Nvidia (NASDAQ: NVDA) shares have soared, resulting in a major boost for investors that got in on the shares early. And many billionaire investors have benefited -- including Ken Griffin, chief executive of Citadel. Griffin initially bought Nvidia back in 2013, and as recently as late last year his fund held more than three million shares of the artificial intelligence (AI) chip giant.
But Griffin wasn't a buyer of Nvidia in recent months. In fact, in the first quarter of this year, he reduced his position in Nvidia by 68% to about 1.1 million shares. And at the same time, he increased his holding of another AI stock by more than 500%. Does this mean that, like Griffin, you should forget Nvidia and bet on this AI player? Let's find out.
Citadel's track record
First, it's important to note investors have a pretty good reason for following Griffin's path. Since launching Citadel back in 1990, Griffin has built the fund to $63 billion in investment capital today. And Citadel has scored recognition as the most profitable hedge fund ever. So, when Griffin makes a particular bet on a stock, it's worth taking note -- and in some instances, you may decide to follow.
Now let's consider the billionaire's latest move. The hedge fund giant increased his position in Broadcom (NASDAQ: AVGO) by more than 500% to about 295,000 shares, a clear sign of confidence in this AI company. Griffin has probably already started to win from this move since the stock has advanced about 35% so far this year.
And the company completed a 10-for-1 stock split earlier this month, offering current holders additional shares to lower the per-share price of its stock. This doesn't change the value of Griffin's holding -- or yours if you're a Broadcom shareholder -- but it does offer shareholders a greater number of shares. A stock split is generally positive for a stock over time as it allows a wider range of investors to more easily buy it.
We don't know the exact reason why Griffin decided to increase his holding of Broadcom in the triple digits, but there's a lot of evidence showing Broadcom could be an AI winner down the road. In the most recent quarter, the semiconductor and networking giant said AI revenue surged 280% to more than $3.1 billion. Demand from mega-scale data centers for AI networking and custom accelerators is driving this growth, the company says.
Broadcom's new wave of growth
As these data centers, or hyperscalers, continue to expand, Broadcom is seeing more and more growth in its networking business. The company doubled the number of switches it sold in the quarter year over year and now is developing next-generation switches and optics that should drive a new wave of growth.
Broadcom is optimistic about this growth continuing, and considering forecasts for the AI market, there's reason for investors to be confident about the company's future too. Today's $200 billion AI market is set to reach more than $1 trillion later this decade. It's important to remember that right now more than 99% of Internet traffic travels through a Broadcom technology -- so the company, as a leader, is well positioned to benefit from the AI boom.
On top of this, Broadcom also is seeing growth from its acquisition of cloud software company VMware. In fact, it predicts VMWare will help drive a 42% increase in annual revenue this year to about $51 billion.
Nvidia vs Broadcom
So, is it time to forget Nvidia and turn to Broadcom? It's important to note that the companies could be considered rivals or peers because they are both chipmakers. But, while Nvidia is more focused on serving data centers with chips and other related products and services, Broadcom's business covers a lot more territory. The company makes thousands of products used not only in data centers but also in home connectivity, smartphones, and telecommunications in general. So, while Broadcom is growing thanks to AI, it doesn't depend on this market as much as Nvidia does -- this could make Broadcom a safer bet over time.
Still, it's also key to remember Citadel's Griffin hasn't exited his Nvidia position. He holds a considerable number of shares. So, the billionaire clearly hasn't lost faith in Nvidia and continues to believe the stock could generate solid returns.
All of this means there are reasons to be optimistic about both of these AI stocks. That said, one thing right now supports the idea of forgetting Nvidia and following Griffin into Broadcom, and that's valuation. Broadcom trades for 31x forward earnings estimates compared to 41x for Nvidia.
This is a very reasonable price considering the company's track record of growth and potential for gains from AI and the VMware acquisition. And that's why, right now you may want to forget Nvidia, and follow billionaire investor Griffin into Broadcom.
Should you invest $1,000 in Broadcom right now?
Before you buy stock in Broadcom, 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 Broadcom 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 $683,777!*
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 July 29, 2024
Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
Forget Nvidia: Billionaire Ken Griffin Raised His Position in This Rival AI Stock by More Than 500% was originally published by The Motley Fool