Forget Nvidia: Billionaires Are Selling It and Buying Two of Its Biggest Artificial Intelligence (AI) Rivals Instead

The last 30 years have been full of major investment opportunities. Although nothing has surpassed the arrival of the Internet in terms of potential for change for American businesses, the rise of artificial intelligence (AI) may give it competition.

When I talk about AI, I mean the use of software and systems instead of humans. With machine learning, these systems can evolve over time without human intervention to become more proficient at their tasks, or perhaps expand their scope of work to include entirely new tasks.

Last year, PwC analysts released a report (“Sizing the Prize, PwC’s Global Artificial Intelligence Study: Exploiting the AI ​​​​Revolution”) that estimated that AI would add nearly $16 trillion to the global economy for change. of decade. If this forecast is close to what will actually happen six years from now, AI stocks have the potential to skyrocket.

Arguably no publicly traded company has benefited more from the AI ​​revolution than the semiconductor titan. NVIDIA (NASDAQ: NVDA).

Wall Street’s top billionaire money managers say goodbye to Nvidia

Seemingly overnight, Nvidia’s graphics processing units (GPUs) became the talk of companies wanting to harness the power of AI. At the moment, the company’s A100 and H100 GPUs have a borderline monopoly over GPUs deployed in high-computing data centers.

Nvidia also has the luxury of exceptional pricing power. Enterprise demand for the company’s GPUs has completely outstripped the supply of these products. The law of supply and demand suggests that if a product in demand is in short supply, the price of that product will increase until demand decreases.

But not all Wall Street pros are sold on the idea of ​​Nvidia being the AI ​​stock to own. During the quarter ended in December, eight high-profile billionaires reduced their respective funds’ holdings in the infrastructure backbone of the AI ​​movement, including (total shares sold in parentheses):

• Israel Englander of Millennium Management (1,689,322 shares)

• Jeff Yass of Susquehanna International (1,170,611 shares)

• Steven Cohen of Point72 Asset Management (1,088,821 shares)

• David Tepper of Appaloosa Management (235,000 shares)

• Philippe Laffont of Coatue Management (218,839 shares)

• Chase Coleman of Tiger Global Management (142,900 shares)

• John Overdeck and David Siegel of Two Sigma Investments (30,663 shares)

While many things have gone right for Nvidia since the opening bell rang on 2023, the company now faces a growing list of headwinds.

The story continues

For starters, its immaculate pricing power is likely to decline in the coming quarters. Nvidia is ramping up its production of AI-focused GPUs and will face an influx of competition. Most of the 217% sales growth recorded in Nvidia’s data center segment in fiscal 2024 (ending January 28, 2024) was the result of strong pricing power tied to GPU shortage. This shortage will not be a tailwind for much longer.

In addition to the above, Nvidia has more to worry about external competition. Your four largest clients by revenue: microsoft, Metaplatforms, Amazonand Alphabet – are developing internal AI chips for their respective data centers. This puts approximately 40% of Nvidia’s net sales at risk of being lost or diminished.

Regulators have been no help either. On two separate occasions, US regulators have restricted exports of Nvidia’s high-powered GPUs to China, the world’s second-largest economy. This includes the toned-down A800 and H800 GPUs that Nvidia had designed specifically for its Chinese customers.

Finally, every major innovation of the past three decades has worked its way through an initial period of euphoria. In other words, bubbles are to be expected when investors jump on a new trend, and AI is unlikely to be an exception.

Billionaires are piling into two of Nvidia’s biggest AI rivals

But while billionaire investors were busy ringing Nvidia’s cash register during the fourth quarter, they were also curiously piling into two of the company’s main architectural rivals.

Advanced Micro Devices

The first major competitor found in the AI-accelerated data centers that top-tier billionaire asset managers gravitated toward during the quarter ended in December is Advanced Micro Devices (NASDAQ:AMD). The Form 13F offerings show that four billionaires were buyers, including (total shares purchased in parentheses):

• Ole Andreas Halvorsen of Viking Global Investors (4,737,399 shares)

• Ken Griffin of Citadel Advisors (3,506,881 shares)

• Ken Fisher of Fisher Asset Management (570,035 shares)

• Philippe Laffont of Coatue Management (23,383 shares)

The driving force behind this enthusiasm appears to be the advancement of AMD’s MI300X AI GPU. When AMD unveiled its flagship MI300X in June, it was billed as a “generative AI accelerator.” This is a fancy way of saying that it will go toe-to-toe with Nvidia’s H100 to power generative AI solutions and train large language models (LLMs) for enterprises. Although the launch of the MI300X began last year, production was not expected to increase significantly until this year.

But what investors might be overlooking is that AMD has more going for it than just its AI ambitions. Over the past decade, it has been steadily “weakening” Intel‘s (NASDAQ: INTC) The central processing unit (CPU) shares the lead in personal computers (PCs) and data centers. Although CPUs are not growing at the same rate as GPUs, AMD’s share gains in these segments are providing a big boost to operating cash flow.

Additionally, the PC market should see a small rebound in the not-too-distant future. Although PC demand skyrocketed and then plummeted during the COVID-19 pandemic, AMD notes that Client segment sales increased 62% from the prior-year period during the fourth quarter. It would appear that the stabilization of PC sales is underway.

Billionaires might also be excited about AMD’s growth prospects, compared to Nvidia. While the Wall Street consensus projects Nvidia to grow its earnings per share (EPS) by 24.6% next year, the forecast for AMD calls for earnings per share (EPS) growth of 26%.

Intel

Nvidia’s second AI rival that billionaires can’t stop buying is Intel. During the quarter ended in December, five billionaire money managers bought shares, including (total shares purchased in parentheses):

• Jim Simons of Renaissance Technologies (1,735,308 shares)

• Israel Englander of Millennium Management (1,532,812 shares)

• Philippe Laffont of Coatue Management (817,955 shares)

• John Overdeck and David Siegel of Two Sigma Investments (452,556 shares)

Like AMD, Intel is trying to gain share in the AI-accelerated data center market with the introduction of Gaudi 3. The company officially unveiled its H100 competitor last week as a tool that will boost LLM and data center solutions. Generative AI for a wide range of applications. scale businesses.

What’s particularly interesting about Intel’s GPU line is that it has developed a compatible version for export to China that meets the conditions set by US regulators. Neither Nvidia nor AMD have presented products or plans to make this happen so far. Although Nvidia is the undisputed market share leader in high-computing data centers domestically, Intel could reasonably become the preferred choice in the world’s second-largest economy.

Beyond AI, Intel has its legacy CPU operations to draw on. Although AMD has been gaining share in recent years, Intel remains the undisputed leader in PC and data center CPU share. This means you’re generating plenty of cash flow to fund other high-growth initiatives.

Additionally, Intel is busy building its foundry services segment from the ground up. Although its foundry operations are expected to generate considerable losses for the foreseeable future, Intel’s aggressive investments in chip manufacturing put it on track to become the world’s second largest foundry by the turn of the decade.

Intel is one of the few semiconductor stocks that would likely be well insulated if the AI ​​bubble bursts, and billionaire asset managers probably know it.

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Alphabet executive Suzanne Frey is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. 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 at Alphabet, Amazon, Intel and Meta Platforms. The Motley Fool positions and recommends Advanced Micro Devices, Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends Intel and recommends the following picks: Long January 2023 $57.50 Calls on Intel, Long January 2025 $45 Calls on Intel, Long January 2026 $395 Calls on Microsoft, Calls short January 2026 calls at $405 on Microsoft and short May 2024 calls at $47 on Intel. The Motley Fool has a disclosure policy.

Forget Nvidia: Billionaires Are Selling It and Buying 2 of Its Biggest Artificial Intelligence (AI) Rivals Originally Posted by The Motley Fool