Forget Nvidia: Billionaires are selling Nvidia and buying shares in this ‘Magnificent Seven’ instead

It’s been another spectacular start to the year for Wall Street.of Dow Jones Industrial Average, S&P500and Nasdaq Composite Each company set its sights firmly on the bear market of 2022 in the rearview mirror and recorded record highs on a closing price basis. While there are strengths in various sectors and industries, much of the heavy lifting of the current bull market can be attributed to the Magnificent Seven.

As the collective name suggests, the Magnificent Seven are seven of the largest and most influential publicly traded companies. They are often leaders in their industry (sometimes in multiple categories) and have traditionally been at the forefront of technological innovation. The Magnificent Seven stocks, in descending order of market capitalization, are:

• microsoft (MSFT -2.07%)
• apple (AAPL -0.22%)
• Nvidia (NVDA -0.12%)
• Amazon (AMZN -2.42%)
• alphabet (Google -1.34%) (GOOG -1.50%)
• meta platform (meta -1.57%)
• tesla (TSLA 0.66%)

Image source: Getty Images.

All seven companies have significantly outperformed the benchmark S&P 500 over the long term. This is a fact not forgotten by Wall Street’s best and most successful institutional investors.

But during the quarter ended December, billionaire investors’ sentiments were clear regarding Nvidia, the artificial intelligence (AI) leader, the best-performing component of the Magnificent Seven. There was a change.

surprise! Billionaire wealth manager sells his AI stock Nvidia

Investors who poured money into artificial intelligence stocks have probably been rewarded as much as Nvidia shareholders.

In just over a year, Nvidia has established itself as the infrastructure foundation of the AI ​​movement. The company’s A100 and H100 graphics processing units (GPUs) make up the majority of GPUs currently used in AI-powered data centers. In fact, many of the company’s top customers are members of the Magnificent Seven, which includes Microsoft, Meta Platforms, Amazon, and Alphabet.

Optimists fully expect Nvidia to keep its foot on the gas as it ramps up production of its prized A100 and H100 GPUs. As supply chain issues ease, taiwan semiconductor manufacturing Boosting chip-on-wafer-on-substrate production capacity — Nvidia should be able to meet more customer demand this year.

However, NVIDIA’s growth story may not be as picture-perfect as its stock chart suggests. Aside from established valuation concerns, NVIDIA will face a number of operational headwinds. Perhaps that’s why during the fourth quarter he was forced to sell 8 billionaires his Nvidia shares (total number sold in parentheses).

• Israel Englander of Millennium Management (1,689,322 shares)
• Jeff Yass of Susquehanna International (1,170,611 shares)
• Steven Cohen of Point72 Asset Management (1,088,821 shares)
• David Tepper of Appaloosa Management (235,000 shares)
• Philippe Lafont of Coatue Management (218,839 shares)
• Chase Coleman of Tiger Global Management (142,900 shares)
• John Overdeck and David Siegel of Two Sigma Investments (30,663 shares)

Most investors in AI stocks and Nvidia have probably heard about the coming competition from companies such as: intel and Advanced Micro Devices. Both companies have GPUs released or scheduled to be released this year that are specifically designed to compete with Nvidia in enterprise data centers.

A bigger concern for Nvidia is that the four members of the aforementioned Magnificent Seven, which account for 40% of the company’s revenue (Microsoft, Meta Platforms, Amazon, and Alphabet), are all developing their own AI chips for use in data centers. That’s what I’m doing. If these core customers migrate to in-house AI chips, Nvidia could lose a significant percentage of its revenue. At best, NVIDIA will make fewer acquisitions from these four giants.

Another blow for Nvidia is that U.S. regulators are actively restricting exports of high-performance AI GPUs to China, the world’s second-largest economy. After initial restrictive measures, Nvidia developed toned down versions of its powerful AI GPUs, the A800 and H800, for the Chinese market. However, the latest export regulations also affect these models.

It’s also likely that Nvidia will deplete its own gross profit by ramping up production of top-selling GPUs. In fiscal year 2024 (NVIDIA’s fiscal year ends January 28, 2024), data center revenue is growing far faster than cost of revenue, driven by pricing power rather than unit sales growth. This clearly shows that this has boosted the company’s sales. As the GPU shortage decreases, so will Nvidia’s otherworldly pricing power.

Image source: Getty Images.

Leaders in multiple industries are popular stocks for billionaire investors

To be perfectly fair, Nvidia wasn’t the only AI stock and member of the Magnificent Seven that caught the attention of billionaire investors in the fourth quarter. Prominent billionaire money managers commonly sold shares in Metaplatform, Alphabet, and even Microsoft last quarter.

However, there was one exception to this sale. That’s Amazon, the frontrunner in e-commerce and cloud services. In all, this multi-industry leader has gathered his eight prominent billionaires. This includes the following people (the total number of shares purchased is in parentheses):

• Ken Griffin of Citadel Advisors (4,321,477 shares)
• Jim Simmons of Renaissance Technologies (4,296,466 shares)
• Chase Coleman of Tiger Global Management (947,440 shares)
• Ken Fisher of Fisher Asset Management (888,369 shares)
• John Overdeck and David Siegel of Two Sigma Investments (726,854 shares)
• Steven Cohen of Point72 Asset Management (462,179 shares)
• Israel Englander of Millennium Management (85,532 shares)

The biggest risk to Amazon right now is the possibility of a U.S. economic recession materializing in the not-too-distant future. Several prominent dollar-based indicators and forecasting tools suggest the economy may weaken later this year. Since Amazon is the world’s leading online marketplace and derives a significant percentage of its sales from e-commerce, there is a natural perception that a recession would be a problem.

But what’s interesting about Amazon is that very little of its operating cash flow or net income comes from online retail sales. Rather, the majority of the company’s cash flow and profits come from three fast-growing ancillary operating segments: Amazon Web Services (AWS), advertising services, and subscription services.

A strong argument can be made that AWS is the most important piece of the puzzle for Amazon. Enterprise cloud spending is still in its relative infancy, with AWS accounting for nearly one-third of global cloud infrastructure services spending in the quarter that ended in September. In other words, sustained double-digit growth rates should be expected in this high-margin segment.

The importance of advertising services cannot be overlooked. Amazon is one of the most visited social sites in the world, with total monthly visitors from 2.3 billion to 2.7 billion from July 2023 to December 2023. These users are primarily aspiring shoppers, making Amazon a logical choice for sellers who want to target them. with their messages.

Regarding subscription services, Amazon surpassed 200 million Prime members worldwide in April 2021, according to then-CEO Jeff Bezos.addition of thursday night football Because exclusive content can further increase this number.

Amazon may not look cheap based on traditional fundamental metrics like the price-to-earnings ratio, but it has historically been valued at a cheap multiple when compared to future cash flow. Billionaire investors recognize long-term value when they see it.