Billionaires sell Nvidia stock and buy two shiny growth stocks that have little to do with artificial intelligence

Artificial intelligence (AI) has arguably been the hottest investment theme of the past two years and Nvidia was one of the hottest stocks on Wall Street. But there are other trends that are worth it. The hedge fund managers listed below sold shares of Nvidia in the second quarter, while buying shares of the e-commerce stock Shopify (NYSE: STORE) or MercadoLibre (NASDAQ: MELI).

• Ken Griffin of Citadel Advisors sold 9.2 million shares of Nvidia, reducing his stake by 79%. It also bought 17,644 shares of Shopify, adding 1% to its position.

• Philippe Laffont of Coatue Management sold 96,963 shares of Nvidia stock in the second quarter, trimming its stake by 1%. It also bought 66,659 Shopify shares, adding 2% to its position.

• Steven Cohen of Point72 Asset Management sold 409,042 shares of Nvidia, reducing his stake by 16%. It also bought 45,958 shares of MercadoLibre, starting from a new position.

• Stanley Druckenmiller of the Duquesne Family Office sold 1.5 million shares of Nvidia, reducing his stake by 88%. It also bought 36,493 shares of MercadoLibre, opening a new position.

All four billionaire fund managers still have exposure to Nvidia, so it would be wrong to assume they’ve lost faith in the chipmaker. Instead, the lesson here is that portfolio diversification matters and e-commerce is a worthwhile investment theme. Here’s what investors should know about Shopify and MercadoLibre.

1. Shopify

Shopify offers a turnkey solution for commerce. Its platform enables sellers to manage their businesses across physical and digital channels, including online marketplaces, social networks and custom websites. Shopify also offers adjacent solutions for marketing, payments, and logistics, as well as more sophisticated tools for data analytics, event management, and business-to-business (B2B) commerce.

Shopify has a strong competitive position. Analysts recognized its market leadership in e-commerce and omnichannel commerce software. Shopify merchants account for 10% of e-retail sales in the US and 6% of e-retail sales in Western Europe. In addition, Forrester Research and International Data Corp (IDC) recently recognized the company as a leader in B2B business solutions.

Shopify reported strong financial results in the second quarter, beating both top and bottom estimates. Revenue rose 21% to $2 billion on a strong push from subscription software and business services. That said, revenue rose 25% when adjusted for the sale of the logistics business last year. Meanwhile, non-GAAP net income rose 85% to $0.26 per diluted share.

The story continues

Importantly, management reported strong momentum with offline retail, B2B commerce and international merchants, three areas where the company has prioritized investment. This bodes well for shareholders. Shopify values ​​its addressable market at $849 billion, and more than half of that figure comes from offline retail and B2B e-commerce.

Going forward, Wall Street expects Shopify’s adjusted earnings to grow 26% annually through 2027, making its current valuation of 77 times adjusted earnings look expensive. However, Shopify is a brilliant company with a long growth track, so patient investors willing to own the stock can buy a very small position today, provided they are comfortable with the idea of ​​a pullback. If the stock falls 10% to 20%, investors should use the drawdown to buy a larger position.

2. MercadoLibre

MercadoLibre leads the largest online marketplace in Latin America, measured by visitors and revenue, and the company continues to gain market share. It will account for 29% of the region’s e-retail sales in 2024, up from 28.3% in 2023, according to eMarketer.

One of the reasons MercadoLibre is gaining traction is its ecosystem of adjacent solutions. It offers logistics support and ad tech software, as well as payment processing and lending services that make its marketplace more convenient for merchants. In fact, it has “the fastest and most extensive delivery network in the region”. The company is also the third largest digital advertiser and one of the largest fintech platforms in Latin America.

MercadoLibre reported very strong financial results in the second quarter. Revenue rose 41% to $5 billion as sales growth accelerated sequentially in the commerce and fintech segments. Meanwhile, GAAP earnings rose 103% to $10.48 per diluted share as net profit margin expanded 3 percentage points to 10.5%, the highest level in eight years.

Importantly, sales in the trade segment have now accelerated for five consecutive quarters, in part due to strength in advertising and traction with the MELI+ loyalty program. Investors have good reason to believe the momentum will continue. Retail ad spending in Latin America is forecast to grow 33% annually through 2028, according to eMarketer. MercadoLibre is the largest retail media company in the region.

Looking ahead, Wall Street expects MercadoLibre’s earnings to grow 45% annually through 2025. That consensus estimate makes the current valuation of 74 times earnings seem reasonable. Patient investors should feel comfortable buying a small position in this growth stock today.

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Trevor Jennewine has positions in MercadoLibre, Nvidia and Shopify. The Motley Fool has positions and recommends MercadoLibre, Nvidia, and Shopify. The Motley Fool has a disclosure policy.

Billionaires sell Nvidia stock and buy two shiny growth stocks that have little to do with artificial intelligence was originally published by The Motley Fool