The last 18 months have been very good Nvidia (NASDAQ:NVDA).
The exploding demand for artificial intelligence (AI) applications since ChatGPT’s launch has pushed major tech companies to snap up Nvidia’s GPUs as quickly as possible. This led to a huge increase in sales and profits for the chipmaker and a corresponding increase in Nvidia’s share price. Since ChatGPT launched on November 30, 2022, shares have risen 425%.
But some of the stock market’s most influential members believe Nvidia’s price may be overstated. Both congressmen and hedge fund billionaires are selling Nvidia shares and buying two other AI stocks that may have even more upside potential. Should you follow the smart money and dump Nvidia stock?
Who sells Nvidia and why?
Nvidia has seen a variety of sellers on Capitol Hill and Wall Street.
Members of Congress who have been selling the shares since last October include:
-
Michael McCaul, Republican representative from Texas
-
John Curtis, Republican representative from Utah
-
Ro Khanna, Democratic Representative from California
-
Josh Gottheimer, Democratic Representative from New Jersey
-
Dan Meuser, Republican representative from Pennsylvania
-
Tom Suozzi, Democratic Representative from New York
-
Dan Newhouse, Republican representative from Washington
Eight prominent billionaires have also reduced their positions in Nvidia, according to their recent SEC filings:
-
Israel Englander, Millennium Management (1,689,322 shares sold)
-
Jeff Yass, Susquehanna International (1,170,611 shares sold)
-
Steven Cohen, Point72 Asset Management (1,088,821 shares sold)
-
David Tepper, Appaloosa Management (235,000 shares sold)
-
Philippe Laffont, Coatue Management (218,839 shares sold)
-
Chase Coleman, Tiger Global Management (142,900 shares sold)
-
John Overdeck and David Siegel, Two Sigma Investments (30,663 shares sold)
Of course, most of these smart money investors aren’t fully exiting their positions in Nvidia. But they are cutting their stakes significantly. And it may be more than just profit-taking after Nvidia’s incredible pricing performance.
There are reasons to believe that Nvidia’s future isn’t as bright as its recent past. On the one hand, the stock valuation remains high. The shares trade for more than 35 times forward earnings expectations. And while Nvidia should see strong demand over the next year or two thanks to several large customers, it’s not clear whether the company can grow its profits sustainably and so quickly over the long term.
Management noted in its 10-K that one of its customers accounted for 13% of its revenue in fiscal 2024. The concentration of its customer base represents a major risk, especially as Nvidia’s largest customers are actively working to develop alternative chip designs for their own use. One of Nvidia’s biggest advantages right now is its existing relationship with Taiwan semiconductor manufacturing, the world’s leading chipmaker. As more competing chips are mass-produced, demand for Nvidia chips will decline.
Instead, smart money is buying the AI chip stock
As investors on Capitol Hill and Wall Street trim their positions in Nvidia, they have put more of their money into one of Nvidia’s biggest competitors in GPU chip design modern micro devices (NASDAQ:AMD).
Here are the congressmen buying AMD stock:
-
Michael McCaul, Republican representative from Texas
-
Josh Gottheimer, Democratic Representative from New Jersey
-
Markwayne Mullin, Republican Representative from Oklahoma
And the most famous billionaires who include AMD in their portfolio:
-
Ole Andreas Halvorsen, Viking Global (4,737,399 shares added)
-
Ken Griffin, Citadel Advisors (3,506,881 shares added)
-
Ken Fisher, Fisher Asset Management (570,035 shares added)
-
Philippe Laffont, Coatue Management (23,383 shares added)
AMD has struggled to make progress over Nvidia in its data center GPUs used to train AI models, but that could soon change. In December last year, the AI accelerator MI300X and the accelerated processing unit Instinct MI300A were launched. Still, management’s second-quarter revenue outlook disappointed investors when the company reported its first-quarter results.
Nonetheless, AMD appears poised to expand its share of the AI GPU market in the long term, as the company is just getting started. And it could present a much bigger opportunity as more companies invest in inference chips. These are chips that are needed to actually use AI models after training. The ability to run an AI application on a local device, such as a car’s computer, will become increasingly common. AMD already has several strong relationships with manufacturers there.
However, AMD shares are not cheap. Shares trade at an even higher multiple than Nvidia, with a forward P/E ratio of 41.3x. AMD faces some of the same challenges as Nvidia in ensuring long-term demand for its data center chips. However, its position in the PC market is stable and could represent an opportunity as more inference chips are in demand. Importantly, AMD’s growth story may be just beginning, while Nvidia’s growth may have peaked.
Smart money is moving up the AI food chain
If there’s one company that has benefited from this AI boom almost as much as Nvidia, it’s this one Microsoft (NASDAQ:MSFT). Since investing $10 billion in OpenAI in early 2023, Microsoft has positioned itself as a leader in the AI space. Both the enterprise software and the cloud computing platform Azure have benefited from this.
Members of Congress and Wall Street have noticed. The following representatives have all recently purchased shares:
-
Josh Gottheimer, Democratic Representative from New Jersey
-
Pete Sessions, Republican Representative from Texas
-
Kathy Manning, Democratic Representative from North Carolina
-
Bill Keating, Democratic Representative from Massachusetts
At the same time, these Wall Street billionaires added to their positions in the fourth quarter:
-
Ken Fisher, Fisher Asset Management (403,409 shares added)
-
Stanley Druckenmiller, Duquesne Family Office (68,860 shares added)
-
David Tepper, Appaloosa Management (65,000 shares added)
Microsoft is seeing continued demand for its AI services. Its cloud computing division, Azure, posted 31% revenue growth last quarter, far faster than its closest competitors. Management said the growth was driven by demand for AI. In fact, it said: “Near-term AI demand is slightly higher than our available capacity.”
Microsoft is also seeing strong demand for its Copilot software, which uses generative AI to improve productivity in various areas. As a leading enterprise software provider, the company is uniquely positioned to sell more subscriptions to its AI software.
Microsoft’s forward PE of 29.8x is still a premium to the overall market. But when it comes to its position, it is largely in control. No office manager will switch from Microsoft software. Few developers will migrate from Azure. Switching costs are high and keep customers tied to their location. This makes Microsoft a worthy smart money and perhaps your money too.
Should you invest $1,000 in Nvidia now?
Before you buy Nvidia stock, consider the following:
The Motley Fool Stock Advisor The analyst team has just identified what they think this is The 10 best stocks so investors can buy it now… and Nvidia wasn’t one of them. The ten stocks that made the cut could deliver huge returns in the years to come.
Think about when Nvidia created this list on April 15, 2005… if you have $1,000 invested at the time of our recommendation, You would have $544,015!*
Stock Advisor provides investors with an easy-to-understand roadmap to success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor has service more than quadrupled the return of the S&P 500 since 2002*.
See the 10 stocks »
*Stock Advisor returns from May 6, 2024
Adam Levy holds positions at Microsoft and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Advanced Micro Devices, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has a disclosure policy.
Forget Nvidia: Smart money is selling it and buying these two surging artificial intelligence (AI) stocks. Instead was originally published by The Motley Fool