“`html
Top Wall Street Investors Pivot: Laffont Reduces Nvidia but Boosts Alibaba
Last week marked a critical moment in the financial calendar as institutional investors disclosed their third-quarter activities, revealing significant shifts in stock positions.
Institutional investors managing over $100 million must file Form 13F with the SEC no later than 45 days after each quarter ends. This filing outlines stock trades from top investors, offering insights into their strategies and the sectors they favor. Analyzing these trades can help gauge market trends, particularly in the burgeoning field of artificial intelligence (AI).
Image source: Getty Images.
While Berkshire Hathaway‘s Warren Buffett often steals the spotlight, his counterpart, Coatue Management’s Philippe Laffont, has also made waves in the investment community. As of the end of September, Laffont’s fund managed $26.9 billion across 81 companies, primarily focusing on tech and innovative firms.
Laffont’s Significant Shift Away from Nvidia
After taking into account Nvidia’s 10-for-1 stock split on June 7, 2023, Coatue Management’s share count was 49,802,020 as of March 31, 2023. Over the past 18 months, Laffont has sold off an impressive 39,663,859 shares, reducing his stake in Nvidia by 80%—a startling move considering Nvidia’s prominent position in the AI space.
Nvidia has pioneered innovations in graphics processing units (GPUs), dominant in enterprise data centers. The demand for its H100 GPUs, known for premium pricing between $30,000 and $40,000, evidences the company’s market strength. In industries yearning for better AI capabilities, Nvidia has maintained loyalty through its advanced CUDA software platform, facilitating the use of its chips in numerous applications.
Despite these triumphs, Laffont’s decision to divest raises questions about Nvidia’s prospects. Increasing competition, especially from companies within the “Magnificent Seven” that are developing their own AI chips, threatens Nvidia’s market edge.
Insider trading patterns at Nvidia also lend credibility to Laffont’s caution. There have been no insider purchases in the last four years, while insider selling has been relatively frequent. Historically, buying shares indicates confidence in future growth, a sentiment lacking among Nvidia’s insiders.
Moreover, recent history doesn’t favor Nvidia. New technological trends have often faced early-stage declines, highlighting the risk surrounding investments in AI amidst unclear strategies for generating returns.
Image source: Getty Images.
Laffont Makes Bold Move into Alibaba
Despite cutting back on Nvidia, Laffont is making waves elsewhere. His fund ramped up its stake in Alibaba (NYSE: BABA) by 2,441,557 shares—an 895% increase since June 30.
Alibaba is widely recognized as China’s leading e-commerce platform. According to the International Trade Administration, it held nearly 51% of China’s online retail market in April 2023. With China’s e-commerce sales projected to jump from $1.8 trillion in 2019 to approximately $3.57 trillion in 2023, Alibaba stands to benefit from an expanding middle class.
The company’s long-term growth could be bolstered by its Cloud Intelligence Group, which dominates with 39% market share in China’s cloud services, dwarfing its nearest competitor. Alibaba is integrating AI into its cloud services, aligning with the growing demand for technological innovation.
In the latest quarter, Alibaba’s cloud sales modestly rose by 7% year-over-year. However, the margins associated with cloud services and AI are considerably higher than those from retail, suggesting that even small growth in this area could significantly enhance profitability.
Laffont’s enthusiasm for Alibaba is likely also influenced by its strong cash reserves and active capital-return initiatives.
“`
Alibaba’s Financial Sturdiness and Strategic Growth: A Deeper Look
As of September, Alibaba reported an impressive $48.2 billion in cash, cash equivalents, and short-term investments. Additionally, the company holds $6.5 billion in restricted cash and $7.2 billion in equity securities. In stark contrast, Alibaba’s financial obligations amount to just $4.7 billion in bank loans and unsecured senior notes. This results in a strong net-cash position exceeding $57 billion.
Such substantial cash reserves empower Alibaba to invest in innovation and pursue acquisitions while rewarding shareholders through stock buybacks. In the last quarter, more than $4 billion was allocated for share repurchases, leaving $22 billion remaining in its buyback program. This approach can decrease the number of outstanding shares and enhance earnings per share (EPS).
Attractive Valuation for AI Investors
Historically, Alibaba appears affordable for a company in the AI sector. Current shares are available at a valuation of only 9 times the projected EPS for the next year. This valuation is driven even lower when considering that around a quarter of the company’s worth is linked to its net-cash balance.
Should You Invest $1,000 in Nvidia Right Now?
If you are contemplating investing in Nvidia, it’s wise to pause and consider insights from analysts.
The Motley Fool Stock Advisor team recently identified what they view as the 10 best stocks for investment, excluding Nvidia. These selected stocks are believed to have significant long-term growth potential.
Reflecting on past recommendations, if you had invested $1,000 in Nvidia when it was first highlighted on April 15, 2005, that investment would now be worth an impressive $870,068!*
The Stock Advisor service provides a straightforward path for investors, offering guidance on portfolio-building, continuous updates, and new stock recommendations every month. Since its inception in 2002, the service has more than quadrupled the returns of the S&P 500.*
See the 10 stocks »
*Stock Advisor returns as of November 18, 2024
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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
