Wall Street Shifts Focus: Billionaires Back AI Alternatives to Nvidia

Wall Street has been anticipating a breakthrough innovation that could reshape corporate America, similar to the internet’s impact in the 1990s. After a lengthy wait, artificial intelligence (AI) appears to be stepping up to the plate.

AI-driven software and systems can improve over time and learn new skills independently, offering incredible potential. Analysts from PwC estimate that AI could add a staggering $15.7 trillion to the global economy by 2030 through enhancements in production and changes in consumption patterns, according to their report, Sizing the Prize.

Image source: Getty Images.

Billionaires Turn Against Nvidia Amid Selling Frenzy

Nvidia, a leader in the semiconductor market, has significantly benefited from its early investments in AI, boosting its market cap by nearly $3.2 trillion since early 2023. The company maintains a dominant position with its AI graphics processing units (GPUs) used in data centers.

However, over the last quarter, more than half a dozen billionaire investors opted to sell shares of Nvidia. Notable sellers included:

• Jeff Yass of Susquehanna International (52,497,275 shares)
• Ken Griffin of Citadel Advisors (9,282,018 shares)
• David Tepper of Appaloosa (3,730,000 shares)
• Stanley Druckenmiller of Duquesne Family Office (1,545,370 shares)
• Cliff Asness of AQR Capital Management (1,360,215 shares)
• Israel Englander of Millennium Management (676,244 shares)
• Steven Cohen of Point72 Asset Management (409,042 shares)
• Philippe Laffont of Coatue Management (96,963 shares)

Considering Nvidia’s impressive 800% rise over approximately 22 months, some of the selling may reflect profit-taking. However, deeper issues could be influencing these decisions.

One concern lies with U.S. regulations that have limited Nvidia’s sales, particularly its export of AI chips to China, a major market. Additionally, insider trading paints a concerning picture. Since December, there have been no open-market purchases by Nvidia insiders, despite 83 insider sales in the past year. Investors typically view insider purchases as a sign of confidence in future performance.

Nvidia also faces increasing competition. New companies are entering the AI-GPU market, while Nvidia’s biggest clients are developing their own chips, which could threaten its current pricing power and profit margins.

Market history suggests that no company leading a groundbreaking innovation has completely avoided a downturn. Investors often misjudge how quickly new technologies will be adopted, and AI is unlikely to be an exception.

In light of this, billionaire money managers have favored two alternative AI stocks.

Image source: Getty Images.

Super Micro Computer Captures Investor Interest

The first alternative stock that billionaires have shown interest in is Super Micro Computer (NASDAQ: SMCI), a provider of customizable rack server and storage solutions. Recent filings reveal several billionaire investors purchased shares of Super Micro, including:

• Israel Englander of Millennium Management (5,533,230 shares)
• Jeff Yass of Susquehanna International (5,088,140 shares)
• Ken Griffin of Citadel Advisors (987,520 shares)
• Steven Cohen of Point72 Asset Management (450,660 shares)
• Ray Dalio of Bridgewater Associates (157,770 shares)
• Cliff Asness of AQR Capital Management (10,400 shares)

Investors see Super Micro as a crucial player for companies aiming to strengthen their data infrastructure in the AI sector. The company’s net sales surged by 110% in fiscal 2024, with impressive growth projected for the current fiscal year as well.

An interesting point is that Super Micro utilizes Nvidia’s H100 GPUs in its operations, which generates demand but also means it relies on Nvidia’s supply chain. Furthermore, a report from noted short-seller Hindenburg Research has raised concerns about potential “accounting manipulation” at Super Micro, resulting in a probe by the U.S. Justice Department. The firm’s delayed annual report filing has added to investor unease.

While Super Micro’s stock appears undervalued based on projected earnings, significant uncertainties remain that need addressing before any investor can feel secure in its prospects.

Microsoft Remains a Top Choice

Another AI stock favored by billionaires is Microsoft (NASDAQ: MSFT), one of only three companies with a market cap exceeding $3 trillion. During the last quarter, eight billionaire investors added Microsoft to their portfolios, including:

• Ken Fisher of Fisher Asset Management (1,340,392 shares)
• Ole Andreas Halvorsen of Viking Global Investors (695,444 shares)
• Ray Dalio of Bridgewater Associates (510,822 shares)
• Israel Englander of Millennium Management (240,624 shares)
• David…
  “`

  Microsoft’s Strategic AI Moves Propel Growth Amid Investor Confidence

  Key Investors and Their Holdings

  • Siegel and John Overdeck of Two Sigma Investments (177,726 shares)
  • Stephen Mandel of Lone Pine Capital (90,287 shares)
  • Philippe Laffont of Coatue Management (20,684 shares)

  Microsoft: A Beneficiary of the AI Revolution

  Nvidia and Super Micro Computer are called the engines driving the AI revolution, while Microsoft stands out as a key benefactor. Its integration of AI into both its search engine, Bing, and its web browser, Edge, is largely due to the expertise of OpenAI, the creator of the widely-used chatbot, ChatGPT. Microsoft is also a significant investor in OpenAI.

  Riding High on Cloud Growth with AI

  Microsoft intends to capitalize on AI within its rapidly expanding cloud service platform, Azure. By enabling enterprise clients to build and train large language models and implement generative AI solutions, the company aims to maintain double-digit sales growth in Azure, solidifying its spot as the world’s number two cloud infrastructure provider.

  Strong Cash Flow: A Buffer Against Risks

  Billionaire asset managers are likely impressed by Microsoft’s consistent cash flow. Although traditional segments like Office and Windows no longer offer explosive growth, their strong market presence and substantial profit margins contribute to solid financial performance.

  Microsoft’s impressive cash generation allows it to take calculated risks. Ending fiscal 2024 (June 30) with over $75 billion in cash, cash equivalents, and short-term investments, the company is poised for significant investments.

  In a scenario where the AI bubble may burst, Microsoft possesses the sales networks and financial cushion to withstand a downturn more effectively than Nvidia.

  Should You Invest $1,000 in Nvidia Today?

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  Sean Williams has no positions in any of the companies referenced. The Motley Fool has investment positions in and recommends Microsoft and Nvidia. The Motley Fool recommends particular options on Microsoft.

  The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.