Earnings season is officially kicking into high gear. Over the span of roughly six weeks, a majority of America’s most-important publicly traded companies will spill the beans to Wall Street and investors regarding their operating performance over the prior quarter.
While corporate profit growth is vital to the success of a historically pricey stock market, earnings season isn’t the only important data release investors would be wise to monitor.
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August 14 marked the filing deadline for institutional investors with at least $100 million in assets under management (AUM) to file Form 13F with the Securities and Exchange Commission. This filing provides investors with a snapshot of what Wall Street’s brightest and most-successful asset managers bought and sold in the latest quarter (in this instance, the second quarter).
Admittedly, 13Fs have a drawback — they’re filed up to 45 calendar days following the end to a quarter, which means they’re likely providing stale information for active hedge funds. Yet in spite of this flaw, they can still offer invaluable clues as to which stocks, industries, sectors, and trends Wall Street’s leading money managers are intrigued by.
Aside from Berkshire Hathaway‘s extraordinary CEO Warren Buffett, one of the most closely followed billionaire money managers is Susquehanna International Group’s co-founder and managing director, Jeff Yass.
Susquehanna ended June with $537 billion in AUM and thousands of holdings, including various put and call options. However, the actions that stand out most in the June-ended quarter, based on Susquehanna’s 13F, is what Yass and his team did within the artificial intelligence (AI) arena.
Arguably no public company has been more responsible for lifting Wall Street’s major stock indexes to new highs, or fueling the AI revolution, than Nvidia (NASDAQ: NVDA). Since the end of 2022, Nvidia’s market cap has catapulted from $360 billion to $3.39 trillion, as of the closing bell on Oct. 18.
Despite Nvidia’s graphics processing units (GPUs) being the undisputed top choice by businesses overseeing generative AI solutions and training large language models, not all billionaire money managers are optimistic about its future.
During the second quarter, Yass’s fund jettisoned 52,497,275 shares of Nvidia’s stock, which reduced its stake by 73% from the March-ended quarter. Keep in mind that Nvidia completed a historic 10-for-1 forward stock split following the close of trading on June 7, and the above share count has been adjusted for this split.
While profit-taking may be a viable and relatively benign explanation behind this selling activity, there are also a few glaring headwinds that could have coerced Susquehanna’s aggressive selling of Nvidia’s shares in the June-ended quarter.
Topping the list of possible sell-side catalysts is history. Since the advent of the internet in the mid-1990s, we’ve witnessed a multitude of game-changing technologies and innovations come along. While many of these next-big-thing trends have offered eye-popping addressable markets, their only certainty has been an early stage bubble-bursting event.
For three decades, investors have repeatedly overestimated how quickly a new technology, innovation, or trend would be adopted and utilized in a mainstream capacity by consumers and/or businesses. When these lofty expectations are, inevitably, not met, the music stops and the bubble bursts. With most businesses lacking a clear plan to monetize their AI investments and generate a positive return, it would appear as if investors have overestimated the early stage utility of artificial intelligence. If the AI bubble bursts, Nvidia would presumably be clobbered.
Regulators aren’t doing Nvidia any favors, either. The U.S. has restricted exports of the company’s high-powered AI-GPUs to China, which is one of Nvidia’s top-dollar markets.
Yass and his team might also be worried about competitive pressures weighing on Nvidia’s pricing power and margins. In addition to external competitors bringing chips to market, Nvidia’s four most-important customers by net sales are all developing AI-GPUs for use in their data centers. With Nvidia’s AI-GPUs backlogged and substantially pricier than these in-house chips, Wall Street’s AI darling could lose out on future orders.
But while Susquehanna’s brightest minds, including Yass, were busy dumping shares of Nvidia, they were absolutely piling into another key company in the AI arena.
Image source: Getty Images.
Yass is piling into the networking company fueling AI-accelerated data centers
Despite Yass’s fund adding to more than 4,600 positions during the second quarter, the one that really stands out is Susquehanna’s sizable addition to its existing stake in AI networking colossus Broadcom (NASDAQ: AVGO).
During the June-ended quarter, Yass oversaw the purchase of 2,347,500 shares of Broadcom, which increased Susquehanna’s stake by 73% to 5,582,590 shares. Broadcom also completed a 10-for-1 stock split, but did so in mid-July.
There’s no question that artificial intelligence is a big reason Broadcom is expected to deliver 44% sales growth this year. The company’s networking solutions are being relied on by businesses to connect tens of thousands of GPUs to maximize their computing capabilities and reduce tail latency. Broadcom’s solutions are critical to the split-second decision-making that powers AI-driven software and systems.
Although Broadcom’s stock and operating performance would be susceptible to downside if the AI bubble bursts, the big difference between Nvidia and Broadcom is their revenue channels. Whereas an overwhelming majority of Nvidia’s sales and recent growth are tied to its AI hardware, AI still represents a minority of Broadcom’s net revenue.
Broadcom’s bread-and-butter profit driver has long been its ties to the global smartphone industry. It provides an assortment of wireless chips and accessories used in next-generation smartphones. With wireless carriers expanding the reach of 5G, Broadcom has benefited from a steady device replacement cycle.
On top of being a notable player in smartphones, Broadcom develops optical sensors used in industrial equipment and robotics, connectivity and LED solutions for next-generation automobiles, and cybersecurity solutions, to name just a few of its other revenue channels.
Building on this point, the company’s management team hasn’t been afraid to lean on the occasional acquisition to expand its footprint and bolster cross-selling opportunities. Broadcom’s 2019 purchase of Symantec’s enterprise security business opened the door to high-margin cybersecurity services, while its $69 billion buyout of cloud-based virtualization software provider VMware in November 2023 should bolster the company’s private and hybrid cloud strategy.
A considerably more diverse product and service portfolio for Broadcom appears to be the lure that hooked Susquehanna International’s billionaire co-founder Jeff Yass.
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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 the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
