Nvidia (NASDAQ: NVDA) has been the biggest winner of the AI boom thus far, but not everyone thinks the good times will last.
In fact, hedge funds continued to reduce their exposure to the popular stock in the second quarter, continuing a trend from the first quarter. In the period, which included Nvidia's reaching an all-time high market cap in June after its stock split, 326 hedge funds trimmed their positions, according to Whale Wisdom, while 264 hedge funds increased their positions.
While many of the hedge fund managers who cut their holdings in Nvidia still hold large stakes in the AI stock, their decisions to reduce their exposure to it shows they think that the stock's biggest gains may be behind it. Let's take a look at a two of the stocks that billionaire investors are buying to replace Nvidia.
1. Apple
It shouldn't be a big surprise to find Apple (NASDAQ: AAPL) on hedge funds' shopping lists. Not only is it the biggest holding in the stock portfolio of Warren Buffett's Berkshire Hathaway, but it's also the most valuable company in the world and a longtime winner on the stock market.
Apple appeared to be lagging in the AI race, but the company changed that impression when it unveiled its new Apple Intelligence platform, which features AI tools like a writing assistant and image generation, and will soon be available on the most advanced iPhones. The move also underscores Apple's key advantage in AI -- its installed base of more than 2 billion devices, which allows it to put its software and services in front of a vast number of users.
One of the hedge funds that pared back its Nvidia holdings and bought Apple last quarter was GQG Partners, a boutique investment firm based in Fort Lauderdale, Florida. In the second quarter, GQG sold nearly 58 million Nvidia shares and added 11.3 million shares of Apple. Nvidia remains GQG's biggest holding, but it sold more than 40% of its shares in the GPU maker. Its Apple stake is entirely new.
Ken Griffin's Citadel Advisors, one of the biggest hedge funds in the world, also exchanged some Nvidia stock for Apple in the quarter. It added 2.6 million shares of Apple worth roughly $500 million in the quarter. At the same time, it sold 9.3 million shares of Nvidia, or roughly $1 billion worth, leaving it with just 2.4 million shares. Citadel has additional exposure to Nvidia through options.
2. Lyft
While Apple appears to be a logical choice for hedge fund investors looking to rotate out of Nvidia, Lyft (NASDAQ: LYFT) is more surprising. Shares of the No. 2 ride-sharing company have fallen sharply since its 2019 IPO -- its early valuations were unsustainable, and the pandemic dealt its business a setback as well.
However, Lyft now looks primed for a comeback under a new management team that has scaled back spending on incentives and rolled out popular new options such as giving women riders and drivers the ability to match with other women. Revenue jumped 41% year over year to $1.44 billion in the second quarter, and it reported a generally accepted accounting principles (GAAP) profit.
Billionaire investors seem to be taking notice. David Tepper's Appaloosa Management added 7.5 million shares of Lyft in the first quarter, or roughly $100 million. Meanwhile, he dumped nearly all of his Nvidia stake, selling 3.7 million shares to leave the fund with just 690,000 shares of the AI stock.
Griffin's Citadel also added to its stake in Lyft, buying 4.4 million shares of the ride-sharing stock in the quarter, or roughly $50 million.
For a company the size of Lyft -- its market cap is less than $5 billion -- that indicates a considerable amount of bullishness from the professional investing set. Combined, Tepper and Griffin own more than 3% of the stock.
Lyft is a much different company than Apple, but the buys by Griffin and Tepper, as well as the momentum in its turnaround efforts, should give retail investors confidence to buy the stock. There's a lot of upside potential here as its financials continue to improve.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and Nvidia. The Motley Fool has a disclosure policy.
Billionaires Are Selling Nvidia and Buying Up These Stocks Instead was originally published by The Motley Fool