Billionaires dump Nvidia artificial intelligence (AI) stock for third straight quarter – here’s why

The most important briefing of the quarter came earlier this week — and I’m not referring to the long-awaited July inflation report.

No later than 45 calendar days after the end of a quarter, institutional investors with at least $100 million in assets under management must file Form 13F with the Securities and Exchange Commission. A 13F provides a look under the hood of which stocks the smartest, most successful and richest investors on Wall Street have bought and sold.

Despite the 13F’s limitations — for example, they can be 45 days old when they’re filed, meaning the data you see may be out of date for active fund managers — they provide invaluable clues about stocks, industries, sectors and trends. piqued the interest of Wall Street’s brightest asset managers.

While there has been plenty of buying and selling activity for companies involved in what is currently the hottest investment opportunity, artificial intelligence (AI), the theme of the latest round of 13Fs is that Wall Street’s billionaire investors continue to- and lower the stakes in AI dear. Nvidia (NASDAQ: NVDA).

Nvidia has become the hardware backbone of the AI ​​movement

Since the page was turned in 2023, Nvidia shares are up 709% since the closing bell on August 14, which translates to a market capitalization increase of more than $2.5 trillion. Quite a few billionaire investors and their funds have benefited enormously from this upward movement.

The catalyst behind this historic win for a market-leading business is the company’s data center hardware. More specifically, Nvidia’s H100 graphics processing unit (GPU) has become the brain powering the split-second decision-making required in enterprise data centers running generative AI solutions and training large language models. In 2023, Nvidia chips had a near monopoly (98% share) of GPUs shipped to data centers, according to TechInsights.

The beauty of having an on-demand product is the exceptional pricing power that usually comes with it. With demand for the H100 outstripping supply, Nvidia was able to raise the selling price of its AI-GPU to between $30,000 and $40,000. The end result is a large increase in the company’s adjusted gross margin.

But not all money managers think Wall Street’s AI leader has enough gas left in the proverbial tank to deliver to investors.

Billionaire money managers sold shares of Nvidia for the third quarter in a row

According to the new 13F filing Aug. 14, seven prominent billionaire asset managers were sellers of Nvidia stock in the quarter ended June (total shares sold in parentheses):

The story continues

• Ken Griffin of Citadel Advisors (9,282,018 shares)

• David Tepper of Appaloosa (3,730,000 shares)

• Stanley Druckenmiller of the Duquesne Family Office (1,545,370 shares)

• Cliff Asness of AQR Capital Management (1,360,215 shares)

• Israeli Englander of Millennium Management (676,242 shares)

• Steven Cohen of Point72 Asset Management (409,042 shares)

• Philippe Laffont of Coatue Management (96,963 shares)

During the March quarter, eight billionaire investors — nine if you include Jim Simons of Renaissance Technologies, who died in May — sent Nvidia stock to the chopping block, while eight select billionaires were, of also sellers in the quarter ended December. .

While profit-taking in the wake of a monster rally is one logical explanation behind this exodus of billionaire investors, there are nearly half a dozen other factors that could shed more light on why money managers continue to head for the exits .

Five Reasons Billionaires Can’t Stop Selling Nvidia Stock

History might be the clearest reason why billionaires are constantly moving to the edge. Every technology and future trend of the past 30 years has navigated its way through an incipient bubble.

In other words, investor expectations of adoption and utility have far exceeded reality for every buzzy innovation or trend of the past three decades. Given that most companies do not have a well-defined plan for how they will generate a positive return on their AI investments, AI is likely to be the next in a long line of future bubbles. If the AI ​​bubble bursts, no stock would likely be hit harder than Nvidia.

The expectation of a significant increase in competition is another reason why billionaires could show Nvidia stock the door. Given the massive addressable AI market, a number of external competitors are entering the picture with their own AI GPUs.

In addition, Nvidia’s four largest customers by net sales are internally developing AI chips for their data centers. These complementary chips will minimize “real estate” in high-computing data centers for Nvidia hardware.

Third, billionaires are not wise to exceed the cap that regulators have put in place. In 2022 and again in 2023, US regulators imposed export restrictions on Nvidia’s high-powered AI chips to China. After the first round of restrictions in 2022, Nvidia developed the reduced H800 and A800 chips for the economy no. 2 in the world. Unfortunately, these GPUs were added to the export restriction list last year. These restrictions may cost Nvidia billions of dollars in quarterly sales.

A fourth catalyst behind this continued selling by billionaires may have to do with the lack of buy-in we’ve seen from company insiders. There has not been an open market purchase of Nvidia stock by an executive or board member since December 2020. Meanwhile, CEO Jensen Huang has been selling off his company’s stock since mid-June.

While not all insider sales are bad news — some sales may be done for tax purposes — the complete lack of buying activity suggests that none of Nvidia’s higher-ups believe the stock is a good value.

Finally, Nvidia’s valuation is a crisis. Although its forward price-to-earnings (P/E) ratio suggests that the stock may actually be cheap, its trailing 12-month (TTM) price-to-sales (P/S) ratio reached levels in June that rival the TTM P/S peaks observed from ca Cisco Systems and Amazon before the dot-com bubble burst.

Despite the euphoria surrounding artificial intelligence, the actions of some of Wall Street’s brightest investment minds seem to suggest trouble lies ahead.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Sean Williams has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Cisco Systems, and Nvidia. The Motley Fool has a disclosure policy.

Billionaires dump Nvidia artificial intelligence (AI) stock for third quarter in a row – Here’s why Originally published by The Motley Fool