For investors, the quarterly filing of Form 13F with the Securities and Exchange Commission (SEC) is like Christmas again.
A 13F gives investors a detailed look at what stocks Wall Street's top money managers bought and sold in the most recent quarter (in this case, the fourth quarter). In other words, it offers insight into the stocks, industries and trends that are piquing the interest of the smartest money managers.
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There may be no greater intrigue right now than knowing what Wall Street's top money managers are doing with artificial intelligence (AI) stocks. AI, which uses software and systems to handle tasks normally supervised by humans, could add an estimated $15.7 trillion to global gross domestic product by 2030, according to a report published last year by PwC.
Based on the latest round of 13F filings, billionaire investors were eager to reduce their stakes in two wildly popular AI stocks and just couldn't stop buying shares of another branded AI-inspired company.
#1 Widespread AI Stock That Billionaires Are Decidedly Selling: Nvidia
The first artificial intelligence stock to be sidelined by prominent billionaire investors is none other than the infrastructure backbone of the AI movement. Nvidia (NVDA -1.68%). In the December quarter, eight billionaires reduced their fund's respective holdings in this semiconductor giant, including (total shares sold in parentheses):
- Israel Englander from Millennium Management (1,689,322 shares).
- Jeff Yass of Susquehanna International (1,170,611 shares).
- Steven Cohen of Point72 Asset Management (1,088,821 shares).
- David Tepper of Appaloosa Management (235,000 shares).
- Philippe Laffont from Coatue Management (218,839 shares).
- Chase Coleman of Tiger Global Management (142,900 shares).
- John Overdeck and David Siegel of Two Sigma Investments (30,663 shares).
If you're wondering why these top investors would reduce their stake in Wall Street's hottest mega-cap stock, increasing competition and margin cannibalization could be the answer.
Currently, Nvidia's A100 and H100 graphics processing units (GPUs) dominate AI-accelerated data centers. Analysts at Citigroup have estimated that Nvidia's chips could account for 90% of GPUs used in high-performance data centers this year. But the competition is increasing. modern micro devices will be stepping up the rollout of its MI300X GPU this year Intel will unveil its generative AI software chip Gaudi3 later this year as a direct competitor to the H100.
Internal competition is also a potential problem. Microsoft (MSFT -0.72%) and Metaplatforms are Nvidia's respective No. 1 and No. 2 in total spending. But even though these companies are spending big on Nvidia, they're working hard to develop their own AI chips. Sooner rather than later, Microsoft and Meta's dependence on Nvidia is likely to lessen.
Ironically, Nvidia's expansion could also be its undoing – at least when it comes to the company's gross margin. Most of Nvidia's data center growth in fiscal 2024 (ended January) was the result of shortages of A100 and H100 GPUs. When a product is in short supply and in high demand, the seller typically has exceptional pricing power. As Nvidia ramps up production of its powerful GPUs, the company could be exploiting its own stellar pricing power.
#2 Widespread AI Stock That Billionaires Are Decidedly Selling: Microsoft
The other AI stock that billionaires have thrown out with the bathwater is Microsoft, the world's largest publicly traded company by market cap. Despite aggressively investing in OpenAI (the company behind the popular chatbot ChatGPT) and developing its own AI chips, seven genius billionaire investors were sellers in the fourth quarter, including (total shares sold in parentheses):
- Ole Andreas Halvorsen from Viking Global Investors (3,024,399 shares).
- Steven Cohen of Point72 Asset Management (1,569,462 shares).
- Jim Simons of Renaissance Technologies (1,155,782 shares).
- Ken Griffin of Citadel Advisors (796,892 shares).
- Chase Coleman of Tiger Global Management (787,113 shares).
- Terry Smith of Fundsmith (705,498 shares).
- Dan Loeb of Third Point (210,000 shares)
Viking Global and Renaissance Technologies have completely exited their fund's holdings in the world's largest publicly traded company. The reasons for these sales may be due to a combination of history and valuation.
There has been no shortage of forward-looking investment trends over the past 30 years. While some of these trends have made long-term investors significantly richer (e.g. the advent of the Internet and cloud computing), every investment in the next big thing has found its way through an initial bubble. This means that investors regularly overestimate the early adoption of new innovations or technologies, and AI is unlikely to be an exception.
Microsoft's valuation is another potential sticking point. Investors would currently be paying a multiple of 31 times future annual earnings, which is a far cry from the year-end multiple of 16 to 25 times future annual earnings that investors paid between 2014 and 2018.
The only thing that could ultimately make these billionaires regret their decision to sell is Microsoft's incredible cash flow. The perfect mix of high-margin cash flow from its legacy segments (e.g. Windows and Office) coupled with high-growth initiatives like cloud service infrastructure platform Azure gives Microsoft the luxury of taking risks on the acquisition and innovation front.
Image source: Getty Images.
Artificial Intelligence Stock Billionaires Can't Stop Buying: Amazon
However, not all artificial intelligence stocks were off-limits to billionaire asset managers in the December quarter. E-commerce company Amazon (AMZN -0.69%), which uses generative AI in a variety of ways to improve voice interactions with Alexa and help merchants create more compelling and tailored advertising, was a popular buy for eight billionaires, including (total shares purchased in bracket):
- Ken Griffin of Citadel Advisors (4,321,477 shares).
- Jim Simons of Renaissance Technologies (4,296,466 shares).
- Chase Coleman of Tiger Global Management (947,440 shares).
- Ken Fisher of Fisher Asset Management (888,369 shares).
- John Overdeck and David Siegel of Two Sigma Investments (726,854 shares).
- Steven Cohen of Point72 Asset Management (462,179 shares).
- Israel Englander from Millennium Management (85,532 shares).
Although AI adds to the allure of Amazon's various products and services, billionaires are most likely flocking because of the company's three fast-growing sub-segments.
Most consumers probably know Amazon because it has the dominant online marketplace in the United States. While this segment accounts for a lot of sales, online retail sales generate low margins. The lion's share of Amazon's cash flow comes from its cloud infrastructure services segment Amazon Web Services (AWS), as well as subscription services and advertising services.
AWS is Amazon's superstar. It is the world's leading provider of cloud infrastructure services, with annual revenue approaching $97 billion. Not only is corporate spending on cloud infrastructure services still in its infancy, but the margins associated with cloud services dwarf e-commerce margins. It's not uncommon for AWS to account for more than half of Amazon's operating revenue.
The other trigger that encouraged billionaires to hit the buy button on Amazon shares in the fourth quarter could be their valuation. While the traditional price-to-earnings ratio likely causes value investors to lean in the opposite direction, Amazon is historically cheap relative to its cash flow.
Cash flow tends to be a smarter way to value Amazon because Amazon tends to reinvest the majority of its operating cash flow back into its logistics operations and various high-growth initiatives. After spending the entire 2010s worth between 23 and 37 times year-end cash flow, investors can now buy stocks for around 12 times consensus 2025 cash flow estimates.
Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool's board of directors. Citigroup is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Sean Williams has held positions at Amazon, Intel and Meta Platforms. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short February 2024 $47 calls on Intel and January 2026 short $405 calls on Microsoft. The Motley Fool has a disclosure policy.