Three decades ago, the advent of the internet changed the growth trajectory of corporate America forever. Since then, investors have been waiting for the next game-changing innovation, technology, or trend to rival what the internet did for businesses. After decades of patience, it appears as if artificial intelligence (AI) has been anointed as the next leap forward in innovation.
The rise of AI is all about the use of software and systems for tasks that would typically be undertaken by humans. What gives AI such broad-reaching potential is the capacity for software and systems to learn and evolve without human intervention. Becoming more proficient at assigned tasks, as well as learning new skills, gives this technology a limitless long-term ceiling.
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Yet in spite of the otherworldly growth forecasts attached to AI -- the analysts at PwC expect AI to add $15.7 trillion to the global economy by 2030 -- not everyone on Wall Street is convinced of its upside.
Based on Form 13F filings that detail the trading activity of Wall Street's smartest asset managers, prominent billionaire investors were big-time sellers of Nvidia (NASDAQ: NVDA) stock during the March-ended quarter.
Over a half-dozen prominent billionaires have pared down their stakes in Nvidia
Although artificial intelligence euphoria has largely been credited with pushing Wall Street's major stock indexes to fresh all-time highs, eight successful billionaire money managers chose to send shares of Nvidia to the chopping block during the March-ended quarter (total shares sold in parenthesis and adjusted for Nvidia's 10-for-1 stock split in June ):
- Philippe Laffont of Coatue Management (29,370,600 shares)
- Ken Griffin of Citadel Advisors (24,627,160 shares)
- Israel Englander of Millennium Management (7,200,040 shares)
- Stanley Druckenmiller of Duquesne Family Office (4,415,510 shares)
- David Siegel and John Overdeck of Two Sigma Investments (4,208,010 shares)
- David Tepper of Appaloosa (3,480,000 shares)
- Steven Cohen of Point72 Asset Management (3,045,050 shares)
While simple profit-taking following Nvidia's stellar run-up might explain some of this selling activity, history and valuation are the likelier catalysts.
As I pointed out earlier, it's been about 30 years since the internet began changing the growth trajectory for businesses and the U.S. economy. Since then, numerous next-big-thing innovations and trends have come and gone. While some of these technologies and trends have gone on to be wildly successful over the long run, they all endured an early stage bubble . All new technologies and trends need time to mature, and artificial intelligence isn't any different. If the AI bubble were to burst, as history suggests it will, no company would take it on the chin more than Nvidia.
Nvidia is also set to face growing competition for GPU real estate in high-compute data centers. What optimists seem to be overlooking is that even if Nvidia maintains its compute advantage, its inability to meet overwhelming demand is going to allow competitors to grab market share.
Moreover, its four top customers (all members of the "Magnificent Seven") are developing AI-GPUs for their data centers . Even though these internally developed chips lack the compute advantage of Nvidia's H100 GPU, they're cheaper and are going to take up valuable data center real estate.
The final nail in the coffin is that Nvidia's trailing-12-month (TTM) price-to-sales (P/S) ratio is on par with the peak TTM P/S ratios seen from market leaders like Cisco Systems and Amazon prior to the bursting of the dot-com bubble.
What's truly interesting is that while these prominent billionaire money managers were dumping shares of Nvidia, they were busy piling into two hypergrowth stocks that have little or nothing to do with AI.
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Plug Power
The first supercharged growth stock that caught the attention of the billionaire asset managers who've been selling shares of Nvidia is hydrogen fuel-cell solutions company Plug Power (NASDAQ: PLUG) . Nvidia's three biggest billionaire sellers were all buyers of Plug Power stock during the first quarter (total shares purchased in parenthesis):
- Ken Griffin of Citadel Advisors (3,800,039 shares)
- Philippe Laffont of Coatue Management (3,439,975 shares)
- Israel Englander of Millennium Management (546,925 shares)
The lure of Plug Power as an investment is the high-ceiling potential of renewable energy as it pertains to transportation and infrastructure. Management believes the company can generate $20 billion in sales by 2030, which would be one phenomenal growth rate considering the company reported $891 million in full-year sales in 2023.
Plug Power is in the midst of expanding its green hydrogen network. Among other things, this involves improving the efficiency of its supply chain, increasing prices across its product and service portfolio, and meaningfully improving its margins.
But in spite of its rapid growth prospects, Plug Power's future is highly uncertain. It's been a cash-burning machine since its inception and has regularly turned to share offerings in order to keep the lights on . Last week, Plug announced a $200 million share offering that was priced well below where its stock had closed the previous day. With operating losses expected to continue for years to come, more share offerings seem likely.
Plug Power also has to overcome a shift in sentiment toward clean-energy vehicles. Infrastructure limitations are one reason electric vehicle (EV) demand has weakened in recent quarters. With EV demand acting as something of a proxy for hydrogen fuel-cell vehicle demand, Plug may find that the market for its products is lukewarm, at best.
Sea Limited
The other hypergrowth stock that had Nvidia's billionaire sellers mashing the buy button is Singapore-based Sea Limited (NYSE: SE) . Even though Sea has little to do with artificial intelligence, five of Nvidia's billionaire sellers were decisive buyers in the March-ended quarter, including (total shares purchased in parenthesis):
- Steven Cohen of Point72 Asset Management (1,527,446 shares)
- Philippe Laffont of Coatue Management (678,308 shares)
- David Siegel and John Overdeck of Two Sigma Investments (338,720 shares)
- Ken Griffin of Citadel Advisors (190,432 shares)
What makes Sea such an appealing investment is the company's trio of fast-growing operating segments.
The division consistently responsible for generating positive earnings before interest, taxes, depreciation, and amortization ( EBITDA ) is Sea's digital entertainment segment, known as "Garena." The biggest catalyst for Garena is Free Fire , which is one of the world's most-popular mobile games. During the first quarter, Garena had nearly 595 million quarterly active users, 8.2% of which were paying to play its games. This pay-to-play ratio is considerably higher than the industry average for mobile gaming.
Sea's second rapidly growing segment is SeaMoney, its digital financial services operations. Many of the countries Sea operates in are chronically underbanked, with businesses and consumers lacking access to basic financial services. SeaMoney offers solutions (loans) to this common problem in Southeast Asia .
But the most-promising of all operating segments is e-commerce platform Shopee , which operates in Southeastern Asia and Brazil. The $23.6 billion in gross merchandise value (GMV) traversing its platform during the first quarter equates to $94.4 billion on an annualized run-rate basis. For some context on just how quickly Shopee is growing, GMV in the entirety of 2018 was $10 billion.
If these three operating segments continue to fire on all cylinders, Sea Limited can sustain annual sales growth of 15% (or greater), and deliver triple-digit annualized earnings growth through 2028, based on Wall Street's consensus forecast.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Sean Williams has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Cisco Systems, Nvidia, and Sea Limited. The Motley Fool has a disclosure policy .
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