Billionaire Philippe Laffont Sold 80% of Coatue's Stake in Nvidia and Is Piling Into This Historically Cheap Artificial Intelligence (AI) Stock Instead
In case you missed it, one of the most important data releases of the fourth quarter occurred last week -- and I'm not talking about the October inflation report.
No later than 45 calendar days following the end to a quarter, institutional investors with at least $100 million in assets under management (AUM) are required to file Form 13F with the Securities and Exchange Commission. This formal-sounding filing allows investors to see which stocks Wall Street's smartest and most historically successful money managers purchased and sold in the latest quarter (in this instance, the September-ended quarter).
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Even though 13Fs aren't perfect -- since they're filed up to 45 days after a quarter ends, their snapshot can be stale for active hedge funds -- they can still provide invaluable insight on which stocks, industries, sectors, and trends are piquing the interest of top-tier investors. This includes gauging sentiment on Wall Street's hottest innovation, artificial intelligence (AI).
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Although Berkshire Hathaway's Warren Buffett commands a lot of attention, he's not the only successful billionaire money manager that investors closely track. Coatue Management's Philippe Laffont also has a phenomenal investing track record. Laffont's fund, which primarily invests in tech stocks and innovation-driven businesses, closed out the third quarter with $26.9 billion in AUM spread across 81 companies.
However, the real jaw-dropper for Laffont has been his trading activity among AI stocks. He continues to dump shares of Wall Street's AI darling, Nvidia(NASDAQ: NVDA), and is now piling into a historically cheap AI stock.
Laffont's Coatue has sent 80% of its Nvidia shares packing
Taking into account the historic 10-for-1 stock split Nvidia effected following the close of trading on June 7, Coatue Management held 49,802,020 shares on March 31, 2023. Over the last 18 months, Laffont and his team have shown a collective 39,663,859 shares of the world's largest publicly traded company to the door, thereby reducing Coatue's stake by 80%!
In many ways, Nvidia's ascent has been the blueprint for future innovators to follow. Its graphics processing units (GPUs) hold a monopoly like share in enterprise data centers, and orders for its H100 GPU (commonly known as the "Hopper") and successor Blackwell chip are backlogged. When demand for a product outstrips supply, it's normal for its price to head higher. Nvidia has been able to net $30,000 to $40,000 for its Hopper chip, which ranges from a 100% to 300% premium over competing chips.
Nvidia also deserves credit for keeping its customers loyal to its product and service ecosystem. Having superior computing capacity with its AI-GPUs helps, but it's the company's CUDA software platform that's really done some heavy lifting. CUDA is used by developers to maximize the potential of their Nvidia GPUs, as well as build large language models.
But no matter how good things may seem, no stock is perfect, as Philippe Laffont appears to have realized.
One of the more front-and-center concerns that may be encouraging Laffont and his crew to continue paring down Coatue's stake in Nvidia is the expectation of competition. While most eyes are on external competitors like Advanced Micro Devices, the real threat may be internal.
Even though Nvidia is selling boatloads of its AI chips to its "Magnificent Seven" brethren, many of these companies are internally developing AI-GPUs of their own. Nvidia's chips maintaining their computing edge may not be enough for to dissuade its top customers from choosing their own cheaper and more-accessible AI chips in future quarters.
Laffont might also be taking his cues from Nvidia's insiders. Next month will mark four years since the last insider purchased shares of Nvidia on the open market. By comparison, insider selling has been a common occurrence. While not all insider sales are nefarious, there's only one reason to purchase shares of a company: the belief those shares will increase in value. Nvidia's insiders have given investors no reason to believe their company's stock is a good value.
Lastly, history is not in Nvidia's corner. Every next-big-thing innovation for at least three decades has endured an early innings bubble-bursting event. With most businesses lacking clear game plans to generate a positive return on their AI investments, Nvidia's near-parabolic rise may be in jeopardy.
Image source: Getty Images.
Laffont just 10X'd his stake in this market-leading AI stock
But just because billionaire Philippe Laffont has been paring down Coatue Management's stake in Nvidia, it doesn't mean he and his investment advisors haven't added to other artificial intelligence stocks. Based on the latest 13F filing, Laffont's fund increased its position in China-based Alibaba(NYSE: BABA) by 2,441,557 shares, which works to an 895% bump from where things stood on June 30.
Alibaba is probably best-known for being China's leading e-commerce platform. In April 2023, the International Trade Administration estimated that Alibaba-owned Tmall and Taobao accounted for just shy of 51% of China's online retail market share.
Unlike the U.S., where online retail sales have long since matured, China's burgeoning middle class gives its e-commerce growth prospects a long runway. With China's e-commerce sales soaring from $1.8 trillion in 2019 to an estimated $3.57 trillion this year, per eMarketer, Alibaba is perfectly positioned to take advantage of this sustained long-term growth opportunity.
However, the company's juiciest long-term growth prospects can be traced to its Cloud Intelligence Group. Alibaba is the leading cloud infrastructure service provider in China by market share -- 39%, which is more than double its next-closest competitor. It's actively incorporating generative AI solutions and large language model capabilities into its cloud infrastructure platform for its China-based customers.
Though sales for Alibaba's Cloud Intelligence Group grew by a modest 7% on a year-over-year basis in the September-ended quarter, it's worth noting that the margins associated with cloud services and AI are substantially higher than online retail sales. Even modest growth in this segment can lead to an outsized increase in profitability.
Laffont and his team are likely also enamored with Alibaba's massive treasure chest and its robust capital-return program. It closed out September with $48.2 billion in combined cash, cash equivalents, and short-term investments, plus another $6.5 billion in restricted cash and $7.2 billion in equity securities. This compares to just $4.7 billion in combined bank borrowings and unsecured senior notes. Inclusive of all of its cash elements, it has a net-cash position of greater than $57 billion.
Having a lot of cash allows Alibaba to invest aggressively in innovation, make acquisitions, and reward its shareholders through buybacks. More than $4 billion was used for share repurchases in the September-ended quarter, with $22 billion still remaining on its existing buyback program. Buying back stock can reduce the number of shares outstanding and increase earnings per share (EPS).
Lastly, Alibaba is historically cheap for an AI stock. Shares can be scooped up right now for 9 times forward-year EPS -- or even less is you take into account that a quarter of the company's existing valuation is tied to its net-cash balance.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Berkshire Hathaway, and Nvidia. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
