One of Wall Street’s most respected billionaire money managers has dumped his stake in Nvidia in favor of four industry-leading, fast-growing companies.
Ever since the internet began to take hold 30 years ago, Wall Street and investors have been waiting for the next big innovation that could change the growth trajectory of American companies, and the artificial intelligence (AI) revolution appears to be answering that call for game-changing growth.
AI uses software and systems to supervise and perform tasks on behalf of humans, and the broad application of this technology is due to the fact that these software and systems can learn and evolve without human oversight.
Growth forecasts for AI vary, but analysts at PwC released a report last year predicting that the technology will add $15.7 trillion in value to the global economy by 2030. With a market that big, it’s bound to produce some hugely successful companies, which is why we’re seeing investors flock to AI-related stocks.
But optimism about AI stocks is not universal among Wall Street’s smartest and wealthiest investors.
Image source: Getty Images.
Nvidia’s biggest billionaire seller sold more than 29 million shares (adjusted for splits) in the first quarter.
According to 13F forms filed with the Securities and Exchange Commission (which provide a snapshot of what Wall Street’s most successful money managers were buying and selling in the most recent quarter), more than a half-dozen billionaire money managers sold shares in the AI leader. NVIDIA (NVDA 1.88%) During the first quarter. But no billionaire appears to have hit the sell button as hard as Coatue Management’s Philippe Laffont.
Given that NVIDIA has since completed a 10-for-1 stock split, Lafont’s fund has sold the equivalent of 29,370,600 NVIDIA shares, or about 68% of Kotsch’s previous holdings in the company.
Even though Nvidia has a virtual monopoly on AI-powered graphic processing units (GPUs) in high-computing data centers and enjoys extraordinary pricing power due to the overwhelming demand for AI-GPU supplies, there were likely several reasons why Laffont was forced to exit.
Of course, he and his team may have simply been locking in some of the gains: Nvidia’s stock has risen by nearly $3 trillion in market cap since the start of 2023, a level of expansion we’ve never seen before.
A more general concern for Nvidia and Laffont may be history. No new innovation or technology in the past 30 years (including the advent of the internet) has avoided an early stage bubble. Investor enthusiasm for new innovations always ignores that all new innovations need time to mature. Artificial intelligence is unlikely to break this trend, and if it does, Nvidia will ultimately face serious downsides.
Nvidia is also facing its first real competition in the AI-accelerated data center: Not only are outside competitors rolling out AI-GPUs, but Nvidia’s major customers are also developing AI-GPUs for their own data centers, all of which is easing the AI-GPU shortage and reducing pricing power for AI leader Nvidia.
But while Philippe Laffont and his team were busy selling off Nvidia shares in the quarter ending March, that didn’t stop them from buying four other fast-growing stocks.
Geographic expansion has de-risked Taiwan Semicon. TSM data from YCharts.
Taiwan Semiconductor Manufacturing
One of the most interesting moves made by billionaire Philippe Lafont and his investment team in the first quarter was their purchase of over 10 million shares (10,027,552 to be exact) of one of the world’s leading semiconductor manufacturers. Taiwan Semiconductor Manufacturing (TSM 1.44%).
Taiwan Semiconductor currently holds the fifth-largest position by market capitalization in Coatue (as of March 31), and serves most of the top technology companies and semiconductor giants, including Nvidia.As demand for AI-GPUs overwhelms supply, chip manufacturers such as Taiwan Semiconductor, responsible for packaging the high-bandwidth memory that powers high-computing data centers, are left with huge order backlogs.
Moreover, Taiwan Semiconductor has been steadily reducing the geopolitical risks that previously weighed on its valuation: The foundry giant opened its first factory in Japan earlier this year and plans to begin production at a new facility in Arizona by 2025. This means that geopolitical tensions between China and Taiwan are unlikely to have too negative an impact on the company’s future production capabilities.
Image source: Getty Images.
Salesforce
The second fast-growing stock that Lafont and his investment team bought on behalf of Nvidia in the quarter ending March is a cloud-based customer relationship management (CRM) software solutions provider. Salesforce (CRM -2.21%)Lafont more than doubled Coatue Management’s holdings of Salesforce.com Inc., acquiring 2,556,774 shares in the first three months of the year.
The main reason Salesforce has risen to become Coatue’s fourth-largest holding is likely due to the company’s strong defense of its cloud-based CRM software. According to a recent report from IDC, Salesforce has maintained its number one position in CRM software revenue worldwide for the 12th consecutive year. Moreover, Salesforce’s global CRM market share is 21.7%, more than three times that of its nearest competitor. (Microsoft The figure was 5.9%.
In addition to sustained double-digit growth in its cloud-based CRM software, CEO and co-founder Marc Benioff has overseen a number of revenue-accelerating acquisitions, including MuleSoft, Tableau Software and Slack Technologies. Bolt-on acquisitions expand the company’s services ecosystem and create ample cross-selling opportunities.
alphabet
While he dumped his stake in AI champion Nvidia, the third high-octane growth stock Lafont was buying up was alphabet (Google -0.82%) (Google -0.77%)is the parent company of internet search engine Google, streaming platform YouTube, self-driving company Waymo and cloud infrastructure services platform Google Cloud. The fund’s holdings of Alphabet’s Class A stock (GOOGL) increased 138%, or to 2,597,338 shares, according to Kotsch’s first-quarter 13F.
Like Taiwan Semiconductor and Salesforce, Alphabet’s appeal may be as simple as its strong moat in internet search: For more than nine years, Google has controlled at least 90% of the world’s monthly internet searches, which has often given the company outsized advertising pricing power and translated into abundant operating cash flow.
Google Cloud is likely to be Alphabet’s fastest growing segment in the second half of the decade. Enterprise cloud spending is still in the relatively early stages of ramping up, and Google Cloud moved into recurring profit last year. Because margins on cloud services are significantly higher than those on advertising, this segment should provide a nice boost to Alphabet’s cash flow over the next few years.
PayPal
The financial technology (“fintech”) giant was the fourth hypergrowth stock that Nvidia’s biggest billionaire seller bought for big money in the quarter ending March. PayPal Holdings (PYPL -1.12%)Lafont oversaw the addition of 8,014,159 shares of PayPal stock, making it Coatue’s 16th-largest holding by market capitalization as of March 31.
Despite increasing competition in the digital payments space, many of PayPal’s key performance metrics are trending in the right direction. Specifically, payment transactions increased 11% year over year to 6.5 billion, total payment value increased 14% at constant currency to nearly $404 billion, and engagement among active accounts continues to rise. In the trailing twelve months (TTM) ending March 31, active accounts had an average of 60 payments, up from 40.9 TTM average payments per active account at the end of 2020.
Plus, new CEO Alex Kris has a strong understanding of what small businesses need to succeed: He’s overseeing the rollout of PayPal’s new advertising platform and closely monitoring spending to boost profit margins.
