Over the past 30 years, Wall Street has seen no shortage of new big investment trends. Since the advent of the Internet in the mid-1990s, no innovation, technology or trend has had anywhere near as big an impact on corporate growth rates as the Internet… until now.

According to analysts at PwC, the artificial intelligence (AI) revolution has the potential to increase global gross domestic product by more than $15 trillion by 2030. This is a Mammoth addressable market that can support multiple big winners.

But despite the euphoria surrounding AI on Wall Street, quarterly Form 13F filings with the U.S. Securities and Exchange Commission (SEC) indicate mixed feelings about stocks inspired by artificial intelligence. A 13F provides investors with a quick overview of which stocks the smartest and most successful money managers have bought and sold.

In the June quarter, billionaire investors sent shares of the AI ​​market leader NVIDIA (NASDAQ: NVDA) on the chopping block and invested decisively in what can be considered their new favorite artificial intelligence stock.

Nvidia had billionaires planning to exit for the third quarter in a row

What’s particularly interesting about Nvidia’s selling activity is that it’s the third consecutive quarter in which at least half a dozen prominent billionaires have sold. In the quarter that ended in June, seven billionaire investors reduced their stakes, including (number of shares sold 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)

Profit-taking and the need for diversification are two possible answers as to why some or all of these billionaires felt the need to reduce their holdings in Nvidia.

Since the start of 2023, Nvidia’s market cap has increased by $2.75 trillion (as of August 23, 2024), leading to the company’s largest stock split (10:1) in June. This increase comes as the company’s H100 graphics processing unit (GPU) becomes the standard in AI-accelerated data centers and as Nvidia has staggering pricing power, reflecting enterprise demand for its AI GPUs that exceeds supply.

But there are far more reasons than mere profit-taking that could explain this ongoing exodus of Nvidia billionaires.

The story continues

One of the more logical conclusions is that at least some of these billionaires are concerned about the competitive pressures they may face following the company’s parabolic rise. Advanced micro devices (NASDAQ:AMD) is ramping up production of its MI300X AI GPU and doesn’t have the same chipmaking supply constraints as Nvidia. Additionally, AMD’s chip typically sells for $10,000 to $15,000, which is well below the $30,000 to $40,000 Nvidia is asking for the H100.

Competitive pressure can also manifest itself from within. Nvidia’s four largest customers by net revenue – Microsoft, Meta-platforms, AmazonAnd alphabet – have developed their own AI GPUs for use in their data centers. Even though these proprietary chips do not have the same computing capacity as Nvidia’s H100, they will take up valuable space in the data centers and minimize Nvidia’s opportunities in the future.

These seven billionaire sellers might also be concerned about the past. At no point in the last three decades has there been a highly touted innovation, technology or trend that managed to avoid an early bubble burst. Investors invariably overestimate the utility and acceptance of new innovations.

Despite all the hype surrounding artificial intelligence, very few companies have a clearly defined plan for how to generate a positive return on their data center investments. This is a clear warning that investors have once again overestimated the adoption of this technology. If the AI ​​bubble bursts, no company will be hit harder than Nvidia.

Make way, Nvidia: This is now the favorite AI stock of billionaire asset managers

But while the billionaires were carrying Nvidia shares out the door, they were eagerly buying shares in what could be described as their new favorite AI stock. A total of seven billionaire asset managers bought shares in the AI ​​network solutions specialist Broadcom (NASDAQ:AVGO) in the second quarter, including (total shares purchased in parentheses):

• Ole Andreas Halvorsen of Viking Global Investors (2,930,970 shares)

• Jeff Yass of Susquehanna International (2,347,500 shares)

• Israel Englander of Millenium 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)

Note that the above share numbers have been adjusted for Broadcom’s 10-for-1 stock split that occurred after the close of trading on July 12.

Just as Nvidia’s hardware has become a staple in high-performance data centers, Broadcom has quickly demonstrated its dominance as a major AI networking solutions provider. For example, its Jericho3 AI fabric can connect up to 32,000 GPUs, with the goal of reducing latency and maximizing the compute capacity of these chips.

While AI was undoubtedly a catalyst, I suspect the reason billionaires have made Broadcom their favorite AI stock is because, unlike Nvidia, the company isn’t entirely reliant on AI to grow. Should the AI ​​bubble burst, Broadcom has a variety of other revenue streams it can use as a buffer.

For example, Broadcom is a leading supplier of cellular chips and accessories for next-generation smartphones. Mobile companies have willingly spent billions to upgrade their networks to 5G download speeds. This, in turn, has led to a steady device replacement cycle that has fueled demand for Broadcom products.

Beyond smartphones, Broadcom offers networking solutions to companies across all sectors and industries, as well as cybersecurity solutions and financial software, to name just a few of its other product areas.

Broadcom also relies on acquisitions to expand its product and service ecosystem, drive cross-selling opportunities and increase its profits. The acquisition of cloud virtualization software provider VMware for $69 billion, completed in November, is a perfect example of how Broadcom is expanding its reach in the private and hybrid enterprise cloud space.

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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, a subsidiary of Amazon, 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. Sean Williams has positions in Alphabet, Amazon, and Meta Platforms. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Make Way, Nvidia: Billionaires Have a New Favorite Artificial Intelligence (AI) Stock was originally published by The Motley Fool