Billionaire investors are making big bets in the artificial intelligence (AI) sector, and they are reaping the rewards by getting in early with a top player: Nvidia (NASDAQ: NVDA). This AI chipmaker’s shares have surged approximately 170% this year, with an astounding 2,300% increase over the last five years. This remarkable growth is attributed to Nvidia’s consistent triple-digit revenue growth and ongoing innovation, keeping it ahead of competition.
Recently, however, some of these wealthy investors are shifting their focus. Billionaires Ray Dalio from Bridgewater Associates, Philippe Laffont of Coatue Management, and Stanley Druckenmiller of the Duquesne Family Office are selling off their Nvidia shares. They are turning to another AI company that has also recently undergone a stock split.
Though this new company has experienced a stock rise of about 40% in 2024, its valuation remains lower than Nvidia’s, indicating potential for significant appreciation ahead. Let’s explore the billionaires’ investment decisions and the prospects of this alternative AI stock they invested in during the third quarter.
Image source: Getty Images.
Billionaires Shift Focus to Networking Powerhouse
So, which company are these investors now eyeing as the next major player in AI? The answer is Broadcom (NASDAQ: AVGO), a networking leader riding the wave of increased demand fueled by AI advancements. Before delving deeper into Broadcom’s position, here’s a snapshot of the billionaires’ recent trades:
- Ray Dalio from Bridgewater sold 27% of his Nvidia shares, holding onto 4,754,271 shares, while increasing his investment in Broadcom by over 290% to 955,433 shares.
- Philippe Laffont from Coatue reduced his Nvidia stock by 26%, now owning 10,138,161 shares, and raised his Broadcom holdings by 52% to 4,323,026 shares.
- Stanley Druckenmiller divested all his Nvidia shares and established a new position in Broadcom with 239,980 shares.
It’s notable that both Dalio and Laffont continue to retain millions of Nvidia shares, reaffirming their optimism regarding the company’s future growth. Druckenmiller, in a Bloomberg interview, even expressed regret for selling Nvidia and indicated openness to repurchase at the right valuation. Thus, while they are diversifying, their faith in Nvidia’s potential remains intact.
The shift towards Broadcom suggests that these investors are betting on it being a future leader in the AI industry. Broadcom plays a critical role in the technology surrounding us, providing an array of products essential for data center networking, home connectivity, smartphones, and more.
Broadcom: Tapping into AI Growth
This foundational role has helped Broadcom grow its earnings consistently. However, the recent quarters have shown that the AI segment is shaping up as a substantial growth driver. In its latest report, Broadcom noted an impressive 47% revenue increase, driven largely by demand from major cloud service providers for AI networking and custom AI accelerators, as they expand their operations. With the AI market projected to reach $1 trillion by the decade’s end, Broadcom is well-positioned for future growth. The company has already adjusted its fiscal 2024 AI revenue expectations upward from $11 billion to $12 billion.
Earlier this year, Broadcom executed a 10-for-1 stock split, a move that doesn’t fundamentally alter the company but makes shares more accessible to everyday investors by lowering the per-share price.
Despite Broadcom’s significant gains this year, it currently trades at only 25 times forward earnings estimates, which is relatively inexpensive when considering its potential in the rapidly growing AI market. In contrast, Nvidia’s shares are priced at around 45 times forward earnings.
These factors combine to illustrate why billionaires are taking profits from Nvidia and exploring the growth potential of Broadcom. Importantly, you don’t need to be a billionaire to consider investing in Broadcom today and share in its future successes in the burgeoning AI landscape.
Should you invest $1,000 in Broadcom now?
Before making an investment, keep in mind the following:
The Motley Fool Stock Advisor analyst team has recently identified what they consider the 10 best stocks to buy now, and Broadcom is not among them. These ten stocks could yield substantial returns in the years ahead.
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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.
