A businessman presses the sale button on a large digital screen.  A businessman presses the sale button on a large digital screen.

Image source: Getty Images.

Arm Holdings

The third billionaire to prematurely sell AI stock is a semiconductor microprocessor intellectual property giant, according to the latest round of 13F filings Arm Holdings (NASDAQ: ARM)Available in mid-September. During the fourth quarter, six billionaire fund managers sold stakes in their respective funds, including (total number of shares sold in parentheses):

  • Ken Griffin of Citadel Advisors (2,086,848 shares)

  • Elliott Investment Management’s Paul Singer (980,392 shares)

  • Ole Andreas Halvorsen’s Viking Global Investors (600,000 shares)

  • Steven Cohen of Point72 Asset Management (318,189 shares)

  • Israel Englander of Millennial Management (51,007 shares)

  • Jeff Yass of Susquehanna International (14,843 shares)

As of the close on February 16, ARM shares were up about 71% so far this year, or just over $53 per share. That means Ken Griffin and his team missed out on $111 million each since the start of the year.

Arm Holdings generates all of its revenue from royalties and licenses. It designs central processing units (CPUs), and major chip companies pay Arm for the rights to use its designs. It’s a great job that can yield incredibly high profits. Many major artificial intelligence companies, including Nvidia (which invests directly in Arm) and Microsoft, are using Arm designs in processing chips designed for AI servers.

While Arm’s blowout fiscal third-quarter operating results (ended Dec. 31) dazzled Wall Street, the six billionaires’ losses may not last long as Arm’s valuation may be too high for investors. A tough pill to swallow.

While the company’s profit forecasts got a nice boost and its adjusted earnings per share (EPS) beat consensus estimates, Arm’s Generally Accepted Accounting Principles (GAAP) profits give you these numbers: real As it turned out, net profit fell 52% to $87 million. Even on an adjusted basis, Arm trades at 105 times the median of its fiscal 2024 earnings per share forecast and more than 41 times the median of its sales forecast.

Despite its high profit margins, Arm stock has all the hallmarks of being trapped in an unsustainable bubble.

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Randi Zuckerberg is the former director of market development and spokesperson for Facebook, the sister of Meta Platforms CEO Mark Zuckerberg, and a board member of The Motley Fool. Sean Williams Hold positions in Meta Platforms. The Motley Fool holds positions and recommends Meta Platforms, Microsoft and Nvidia. The Motley Fool recommends Super Micro Computer and recommends the following options: Long January 2026 Microsoft $395 Call and Short January 2026 $405 Microsoft Call The Motley Fool has a disclosure policy.

Billionaire sells 3 artificial intelligence (AI) stocks prematurely Originally published by The Motley Fool



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