Data isn't hard to come by on Wall Street. Between earnings season -- the six-week period each quarter where the vast majority of S&P 500 companies unveil their operating results -- and economic data releases from the U.S. government, investors are rarely struggling for catalysts that can move the broader market.
Nvidia has been the face of the artificial intelligence (AI) revolution for the last two years. The company's Hopper (H100) graphics processing unit (GPU) and next-generation Blackwell GPU architecture are the undisputed top options in enterprise AI-accelerated data centers, and are what allow AI software and systems to make split-second decisions.
Image source: Getty Images.
Although investors should have a good bead on what to expect from Nvidia following the release of its operating results, as of this writing on Feb. 25, we've already witnessed a number of billionaire money managers weigh in -- and their sentiment regarding Wall Street's AI darling couldn't be clearer.
Wall Street's prominent billionaire asset managers speak volumes with their actions
In addition to publicly traded companies reporting their operating results on a quarterly basis, institutional investors with at least $100 million in assets under management are required to file Form 13F with the Securities and Exchange Commission no later than 45 calendar days following the end to a quarter.
A 13F provides a snapshot that allows investors to see which stocks Wall Street's most prominent money managers have been buying and selling. Even though these filings are stale for active hedge funds, they can still clue investors into the stocks, industries, sectors, and trends that have the full attention of top-tier asset managers.
As you can imagine, Nvidia's historic ascent tied to the AI revolution made it a popular company for billionaire investors to keep an eye on. But based on 13F filings over the last two years, billionaire money managers have been decisive sellers of Nvidia stock. Note: All figures below have been adjusted for Nvidia's historic 10-for-1 forward stock split in June 2024.
Philippe Laffont of Coatue Management: Sold 39,795,532 shares of Nvidia stock since the first quarter of 2023, equating to an 80% reduction.
David Tepper of Appaloosa Management: Sold 9,569,999 shares since the third quarter of 2023, which works out to a 93% haircut.
Stanley Druckenmiller of Duquesne Family Office: Sold the entirety of his fund's 9,500,750-share stake since the second quarter of 2023.
Stephen Mandel of Lone Pine Capital: Sold his fund's entire stake of 6,416,490 shares of Nvidia since the second quarter of 2023.
The "why?" behind this persistent selling activity can likely be explained by five factors.
Image source: Getty Images.
Billionaire investors are selling Nvidia stock hand over fist
The most-logical of all reasons for these four billionaire investors to ring the register is simple profit-taking. These are relatively active fund managers who likely recognize that Nvidia's roughly $3 trillion increase in market value isn't something that happens to public companies on a regular basis. The worry is that this selling is tied to much more than just simple profit-taking.
A second possibility is that billionaire fund managers were concerned about an inevitable uptick in competition for Nvidia. Interestingly, while direct competitors tend to get the most attention, internal competitive pressure might be the bigger concern.
Many of Nvidia's top customers by net sales are developing their own AI chips, with the goal of using this hardware in their AI-accelerated data centers. Even if these AI GPUs fail to match Nvidia's chips in terms of computing speed, they'll be notably cheaper and not backlogged. In other words, Nvidia is at serious risk of losing out on valuable data center real estate with its top customers and seeing its pricing power weaken over time.
The regulatory environment for AI chips and related equipment marks a third potential sell-side catalyst for billionaire money managers. The Joe Biden administration clamped down on exports of high-powered AI chips to China from 2022 through 2024. Donald Trump's administration seems intent on keeping America's AI intellectual property protected from the world's No. 2 economy. This means billions of dollars of Nvidia's quarterly sales to China are now at risk.
Historic precedent is the fourth worry that may have encouraged Laffont, Tepper, Druckenmiller, and Mandel to head for the exit. Every next-big-thing technology for three decades has navigated its way through a bubble-bursting event early in its existence. This is a reflection of investors consistently overestimating the adoption rate and/or utility of a new innovation. If history were to rhyme and the AI bubble bursts, no company would, arguably, be hit harder than Nvidia.
The fifth catalyst that may be responsible for spurring aggressive selling activity by billionaire fund managers is Nvidia's valuation. While it's not egregiously expensive on the basis of forward-year earnings, Nvidia's price-to-sales (P/S) ratio peaked at more than 42 last summer. Businesses that have been on the leading edge of next-big-thing trends have often peaked at respective P/S ratios of roughly 30 to 40 over the last three decades.
Although all eyes have been on Nvidia's operating results for weeks, billionaire investors spoke with their wallets long before the company's full-year report came into focus.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
