Billionaire Stanley Druckenmiller Sells Duquesne’s 88% Stake in Nvidia and Accumulates Two Unstoppable Shares

Big data releases aren’t hard to come by on Wall Street. Monthly employment and inflation reports, along with earnings season (ie, six weeks full of operating results from public companies), can make it easy for important data to fly under the radar.

While most investors focused on the heart of earnings season in mid-August, as well as the release of the July inflation report, they may have missed the deadline for Wall Street’s smartest and most successful money managers to – submit Form 13F to the Securities and Exchange Commission. A 13F provides a clear picture of the stocks and exchange-traded funds (ETFs) the top money managers bought and sold in the past quarter.

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What’s particularly noteworthy about the latest round of 13F is that Wall Street’s hottest artificial intelligence (AI) stock, Nvidia (NVDA -0.18%)was sent on the block by at least seven billionaire asset managers for the third consecutive quarter.

Perhaps the most prominent seller was billionaire Stanley Druckenmiller of the Duquesne Family Office.

Stanley Druckenmiller reduced his fund’s stake in Nvidia

Druckenmiller tends to minimize risk when investing and tries to align its portfolio with the health of the US and global economy. During the second quarter, a number of tech stocks were downgraded or sold entirely by Duquesne’s investment team, including Nvidia. The 1,545,370 shares Druckenmiller sold reduced his fund’s stake in Wall Street’s AI darling by about 88% to just 214,060 shares.

On the bright side, Nvidia has maintained its monopoly status as the preferred supplier of AI graphics processing units (GPUs) used in high-computing data centers. Analysts at TechInsights have pegged Nvidia’s share of GPUs shipped to enterprise data centers at 98% in 2022 and 2023. Given persistent demand for the H100 and the next-generation Blackwell chip, Nvidia is unlikely to relinquish its top spot soon.

But there’s another side to Nvidia’s growth story that endless optimists and Wall Street may be ignoring.

For starters, there hasn’t been a game-changing innovation that avoided a bubble-bursting event early in its existence for three decades. In simpler terms, investors have consistently overestimated how quickly a new technology or innovation would catch on with consumers and/or businesses. The fact that most companies do not have a well-defined game plan to generate a positive return on their AI investments is a strong indication that we are in the early stages of what is likely to be another breakout event.

Druckenmiller could also anticipate competitive pressures weighing on Nvidia’s margins and ultimately its bottom line. While new chips from competitors are expected to come to market, the bigger concern may be that all four of Nvidia’s biggest customers by net sales are developing their own AI GPUs. Even though Nvidia chips are faster and more energy efficient, the ease of access and cost advantages of domestically developed chips will lead to fewer opportunities for Nvidia in the future.

I’d be remiss if I didn’t also mention that no insiders have bought Nvidia stock on the open market since December 2020. This seems like a clear signal that Nvidia stock isn’t the bargain it once was.

But as Druckenmiller divested most of Duquesne’s stake in Nvidia during the quarter ended in June, he was assembling two unstoppable companies.

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Philip Morris International

The first hot business billionaire Stanley Druckenmiller found irresistible in the second quarter is tobacco goliath Philip Morris International (P.M 1.16%). His fund has acquired 889,355 shares of Philip Morris (worth about $90.1 million as of mid-2024), as well as call options that give Duquesne the right to buy up to 963,000 additional shares.

For years, tobacco stocks were yesterday’s news. Some developed countries have restricted the ability of tobacco companies to advertise, and consumers are now more aware of the potential health hazards of using tobacco products. Despite these challenges, shares of Philip Morris hit an all-time high at the close in September.

One catalyst that is seemingly always in the corner of tobacco stocks is their pricing power. Tobacco contains nicotine, which is addictive. This addictive quality allows tobacco companies to raise the price of their products — especially premium brands like Marlboro — without driving away customers. Thus, even with declining cigarette shipments in developed markets, revenues continue to rise.

Philip Morris also enjoys unparalleled geographic diversity. This is a company with operations in 180 countries. If tobacco regulations become unfavorable in certain developed markets, Philip Morris can simply lean on emerging markets, where tobacco may still be considered a luxury item, to divest.

In addition, Philip Morris is investing for a smoke-free future. The company’s smokeless business accounted for 38% of net sales in the quarter ended June, with its IQOS heated tobacco units leading the charge. The total number of IQOS users reached 30.8 million in the second quarter (up 1.9 million from the end of 2023), with its IQOS device holding more than 8% of the heated tobacco market in countries where IQOS is sold.

Although Philip Morris stock is at the upper end of its valuation range over the past decade — currently 17 times annual earnings — Druckenmiller’s fund is likely already growing between 20% and 30% of its holdings.

Kinder Morgan

The other unstoppable stock billionaire Stanley Druckenmiller piled on during the June quarter is the energy giant Kinder Morgan (KMI 0.69%). Duquesne’s 13F shows that 2,872,665 shares of Kinder Morgan were purchased, increasing the fund’s existing stake by 74% to 6,753,165 shares.

Investor sentiment toward oil and gas stocks has been mixed since the COVID-19 pandemic. Historical cliff of demand seen in the early stages of drilling rigs sharpened by the pandemic. Still, Kinder Morgan’s operations were largely flat.

The reason Kinder Morgan has thrived is because it is a midstream energy company. It is effectively an intermediary that is responsible for the transportation, storage, processing and treatment of natural gas and natural gas liquids, as well as petroleum products.

The nice thing about midstream energy companies (and Kinder Morgan is no exception) is that they operate primarily on fixed-fee contracts. Cementing long-term fixed-fee deals with drilling companies ensures that energy commodity spot price volatility and inflation are not factors. This results in highly predictable operating cash flow, year after year, which is particularly useful for midstream suppliers.

The ability to accurately forecast operating cash flow a year or more in advance is what gives Kinder Morgan’s board the confidence to distribute what is currently a dividend yield of nearly 5%. Additionally, it gives management the ability to make bolt-on acquisitions that can quickly expand infrastructure and increase cash flow.

Interestingly enough, the three-year period during the pandemic in which global energy companies cut their capital expenditures (capex) could also be a long-term positive for Kinder Morgan. Reduced investment spending has tightened global crude supply and boosted the spot price. If the spot price of on-demand energy commodities remains high, it will likely spur more production and give Kinder Morgan the opportunity to secure lucrative, fixed-fee contracts.

Kinder Morgan is currently valued at 9.7 times estimated 2025 cash flow, which is the most expensive multiple of 2019 cash flow. But with the Druckenmiller fund earning about 20% to 30% of its stake in Kinder Morgan in a few months. , I doubt he or his investment team is complaining.