Nvidia (NASDAQ: NVDA) has been one of the best-performing stocks over the past couple of years, literally adding trillions of dollars in value to its shareholder's portfolios. Several big hedge fund managers were among those investors who made a lot of money by investing early in Nvidia. But now they're starting to take their chips off the table and place bets in a couple of other incredible artificial intelligence (AI) stocks.
Some hedge fund managers selling investments in Nvidia include:
Stanley Druckenmiller: sold 71% (441,551) of his family office's shares and 100% (4,895) of his call options on Nvidia.
Israel Englander: sold 35% (720,004) of Millennium Management's shares and 31% (6,910) of its call options. He maintains a heavy position in Nvidia put options, which give him the right to sell the stock at a certain price.
Chris Rokos: sold 41% (105,453) of his hedge fund's shares.
Philippe Laffont: sold 68% (2,937,060) of Coatue Management's shares.
There are many more examples of big sales from institutional investors. After the meteoric rise of Nvidia's share price, it makes sense for them to at least reduce their stake. However, average investors should be more interested in what big hedge fund managers are buying now.
Here are two superb AI stocks billionaires are buying as they sell Nvidia.
1. Microsoft
Microsoft (NASDAQ: MSFT) vaulted to the forefront of the AI space when it added $10 billion to its investment in generative AI leader OpenAI in early 2023. Despite its position as one of the most valuable companies in the world before the AI boom, artificial intelligence is proving to be a substantial growth area for the technology company.
Several billionaire fund managers saw an opportunity to buy more shares of Microsoft in the first quarter, including:
Ole Andreas Halvorsen: bought 1,596,887 shares, reestablishing a position in the stock for his Viking Global Investors fund.
Steven Cohen: bought 566,749 shares, more than doubling Point72's stake in the stock. He also disposed of options positions, including 1,844 put options.
Chris Rokos: bought 274,232 shares, increasing his hedge fund's stake by 172% from the fourth quarter.
Microsoft's core AI product is Azure AI, which provides cloud solutions for AI developers looking to use existing foundation models to deploy new AI-powered software solutions. The company grew its Azure AI customers by 60% year over year last quarter, and the average expenditure per customer is growing, too.
Microsoft is investing heavily in building out its data center capacity. But management said it will take some time for all of it to come online. As a result, it expects an acceleration in Azure revenue in the second half of fiscal 2025. That's quite a feat, considering it's already the fastest-growing hyperscale cloud provider today.
Microsoft also offers its own AI assistants across its enterprise software portfolio, which is called Copilot. Adoption is growing quickly, with customers increasing 60% quarter over quarter. With over 400 million Office 365 commercial seats, there's a long runway for growth for the product.
The stock currently trades around 30 times forward earnings estimates. While that's a significant premium to the S&P 500, the stock seems well worth the price. It's leadership in enterprise software solutions and AI development should provide years of outsized growth.
2. Meta Platforms
Meta Platforms (NASDAQ: META) has long been at the forefront of AI development. Machine learning algorithms form the backbone of the content feeds on Facebook and Instagram, along with the up-and-coming Threads, which recently passed 200 million monthly active users.
Recently, it's turned its attention to generative AI, developing and open-sourcing the Llama family of foundation models, which are behind its Meta AI feature in Instagram and Facebook as well as many other behind-the-scenes features. CEO Mark Zuckerberg has the ambition to turn Meta into "the leading AI company in the world."
Billionaires are buying into Zuckerberg's vision and putting their money into the stock. Some high-profile purchases in the first quarter include:
Chris Rokos: bought 377,551 shares, reestablishing a position for his hedge fund for the first time since 2022.
Ray Dalio: added 327,992 shares of the stock, increasing Bridgewater Associates' stake by 49%.
Stanley Druckenmiller: bought 63,930 shares, reestablishing a position.
While Meta already uses AI across its family of apps for content recommendations, it's starting to integrate it into its advertising services. Zuckerberg said he sees a day when "advertisers will basically just be able to tell us a business's objective and a budget, and we're going to do the rest for them," during Meta's second-quarter earnings call. He also sees Meta facilitating the creation of AI service agents for business, which opens the door for more business messaging monetization opportunities.
Put it all together, and AI will have a considerable impact on Meta's continued revenue growth. Increased engagement combined with lower hurdles to creating and targeting advertisements and improving the algorithms needed to target those advertisements as accurately as possible should all result in strong revenue and profit growth for the social media company. Meanwhile, its hardware business, including its Oculus VR headsets and Ray-Ban sunglasses, is showing strong growth bolstered by its AI features.
Meta shares currently trade around 23 times forward earnings estimates, which is considerably lower than most AI stocks. That's despite the fact that Meta's bottom line continues to grow at a steady rate in the mid to high double digits, giving it a very attractive PEG ratio. Its continued investments in AI should ultimately produce strong returns for the company and its shareholders.
Should you invest $1,000 in Nvidia right now?
Before you buy stock in Nvidia, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $638,800!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of August 6, 2024
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Adam Levy has positions in Meta Platforms and Microsoft. The Motley Fool has positions in and recommends Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Billionaires Are Selling Nvidia and Buying These 2 Superb Artificial Intelligence (AI) Stocks Instead was originally published by The Motley Fool