Stanley Druckenmiller’s Latest Moves in AI: Selling Nvidia and Buying Broadcom

Stanley Druckenmiller has long impressed investors with his remarkable track record as the leader of Duquesne Capital Management, where he achieved an average annual return of 30% over 30 years without experiencing any money losses. Although he closed his fund in 2010, Druckenmiller continues to invest through the Duquesne Family Office. Recently, one of his most favored stocks has been artificial intelligence (AI) powerhouse Nvidia (NASDAQ: NVDA).

Druckenmiller purchased shares of Nvidia during the fourth quarter of 2022 as interest in AI surged. Since that time, the value of these shares soared 400%. However, earlier this year, the prominent investor began reducing his stake in Nvidia and ultimately divested all his shares by the third quarter.

Simultaneously, Druckenmiller established a new position worth $41 million in another rapidly growing AI company, which, like Nvidia, executed a stock split this year after considerable gains. This new position ranks as his second-largest new investment by value in the quarter. Let’s delve into Druckenmiller’s latest strategy and assess whether his moves warrant your attention.

Image source: Getty Images.

Why Did Druckenmiller Sell Nvidia?

Examining Druckenmiller’s decision to sell Nvidia raises an important question: Has he lost confidence in the company?

The answer is no. In various interviews, Druckenmiller indicated he believed Nvidia’s valuation had peaked and saw an opportunity to secure profits. Meanwhile, Nvidia’s value continues to climb, with a 180% increase recorded this year. In a recent Bloomberg interview, he expressed regret over the Nvidia sale, stating that he would consider re-entering the stock if its price fell.

Even though he deemed Nvidia’s shares a bit overvalued, his faith in the company’s potential for further growth remains strong. If Nvidia’s valuation decreases, it’s likely Druckenmiller could repurchase shares for his portfolio.

Druckenmiller’s New AI Investment: Broadcom

The AI company that intrigued Druckenmiller is Broadcom(NASDAQ: AVGO). This company has seen its shares rise over 400% in the past five years, surpassing $1,000 per share. Like Nvidia, Broadcom announced a 10-for-1 stock split this year to enhance accessibility for investors. While stock splits don’t fundamentally change a company’s value, they do lower the price per share, making the stock more appealing.

Broadcom has benefited greatly from increased demand from major cloud service providers, particularly for AI networking and custom accelerators. In its latest quarterly report, Broadcom noted that growth in custom AI accelerators more than tripled, while Ethernet switching quadrupled. Given the increasing pace of AI development—projected to expand from a $200 billion market to $1 trillion by the decade’s end—optimism regarding Broadcom seems justified.

As for the VMware acquisition, Broadcom aims to meet or exceed an adjusted EBITDA target of $8.5 billion within three years. In a recent quarter, Broadcom reported a 47% revenue increase to $13 billion, propelled by AI demand and VMware integration—and anticipates a 51% revenue increase in the next quarter.

Comparing Valuations: Broadcom vs. Nvidia

When looking at current valuations, Broadcom’s trading price is approximately half that of Nvidia based on forward earnings estimates. This may indicate a prime opportunity for investors to consider Broadcom as it stands ready to profit from the long-term AI boom.

NVDA price-to-earnings ratio (P/E) (Forward) data by YCharts.

So, should you align your investments with Stanley Druckenmiller’s recent decisions? Before acting, it’s wise to consider his reasons for buying or selling stocks in conjunction with your own investment goals.

Druckenmiller chose to sell his Nvidia shares as prices rose, locking in gains while voicing regret about that choice. His outlook on Nvidia remains positive, suggesting long-term investors might want to keep their shares or consider buying in. Conversely, for Broadcom, you may want to follow Druckenmiller’s lead. The stock has risen significantly this year, yet its valuation appears favorable, indicating strong ongoing demand for its products and ample growth potential.

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*Stock Advisor returns as of November 18, 2024

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends 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.