Despite all the attention that artificial intelligence (AI) has attracted on Wall Street, it is the euphoria surrounding stock splits that will give AI a run for its money in 2024.

A stock split is an event that allows publicly traded companies to cosmetically alter their stock price and the number of shares outstanding. This is superficial in that an adjustment of the same magnitude to a company’s stock price and share count will not affect its market capitalization, nor will it affect its underlying operating performance.

There are two types of stock splits, with one clearly preferred by investors. Reverse stock splits are designed to increase a company’s stock price, usually with the goal of ensuring continued listing on a major stock exchange. Forward stock splits, on the other hand, reduce the nominal value of a company’s stock price. The purpose of forward splits is to make stocks more “affordable” to investors who do not have access to purchasing fractional shares through their broker.

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Because forward stock splits are conducted by successful companies that almost always outperform their competitors in terms of performance and innovation, this is the type of split preferred by investors.

In the last six months, 13 well-known companies have announced or completed a stock split, all but one of which was a forward split:

Even though stock splits have far exceeded the benchmark since 1980 S&P500 Given the average annual return in the 12 months following the initial announcement of the split, billionaire asset managers have mixed feelings about this group.

The latest round of Form 13F filings – documents that track what big-name asset managers bought and sold last quarter – show that two of those split stocks were put on the chopping block by billionaire investors, while shares of another stock were snapped up at a ransom.

Stock split: Nvidia, the biggest billionaires’ stock, is sent to the chopping block

The first stock that billionaire asset managers have actively brought out of a stock split is the hardware king of the AI ​​revolution, Nvidia. The quarter ended in June represents the third consecutive quarter of significant selling activity by asset managers, with seven billionaires reducing the holdings of their respective funds (the total number of shares sold is in parentheses):

• Ken Griffin of Citadel Advisors (9,282,018 shares)
• David Tepper of Appaloosa (3,730,000 shares)
• Stanley Druckenmiller of the Duquesne Family Office (1,545,370 shares)
• Cliff Asness of AQR Capital Management (1,360,215 shares)
• Israel Englander of Millennium Management (676,242 shares)
• Steven Cohen of Point72 Asset Management (409,042 shares)
• Philippe Laffont from Coatue Management (96,963 shares)

While profit-taking could play a key role in this ongoing selling activity—Nvidia shares are up more than 700% since the start of 2023—it’s equally likely that billionaire asset managers are increasingly concerned about competitive pressures and the role history has played in shaping the next big innovations.

Although Nvidia has a clear computational advantage with its graphics processing units (GPUs), this alone may not be enough to avoid losing market share and valuable pricing power in its GPUs. With demand outstripping supply and Nvidia’s production hampered in part by the capacity of its suppliers and design flaws in the next generation of the Blackwell platform, external competitors such as Advanced micro devices should have no problems finding buyers for its chips.

I would also add that all four of Nvidia’s top customers, which account for about 40% of net revenue, are developing AI GPUs internally for their data centers. These complementary chips will effectively reduce dependence on Nvidia’s hardware in the coming years.

The biggest concern, however, may be the past. Every major innovation of the past 30 years has had a blowout. Investors always overestimate the acceptance and usefulness of new technologies, which ultimately leads to disappointment. When the euphoria around AI fades, Nvidia’s stock is likely to take a serious hit.

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Stock split no. 2: Successful billionaire asset managers sell: Chipotle Mexican Grill

The second high-flying stock that billionaire investors dumped in droves in the second quarter is fast-casual restaurant chain Chipotle Mexican Grill. A trio of billionaires sold the stock, including (number of shares sold in parentheses):

• Ken Griffin of Citadel Advisors (8,764,412 shares)
• Bill Ackman of Pershing Square Capital Management (8,384,035 shares)
• Ray Dalio of Bridgewater Associates (614,200 shares)

The notable name here is Pershing Square’s Bill Ackman, who has held Chipotle shares for a long time (since the third quarter of 2016).

In many ways, Chipotle is on a roll. The company uses responsibly raised meat and locally grown vegetables (when possible). This resonates with consumers who want higher quality, non-frozen foods and gives Chipotle a lot of pricing power.

Additionally, the company’s management team has remained disciplined in its approach to growth. By continuing to limit the size of the company’s menu, Chipotle’s staff can prepare food quickly each day and speed up line movements at restaurants.

So why sell? The most likely reason this trio of billionaires has reduced their respective stakes has to do with Chipotle Mexican Grill’s valuation. While comparable sales growth of 7% in the first quarter and 11.1% in the second quarter is impressive for a chain the size of Chipotle, it doesn’t quite justify an earnings multiple of 40. There’s only so much innovation that can be squeezed out of restaurant chains.

We also recently learned that Brian Niccol will step down as Chairman and CEO and assume his new role as CEO of the coffee chain, effective August 31. StarbucksGiven Chipotle Mexican Grill’s success since Niccol’s arrival in March 2018, there are reasons to question the company’s ability to innovate and execute in the future.

The stock split stocks prominent billionaire investors are buying in abundance: Broadcom

At the other end of the spectrum is the one Class of 2024 stock that had to be bought by half a dozen billionaire investors in the June quarter. I’m talking about AI network solutions specialist Broadcom (number of shares purchased in parentheses):

• Ole Andreas Halvorsen of Viking Global Investors (2,930,970 shares)
• Israel Englander of Millennium Management (2,096,440 shares)
• Ken Griffin of Citadel Advisors (1,880,740 shares)
• John Overdeck and David Siegel of Two Sigma Investments (1,332,230 shares)
• Ken Fisher of Fisher Asset Management (865,090 shares)

Similar to Nvidia, Broadcom has been buoyed by the huge demand for AI networking solutions. For example, the company’s Jericho3 AI Fabric can connect up to 32,000 GPUs in high-performance data centers, limiting latency and maximizing the GPUs’ processing power.

While this means that Broadcom would be affected by a bursting of the AI ​​bubble, its distribution channels are much more diverse than Nvidia’s.

Broadcom, for example, is one of the world’s leading suppliers of wireless chips for next-generation smartphones. Telecommunications companies are spending heavily to upgrade their networks to 5G download speeds, which has led to significant demand for next-generation wireless solutions as devices are replaced more frequently.

Broadcom is also not afraid to use inorganic means to diversify its revenue streams. In 2019, the company acquired cybersecurity company Symantec and more recently virtualization and cloud computing software company VMware. The latter is expected to support Broadcom’s efforts to become a major player in the private and hybrid enterprise cloud space.

In short, Broadcom is better positioned than most AI companies to weather a bubble burst, should it happen.