Since the advent of the Internet some 30 years ago, there has been no innovation or trend that has as excited professional and everyday investors as artificial intelligence (AI).
The appeal of AI lies in the ability of software and systems to learn over time without human intervention (what is known as “machine learning”). As these systems perform their assigned tasks better and expand their utility beyond their original task(s), AI will gain a use case in virtually all sectors and industries.
Wall Street’s brightest minds and most successful investors understand the game-changing growth potential that AI brings. That’s the reason semiconductor stocks Nvidia (NASDAQ:NVDA) has gained a market capitalization of nearly $1.9 trillion since the start of 2023.
But not all of Wall Street’s top investors expect this AI darling to retain its elite status.
Prominent billionaires were key sellers of Nvidia shares
Nvidia has arguably benefited more than any other company from the AI revolution. The A100 and H100 graphics processing units (GPUs) have become the clear choice for companies running AI-accelerated data centers. Various estimates from Wall Street analysts put Nvidia’s share of GPUs deployed in high-performance data centers at around 90% in 2024!
Additionally, exceptional demand for Nvidia’s chips – particularly its H100 GPUs, which support large language models and generative AI solutions – helped the company more than triple its revenue in the data center segment last year. As demand significantly outstrips supply of its powerful GPUs, Nvidia’s margins, sales and profits have skyrocketed.
Despite these positive developments, eight prominent billionaire investors reduced their fund’s respective stakes in Nvidia in the December quarter. The top three sellers included (total shares sold in parentheses):
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Israel Englander from Millennium Management (1,689,322 shares)
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Jeff Yass of Susquehanna International (1,170,611 shares)
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Steven Cohen of Point72 Asset Management (1,088,821 shares)
History provides an important reason why these highly successful billionaires are skeptical of Nvidia. Over the past three decades, there hasn’t been a single innovation or next big trend that hasn’t experienced a bubble-bursting event in its early expansion phases. It is common for investors to overestimate the adoption of a new technology. Most likely, this will continue to be the fate of AI in the not too distant future.
Nvidia will also face a lot of internal competition. While most AI enthusiasts focus on external competitors such as: modern micro devices And IntelThe bigger concern is that Nvidia’s four largest customers by net revenue (roughly 40% of Nvidia’s revenue) are all developing their own AI GPUs. If they develop their own hardware, there’s a good chance we’ll see a peak in orders for Nvidia’s AI infrastructure.
Additionally, regulators have given billionaires little reason to believe that Nvidia stock could rise. U.S. regulators have twice restricted exports of the company’s powerful GPUs to China, the world’s second-largest economy by gross domestic product. These export restrictions are likely costing Nvidia billions of dollars in lost sales every quarter.
While these three prominent billionaires were busy selling Nvidia stock in the fourth quarter, they instead invested in two extremely high-yielding dividend stocks. “Ultra-high yield” refers to any stock with a yield that is at least four times greater than the stock’s current yield S&P 500.
Ultra-High-Yield Dividend Stock No. 1 Billionaires Are Buying: AT&T (6.63% Yield)
The first high-dividend stock that billionaires have aggressively bought while simultaneously bringing Nvidia to its knees is the telecommunications giant AT&T (NYSE:T). In the December quarter, Israel Englander of Millennium Management bought 19,054,972 shares of AT&T, while Steven Cohen of Point72 Asset Management bought 4,970,954 shares.
The biggest challenge facing telecom stocks and the reason they performed so poorly last year emerges from a telecom industry report Wall Street Journal issued in July 2023. The WSJ claims that legacy telecommunications companies could incur exorbitant cleanup costs and health-related liability risks associated with the use of lead-clad cables in their networks. Wall Street abhors uncertainty and the possibility of legal overhang.
The good news for AT&T and its competitors is that potential costs related to these allegations are still years away. AT&T has refuted claims that its lead-coated cables are hazardous to health. Additionally, any liability claims would likely be heard in the notoriously slow U.S. court system. Englander and Cohen are probably aware of this WSJ The story is much ado about nothing.
Meanwhile, AT&T’s business conditions continue to improve in virtually all aspects. Upgrading its network to support 5G speeds is driving a modest increase in wireless revenue, keeping churn rates near historic lows and increasing data consumption, which is the key margin driver of its wireless segment.
Additionally, AT&T’s broadband segment has delivered solid gains as investment in 5G increased. The company added 252,000 net AT&T fiber subscribers in the first quarter of 2024, putting it on track to add more than 1 million net broadband subscribers for the seventh consecutive year. Continued acquisition of broadband customers is a recipe that should encourage the bundling of high-margin services.
Finally, billionaires could be lured by AT&T stock’s presumably safe floor and reasonable upside potential. The stock is currently worth about seven times Wall Street’s forecast earnings for the coming year. Given that wireless access and broadband services have become necessities, there isn’t much downside risk to AT&T stock at this level.
#2 Ultra-High-Yield Dividend Stock Billionaires Are Buying: Pfizer (6.61% Yield)
The second ultra-high dividend yield stock that billionaires bought when they sold shares of Nvidia in the first quarter is none other than the pharmaceutical giant Pfizer (NYSE:PFE). Two of the most famous buyers of Pfizer stock were Jeff Yass of Susquehanna International (purchased 10,947,182 shares) and Israel Englander of Millennium Management (purchased 5,282,369 shares).
The best way to describe why Pfizer stock recently hit its multi-year low is that it was a victim of its own success. It is one of the few pharmaceutical companies that has successfully developed a COVID-19 vaccine (Comirnaty) and an oral treatment (Paxlovid) during the pandemic. While sales of these two therapies grew to more than $56 billion in 2022, they are only expected to bring in a total of $8 billion in sales in 2024. A sales decline of more than $48 billion in two years has disappointed expectations and provided near-term hope for Pfizer stock.
On the other hand, Comirnaty and Paxlovid gave Pfizer an $8 billion gain compared to the company’s total sales at the beginning of the decade. Additionally, its non-COVID therapies increased sales by 7% in 2023, and sales are expected to increase by 3% to 5% in 2024. Put simply, Pfizer’s drug portfolio is now in far better shape than it was a few years ago.
Pfizer’s current and potential shareholders are also likely excited about the integration of cancer drug developer Seagen, which the company acquired in a $43 billion deal in December. Although acquisition-related costs will weigh on Pfizer’s earnings per share (EPS) by ($0.40) per share this year, the combination of these two companies will result in significant cost savings, expanding Pfizer’s cancer drug pipeline etc. lead to noticeable increase in earnings per share in the coming years.
Investing in healthcare stocks is often assumed to be highly defensive. Given that stocks are currently historically expensive, buying shares of a company whose products are in constant demand regardless of how well or poorly the U.S. economy and stock market performs should result in predictable cash flow for Pfizer and a reasonably safe lower limit for the company’s shares.
Finally, like AT&T, Pfizer’s valuation makes a lot of sense and offers a favorable risk-reward profile. Pfizer stock is currently valued at about nine times Wall Street consensus 2025 EPS. This represents a 15% discount to the average next-year earnings multiple over the past five years.
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Sean Williams has held positions at AT&T and Intel. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia and Pfizer. The Motley Fool recommends Intel and recommends the following options: long $45 January 2025 calls on Intel and short $47 May 2024 calls on Intel. The Motley Fool has a disclosure policy.
Forget Nvidia: Prominent Billionaires Are Selling It and Buying These Two Ultra-High Dividend Yield Stocks Instead was originally published by The Motley Fool