The artificial intelligence (AI) market has grown rapidly in the past few years as companies develop new algorithms to analyze data more efficiently. The rise of generative AI platforms like OpenAI's ChatGPT is also inspiring businesses to explore new ways to create content, automate tasks, and replace human workers.
According to Grand View Research, the global AI market is likely to grow at a compound annual growth rate (CAGR) of 36.6% between 2024 and 2030. NVIDIA (NASDAQ: NVDA), Super Microcomputer (NASDAQ:SMCI)and Meta Platform (Nasdaq: META) — has risen over the past year.
But in the first quarter of 2024, some of the more prominent billionaire hedge fund managers sold off these three high-flying AI stocks. Let's see how many shares they sold and whether it makes sense for long-term investors to follow suit.
1. NVIDIA
Nvidia, a leading maker of high-performance data center GPUs for processing complex AI tasks, remains one of the hottest tech stocks on the market. However, several high-profile billionaire investors, including Philippe Laffont, Ken Griffin and Israel Englander, significantly reduced their Nvidia holdings in the first quarter of 2024. Both Laffont and Griffin sold 68% of their holdings, while Englander reduced his fund's holdings by 35%.
These sales seem premature, given that market demand for NVIDIA's data center GPUs still outstrips supply, giving the company significant pricing power. From fiscal year 2024 through fiscal year 2027 (ending January 2027), analysts expect NVIDIA's revenue to grow at a CAGR of 46% and earnings per share (EPS) to grow at a CAGR of 53%. That's impressive growth rates for a stock that still trades for less than 50 times forward earnings.
2. Supermicrocomputer
Billionaires are also making money at Supermicro Computer, a leading maker of AI-specific servers. Richard Driehaus, Ken Griffin and Cliff Asness all reduced their stakes in Supermicro by 41%, 8% and 73%, respectively, in the first quarter.
The profit taking was somewhat surprising, as Supermicro is still going strong. The company already gets more than half its revenue from AI-dedicated servers, and analysts say Bank of America The company expects its market share to grow from 10% to 17% over the next three years. According to Research and Markets, the global AI server market is likely to continue expanding at a CAGR of 26.5% from 2024 to 2029.
Analysts expect Supermicro's revenue and EPS to grow at compound annual growth rates of 58% and 52%, respectively, from fiscal 2023 through fiscal 2026 (ending June 2026). At a price-to-earnings multiple of 27 times next year's earnings, it still looks like an undervalued growth stock.
3. Meta Platform
Meta, the parent company of Facebook, Instagram and WhatsApp, has seen its shares rise over the past year as its core advertising business recovers, but the first quarter saw several billionaire investors pull out, with Leigh Ainslie and Ken Griffin reducing their stakes to 51% and 47%, respectively.
Meta's advertising revenue in 2022 appleFacebook faces privacy-focused iOS changes, competition from ByteDance's TikTok and other macro headwinds, but ad sales accelerated in 2023 as it rolled out new AI algorithms to counter Apple's changes, expanded its short-video platform Reels to widen its advantage over TikTok and attracted increased spending from Chinese e-commerce and gaming companies looking to target consumers overseas.
Analysts expect Meta's revenue and EPS to grow at compound annual growth rates of 14% and 21%, respectively, from 2023 to 2026. This outlook is bright and the company's shares seem reasonably valued at 24 times forward earnings, but big investors may be concerned about slowing spending by Chinese advertisers and increased competition in the ad market.
Should investors follow suit?
Hedge fund managers have different priorities than individual investors. Instead of focusing on long-term, multi-bagger gains spanning decades, hedge fund managers tend to focus on generating steady annual returns to satisfy their wealthy clients. To that end, they will likely trim winning positions more carefully than growth-oriented individual investors.
Since the end of the first quarter on March 31, Nvidia's stock price has risen 40%, but Meta's stock price has risen less than 1%, and Supermicro's stock price has fallen 13%. So for short-term investors chasing billionaire deals, it seemed like a mistake to sell Nvidia, but it would have been wise to follow their lead and take some profits on Meta and Supermicro.
But if you're a patient long-term investor who intends to hold these AI stocks for at least a few more years, I see no reason to follow the short-term trades. Nvidia continues to sell its best picks and shovels for the AI gold rush, Supermicro's share of the AI server market continues to grow, and Meta continues to use its AI algorithms to create more effectively targeted ads across social media platforms. So, for investors who aren't swayed by short-term noise or regular institutional selling, all three of these stocks have the potential to still generate significant multi-bagger gains.
Should I invest $1,000 in Nvidia right now?
Before you buy Nvidia stock, consider the following:
of Motley Fool Stock Advisor The analyst team Top 10 Stocks Here are the stocks investors should buy right now… and Nvidia wasn't among them. The 10 stocks selected have the potential to generate big gains over the next few years.
Things to consider NVIDIA This list was created on April 15, 2005…If you invested $1,000 at the time of recommendation, That works out to $741,989.!*
Stock Advisor With portfolio construction guidance, regular updates from our analysts, and two new stock picks every month, we provide investors with an easy-to-follow blueprint for success. Stock Advisor The service is More than 4 times First S&P 500 recovery since 2002*.
View 10 stocks »
*Stock Advisor returns as of July 15, 2024
Randi Zuckerberg is a former director of market development and communications at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of The Motley Fool's board of directors. Bank of America is an advertising partner of The Ascent, a Motley Fool subsidiary. Leo Sun has invested in Apple and Meta Platforms. The Motley Fool has invested in and recommends Apple, Bank of America, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.
3 Artificial Intelligence (AI) Stocks Billionaires are Selling Right Now was originally published by The Motley Fool.
