Billionaires Divert from Nvidia to Seek Growth in AI Stocks

Recently, billionaire investors have shown a keen interest in artificial intelligence (AI) stocks. A significant number of them have found success by investing early in today's leading player in this space, Nvidia (NVDA). Shares of this AI chipmaker have surged approximately 170% this year and have seen an incredible increase of 2,300% over the past five years. This strong performance is attributed to Nvidia's consistent triple-digit revenue growth and its unwavering commitment to innovation to outpace its competitors.

However, some of the most successful investors in the world are now choosing to sell their Nvidia shares and invest in another AI company that they believe could experience significant growth in the near future. Billionaires Ray Dalio of Bridgewater Associates, Philippe Laffont of Coatue Management, and Stanley Druckenmiller of the Duquesne Family Office have all made similar decisions. They have offloaded portions of their Nvidia holdings in favor of an AI company that, like Nvidia, executed a stock split this year.

Despite this company enjoying a stock rise of about 40% in 2024, it still has a lower valuation than Nvidia, indicating potential for further growth. Let’s delve deeper into the moves made by these billionaires and explore the potential of this newly favored stock.

Spotlight on a Networking Giant

The company that these investors are eyeing as the next big winner in the AI sector is Broadcom (AVGO). This networking powerhouse has seen an increase in demand for its products along with the recent AI boom. Here are the specifics of the billionaires' recent transactions:

• Ray Dalio has sold 27% of his Nvidia shares and now holds 4,754,271 shares. He also boosted his investment in Broadcom by over 290%, owning now 955,433 shares.
• Philippe Laffont sold 26% of his Nvidia shares, retaining 10,138,161 shares. He also increased his Broadcom stake by 52%, to 4,323,026 shares.
• Stanley Druckenmiller has fully divested from Nvidia and initiated a new position in Broadcom with 239,980 shares.

It is notable that both Dalio and Laffont still hold millions of Nvidia shares, indicating their ongoing belief in the company’s future potential. Druckenmiller mentioned in a Bloomberg interview that he regrets selling Nvidia, expressing a willingness to buy it again at an appropriate valuation. Thus, these investors have not completely abandoned the AI chip leader.

Instead, their current bet seems to be on Broadcom as a prospective AI success story. Broadcom manufactures a wide variety of products essential in various technology sectors, such as data center networking, home connectivity, and smartphones.

Growth Drivers in AI

Broadcom has consistently increased its earnings, but recently, demand driven by the field of AI has emerged as a significant growth catalyst. In its latest earnings report, Broadcom noted a 47% increase in revenue, primarily attributed to rising demand among major cloud service providers looking for AI networking and custom accelerators as they expand their operations. With projections suggesting that the AI market could reach $1 trillion by the end of this decade, Broadcom appears well-positioned for future growth. The company has even raised its near-term expectations, now anticipating $12 billion in AI revenue for fiscal 2024, up from a prior estimate of $11 billion.

Furthermore, Broadcom underwent a 10-for-1 stock split this year. While this does not alter any fundamental aspects of the business, it does make the shares more accessible to a larger pool of investors by reducing the price per share.

Despite Broadcom's noticeable growth this year, it trades at only 25 times forward earnings estimates. Given its promising prospects in the expanding AI market, this valuation seems attractive, especially compared to Nvidia’s higher valuation of about 45 times forward earnings.

In conclusion, it's not surprising that these billionaires have decided to take profits from Nvidia and shift their focus towards Broadcom as a potential growth engine. The encouraging news is that you don’t need to be a billionaire to invest in Broadcom and capitalize on its promising future in the dynamic AI market.

billionaires, stocks, AI