Nvidia’s AI Success Influences Stanley Druckenmiller’s Investments

Nvidia (NASDAQ: NVDA) has emerged as a significant player in the artificial intelligence (AI) sector, primarily due to its powerful AI chips. The demand for these chips and related products has driven earnings to impressive double and triple-digit growth. Consequently, Nvidia’s stock has surged by 1,700% over the past five years.

Investor Stanley Druckenmiller has benefited significantly from Nvidia’s rise but closed his position in the stock during the third quarter of last year. Druckenmiller has since expressed regret over this decision, stating in a Bloomberg interview that he would consider re-entering the stock at a favorable price, indicating his continued belief in Nvidia’s long-term prospects.

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Druckenmiller’s Investment Legacy

Druckenmiller, founder of Duquesne Capital Management, achieved an annual average return of 30% without any losing years over a 30-year span before closing his fund. Currently managing $3.7 billion through the Duquesne Family Office, his investments have increasingly focused on technology stocks. Initially acquiring Nvidia shares in the second quarter of 2016, the stock became his third-largest holding by the end of 2023, appreciating over 4,100% during that time.

During his Bloomberg interview, Druckenmiller explained that he sold Nvidia due to concerns about its high valuation. However, he later deemed this decision a “mistake,” reaffirming his confidence in Nvidia’s future and expressing interest in buying again if the valuation aligns favorably.

Investing in Nvidia’s Customers: Amazon and Alphabet

Druckenmiller’s moves in the fourth quarter of last year included opening new positions in Amazon (NASDAQ: AMZN) and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), both key customers for Nvidia. He acquired 328,400 shares of Amazon, making up 1.9% of his portfolio, and 76,680 shares of Alphabet, contributing about 0.4% to his holdings.

Both companies utilize Nvidia’s graphics processing units (GPUs) in their cloud operations, facilitating essential AI functions such as training and inferencing. Their current growth phase is significant, as they expand Nvidia’s latest Blackwell architecture across their platforms.

Nvidia reported that major cloud service providers contribute roughly half of its data center revenue. As these companies enhance their capabilities with Nvidia products, their success becomes intertwined with Nvidia’s continued performance.

Growth Driven by AI Investments

Amazon and Alphabet are both witnessing robust growth as a result of their investments in AI. Last year, Amazon Web Services (AWS) achieved a $115 billion annual revenue run rate, largely attributed to its AI-based offerings. Similarly, Alphabet’s Google Cloud saw a 30% revenue increase in the most recent quarter, driven by advancements in AI infrastructure and generative AI applications.

This alignment means that, although Druckenmiller no longer holds Nvidia shares, he may still benefit from its success through his stakes in Amazon and Alphabet. Should investors consider following his lead into these cloud stocks?

If you’re looking to capitalize on the AI growth trend, yes could be the right choice. Amazon and Alphabet have an impressive track record of earnings growth, ongoing AI investments that are starting to produce results, and a strong position to thrive as the AI narrative continues to evolve.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, and Nvidia. 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.