Wall Street Prepares for Earnings Season Amid Shifting Investments

Earnings season is ramping up, and for the next six weeks, many of America’s top publicly traded companies will share their recent performance with investors. This latest data is crucial as profit growth drives a high stock market.

However, earnings reports aren’t the only significant updates for investors to keep an eye on.

Image source: Getty Images.

On August 14, the SEC’s filing deadline passed for institutional investors managing at least $100 million in assets. This is when they file Form 13F, showing what top asset managers bought and sold during the previous quarter, specifically the second quarter in this case.

A key point to note is that these filings can become outdated. They are submitted up to 45 days after the quarter ends, meaning hedge funds may be acting on past information. Still, these reports can reveal which stocks and trends are catching the interest of major money managers.

Among those money managers is widely admired billionaire Jeff Yass, co-founder and managing director of Susquehanna International Group. This firm had $537 billion in assets at the end of June, including numerous holdings with various options.

Notably, in the recent quarter, Yass’s actions in the artificial intelligence (AI) sector drew attention.

Susquehanna Cuts Its Nvidia Holdings Significantly

One of the key stock market players has been Nvidia (NASDAQ: NVDA). Since late 2022, Nvidia’s market capitalization soared from $360 billion to $3.39 trillion as of October 18.

Despite being a leader in AI, hedge fund managers like Yass have shown caution regarding Nvidia’s prospects. In the second quarter, Susquehanna sold 52,497,275 shares of Nvidia, which translates to a 73% reduction from its holdings at the end of March. This figure accounts for a 10-for-1 stock split Nvidia executed on June 7.

While taking profits can explain this move, several significant challenges may have influenced Yass’s decision to offload Nvidia shares. A major factor is history; since the internet revolution in the mid-1990s, many transformative technologies have faced early-stage hurdles that led to market corrections.

Investors have often overestimated how quickly new technologies become mainstream. With little clarity on how businesses can profit from AI investments, fears that the AI bubble might burst could be guiding Susquehanna’s strategy. Furthermore, U.S. regulations now restrict Nvidia’s AI-GPU exports to China, one of its largest markets.

Additionally, there are growing concerns that competition may affect Nvidia’s profit margins. Several major customers are developing their own AI-GPUs, which may alter the demand landscape for Nvidia’s products.

While Yass chose to reduce his position in Nvidia, he significantly increased investments in another AI-related company.

Image source: Getty Images.

Yass Increases Stake in Broadcom for AI Networking Solutions

During the second quarter, Yass’s fund not only made adjustments to its Nvidia position but also added significantly to its stake in Broadcom (NASDAQ: AVGO). Yass purchased 2,347,500 additional shares, boosting their total holdings in Broadcom by 73% to 5,582,590 shares.

Broadcom is set to benefit from AI trends, with predictions of 44% sales growth this year. Its networking solutions support the connection of large volumes of GPUs for fast AI computing, essential for real-time data processing.

Importantly, while Nvidia’s success heavily relies on AI hardware sales, AI contributes a smaller fraction to Broadcom’s overall revenue. Broadcom has long-standing ties to the smartphone industry, offering wireless chips crucial for next-generation devices. This diversified revenue stream makes Broadcom a stable investment despite potential downturns in the AI market.

In addition to smartphones, Broadcom expands its reach to industrial equipment, robotics, and cybersecurity solutions through strategic acquisitions, such as its recent $69 billion acquisition of VMware, reinforcing its strengths in cloud solutions.

The diverse offerings at Broadcom likely captured Jeff Yass’s interest as a safer long-term investment compared to Nvidia.

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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.

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