It’s no secret that artificial intelligence (AI) is the hottest game in town for investors. Much of the big gains for the stock market in 2023 and 2024 can be attributed to increasing interest in all things AI.
No company has been at the forefront of the AI boom more than Nvidia (NASDAQ:NVDA). The chipmaker’s stock price shot up 239% last year and is up nearly 75% this year. But is the enthusiasm for Nvidia gradually waning? Maybe like this. Two billionaire investors are selling Nvidia and buying another AI stock instead.
Thumbs down for Nvidia
David Tepper is known to many as the owner of the Carolina Panthers. However, he raised enough money to buy the NFL franchise by achieving tremendous success with the hedge fund he founded in 1993, Appaloosa Management. Today, Tepper’s net worth is $20.6 billion.
Tepper is optimistic about AI. Eight of the ten largest holdings in Appaloosa’s portfolio are AI stocks. Nvidia is the hedge fund’s fourth-largest position, but Tepper seems to think the stock’s tremendous momentum may soon be coming to an end. In the fourth quarter of 2023, he sold almost 23% of Appaloosa’s shares in the graphics processing unit (GPU) maker.
He’s not the only billionaire investor who is now noticeably less enthusiastic about Nvidia. Chase Coleman first made a name for himself in the investment world by working with legendary hedge fund manager Julian Robertson. Coleman next founded his own hedge fund, Tiger Global Management, which later expanded into venture capital. He is now worth $5.7 billion.
Tiger Global Management reduced its position in Nvidia by nearly 13% in the fourth quarter. Nvidia still occupies 10th place in the hedge fund’s portfolio with a stake worth around $480 million at the end of 2023. However, Coleman is taking some of his profits off the table with the stock after making big gains.
Thumbs up for Amazon
Both Tepper and Coleman saw it Amazon (NASDAQ:AMZN) as a better AI stock to buy in the fourth quarter. Tepper’s Appaloosa fund increased its position in the e-commerce and cloud services giant by more than 5%. Coleman’s Tiger Global Management increased its stake in Amazon by 24%.
Why are these two billionaire investors more bullish on Amazon than Nvidia? I suspect that Tepper and Coleman may think that Nvidia’s valuation is now at a level where any sign of trouble could trigger a sharp sell-off. At the same time, Amazon appears to be building sustainable momentum.
AI is definitely a key growth driver for Amazon. The company’s cloud platform, Amazon Web Services (AWS), is the leading provider of cloud services in terms of market share. In particular, AWS is investing heavily in supporting generative AI development.
Amazon also uses generative AI internally. CEO Andy Jassy said on the company’s fourth quarter earnings call: “[W]We believe it [generative AI] will ultimately bring Amazon revenues in the tens of billions over the next few years.”
Of course, Amazon isn’t just an AI stock. The company’s efforts to increase profitability in its e-commerce business continue to pay off. Amazon has achieved seven consecutive quarters of operating margin improvement in its North American business segment.
It has also emerged as a major player in the digital advertising market. Amazon’s advertising revenue rose 26% year-over-year in the fourth quarter. And this growth occurred before the company launched its ads on Prime Video.
Buying more Amazon shares has already paid off for Tepper and Coleman. The stock is up over 20% since the start of the year.
Should you also buy Amazon?
Investors shouldn’t sell Nvidia and buy Amazon just because two hedge fund billionaires did. However, it’s not a bad idea to examine the possible reasons for Tepper and Coleman’s moves.
I think the reasons why Tepper and Coleman added more Amazon shares in the fourth quarter still apply now. The company’s profits are expected to continue to rise. AI and advertising remain strong growth drivers. In my opinion, Amazon is still an excellent choice in the long run.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Keith Speights holds positions at Amazon. The Motley Fool has positions in and recommends Amazon and Nvidia. The Motley Fool has a disclosure policy.
“2 billionaire investors are selling Nvidia and buying this artificial intelligence (AI) stock instead” was originally published by The Motley Fool