Forget Nvidia: Billionaires are apparently in love with these two hypergrowth stocks

Between a constant stream of economic data being released and thousands of companies lifting the hood on operating results every three months, it can be easy for investors to miss an important announcement. Last month, one of the most critical announcements of the quarter probably flew under the radar for some investors.

On August 14, institutional investors with at least $100 million in assets under management were required to file Form 13F with the Securities and Exchange Commission. A 13F gives investors a concise snapshot of the stocks Wall Street’s brightest investment minds bought and sold over the past quarter.

Image source: Getty Images.

Even though this information can be up to 45 days old when filed, the 13F still provides valuable clues about the stocks, industries, sectors and trends that pique the interest of top money managers — including billionaire investors.

Perhaps the biggest surprise of the June quarter is that while artificial intelligence (AI) is still a hot trend, billionaires haven’t been shy about parting with stocks Nvidia (NVDA 3.54%). But while Nvidia was shown the door, the 13Fs make it clear that the billionaire investors were apparently enamored with two other hyper-growth stocks.

Seven billionaire money managers were sellers of Nvidia stock

The quarter ended in June marked the third straight quarter in which at least seven major billionaire asset managers were sellers of Nvidia stock. The last round of sellers included (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)

Given that Nvidia shares have gained 603% since the start of 2023 through the September 6th closing bell, profit-taking is a valid reason that likely explains some of this selling activity. But there’s more to this story than billionaires cashing in their chips for tax or diversification purposes.

To begin with, investors’ expectations for the AI ​​revolution are probably too high. For 30 years, every highly regarded innovation and technology has endured an event that erupted early in its existence. This was a reflection of investors consistently overestimating the adoption of new technologies/innovations by consumers and businesses. Since most companies do not have a clearly defined plan for how they will monetize AI, it is likely that AI will simply be the next in a long line of hyped bubbles.

Rapidly growing foreign and domestic competition is another reason for billionaire investors to dim Nvidia.

Despite the fact that Nvidia’s AI graphics processing units (GPUs) have clear computational advantages over external competitors, the company’s extensive chip stock, together with the considerably cheaper price of non-Nvidia AI GPUs, is likely to constrain at least some companies to turn to its competitors.

In addition, Nvidia’s four largest customers by net sales, who are all members of the “Magnificent Seven”, are internally developing AI-GPUs to be used in their data centers. The writing is on the wall that Nvidia chips will lose out on valuable data center real estate.

But while the billionaire money managers were busy dumping Nvidia stock in the second quarter, they actively piled into the next two supercharged growth stocks.

Image source: Amazon.

Amazon

The first high-octane growth stock to attract billionaire investors in the quarter ended June is the e-commerce leader Amazon (AMZN 2.34%). The Form 13F shows that five top billionaire investors were buyers, including (total shares purchased in parentheses):

• Ole Andreas Halvorsen of Viking Global Investors (2,391,262 shares)
• Ray Dalio of Bridgewater Associates (1,597,676 shares)
• Ken Fisher of Fisher Asset Management (1,214,055 shares)
• Ken Griffin of Citadel Advisors (1,114,948 shares)
• Philippe Laffont of Coatue Management (702,235 shares)

While most people are familiar with Amazon because of its world-leading online marketplace, that operating segment isn’t why these five billionaires bought Amazon stock in the second quarter.

The main lure for Amazon as an investment is its world-leading cloud infrastructure services platform. Technology analyst firm Canalys has pegged Amazon Web Services (AWS) worldwide market share at 33% as of June 2024. AWS has a sustained double-digit growth rate, has annual sales of more than $105 billion, and is in consistently responsible for between 50% and 100% of Amazon’s operating income.

AWS is also Amazon’s vessel to take advantage of the rise of AI. The company plans to deploy generative AI solutions to help AWS customers improve their business and better reach consumers. The enterprise cloud and AI revolution is still in its infancy, which bodes well for the future of AWS.

But there’s more to Amazon than AWS and its e-commerce platform. Amazon attracts more than 3 billion visits each month, making it a magnet for businesses looking to advertise. Advertising revenue has grown at least 20% year-over-year for two years.

In addition, its growing content library and exclusive sports partnerships — an 11-year streaming rights deal with the NBA and streaming rights for Thursday night football – should give the company exceptional pricing power with its Prime membership.

Nope

The second hypergrowth stock that billionaires seem to be enamored with instead of Nvidia is the Chinese electric vehicle (EV) maker. Nope (NO 10.96%). Despite its low nominal share price, which hovered around $5 for much of the second quarter, half a dozen billionaires piled in, including (total shares bought in parentheses):

• Steven Cohen of Point72 Asset Management (4,018,659 shares)
• Israeli Englander of Millennium Management (1,484,185 shares)
• Jeff Yass of Susquehanna International (626,300 shares)
• John Overdeck and David Siegel of Two Sigma Investments (395,000 shares)
• Ken Fisher of Fisher Asset Management (30,868 shares)

On the one hand, we have definitely witnessed a decline in demand for EVs throughout 2024. Competition has increased in the EV arena and consumers have been a bit reluctant to take the plunge given the lack of vehicle charging infrastructure electrical available. But despite these challenges, we’ve seen significant sales growth and a sizeable production ramp from Nio.

Since China lifted its onerous COVID-19 mitigation measures in December 2022, Nio has enjoyed fairly steady production expansion. The absence of supply chain constraints has allowed the company to produce around 20,000 electric vehicles per month. Through August, shipments were up nearly 36 percent from the comparable period in 2023.

Nio also wins with its innovation. It has introduced at least one new EV annually for years and has benefited from a surge in demand since the launch of its NT 2.0 platform, which incorporates a range of new driver assistance features.

To add, Nio introduced its ONVO brand to the world in May. While Nio has traditionally focused on premium electric vehicles, ONVO’s brand is more family-oriented and will offer a potentially more affordable price point for Chinese consumers.

Finally, management’s efforts to keep costs under control while improving margins are starting to pay off. Vehicle margin rose six percentage points in the quarter ended June to 12.2 percent from the year-ago period, while adjusted net loss narrowed nearly 17 percent. Although Nio still has a long way to go to reach profitability, it is taking steps in the right direction.