Move over, Nvidia: Billionaires have a new favorite artificial intelligence (AI) stock.

Over the past 30 years, Wall Street has not been without investment trends. Since the advent of the Internet in the mid-1990s, no innovation, technology, or trend has come close to impacting corporate growth rates like the Internet…until now.

According to analysts at PwC, the artificial intelligence (AI) revolution has the capacity to increase global gross domestic product by more than $15 trillion in 2030. This is a mammoth addressable market that can support several big winners.

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However, despite the euphoria surrounding artificial intelligence on Wall Street, quarterly 13F forms filed with the Securities and Exchange Commission indicate mixed feelings for AI-inspired stocks. A 13F gives investors a concise snapshot of the stocks that the smartest and most successful money managers have bought and sold.

In the quarter ending in June, billionaire investors sent shares of the AI ​​leader flying Nvidia (NVDA -2.10%) to the block and pile decisively into what may be considered their new favorite AI stock.

Nvidia had billionaires running for the exits for the third quarter in a row

What’s particularly interesting about Nvidia’s selling activity is that it marks the third consecutive quarter of sales by at least half a dozen prominent billionaires. In the quarter ended in June, seven billionaire investors eased their load, including (total shares sold in parentheses):

• 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)

Profit taking and the need for diversification are two possible answers to why some or all of these billionaires felt the need to reduce their stakes in Nvidia.

Since the start of 2023, Nvidia’s market capitalization has increased by $2.75 trillion since the closing bell on August 23, 2024, which led to the company’s largest stock split (10 for 1) in June. This growth is due to the company’s H100 graphics processing unit (GPU) becoming the standard in AI-accelerated data centers, as well as Nvidia’s staggering pricing power, which reflects enterprise demand for its overwhelming AI-GPU offering.

But there are many more reasons than just profit-taking that could explain this ongoing billionaire exodus from Nvidia.

One of the more logical conclusions to draw is that at least some of these billionaires are worried about competitive pressures following his meteoric rise. Advanced microdevices (AMD -2.75%) is ramping up its MI300X AI-GPU production and doesn’t have the same chip supply constraints as Nvidia. Additionally, AMD’s chip typically sells for $10,000 to $15,000, which is well below the $30,000 to $40,000 that Nvidia charges for the H100.

Competitive pressures can also manifest from within. Nvidia’s four largest customers by net sales — Microsoft, Meta platforms, Amazonand Alphabet — developed in-house AI-GPUs for use in their data centers. Even though these internal chips won’t have the same computing power as Nvidia’s H100, they will take up valuable data center “real estate” and minimize Nvidia’s opportunities going forward.

These seven billionaire marketers might also be concerned with history. At no point in the last three decades has there been an innovation, technology or trend that has managed to avoid an early stage bubble burst event. Without exception, investors always overestimate the utility and adoption of new innovations.

Despite all the AI ​​buzz, very few companies have well-defined game plans for how they will generate a positive return on their data center investment. This is a glaring warning that investors have once again overestimated the adoption of this technology. If and when the AI ​​bubble bursts, no company will be hit harder than Nvidia.

Image source: Getty Images.

Move over, Nvidia: This is now the favorite AI stock of billionaire money managers

But while the billionaires were showing shares of Nvidia out the door, they were avidly snapping up shares of what can be described as their new favorite AI stock. A total of seven billionaire money managers were buyers of shares in the AI ​​network solutions specialist Broadcom (AVGO -1.99%) during the second quarter, including (total shares purchased in parentheses):

• Ole Andreas Halvorsen of Viking Global Investors (2,930,970 shares)
• Jeff Yass of Susquehanna International (2,347,500 shares)
• Millenium Management’s Israeli Englander (2,096,440 shares)
• Ken Griffin of Citadel Advisors (1,880,740 shares)
• John Overdeck and David Siegel of Two Sigma Investments (1,332,230 shares)
• Ken Fisher of Fisher Asset Management (865,090 shares)

Note that the share count above has been adjusted for Broadcom’s 10-for-1 stock split that occurred after the close of trading on July 12.

Just as Nvidia hardware has become a staple in high-computing data centers, Broadcom has quickly asserted its dominance as a key provider of AI networking solutions. For example, its Jericho3-AI hardware is capable of connecting up to 32,000 GPUs, with the goal of reducing queuing latency and maximizing the computing power of these chips.

While AI has undoubtedly been a catalyst, the reason I suspect billionaires have made Broadcom their AI stock of choice is that, unlike Nvidia, it doesn’t rely entirely on AI for growth. If the AI ​​bubble bursts, Broadcom has a multitude of other revenue channels it can turn to as a cushion.

For example, Broadcom holds a leading position as a supplier of wireless chips and accessories used in high-end smart phones. Wireless companies have willingly spent billions to upgrade their networks to support 5G download speeds. In turn, this led to a constant cycle of device replacement, which boosted demand for Broadcom’s products.

Beyond smartphones, you’ll find Broadcom providing networking solutions to companies across all sectors and industries, along with cybersecurity solutions and financial software, to name a few of its other businesses.

Broadcom has also leaned on acquisitions as a way to expand its ecosystem of products and services, promote cross-selling opportunities and increase its bottom line. The $69 billion purchase of cloud virtualization software provider VMware, which closed in November, is a perfect example of Broadcom’s expansion into private and hybrid enterprise clouds.