2 Most Popular Artificial Intelligence (AI) Stocks Billionaires Are Selling and 1 AI Stock They Can’t Stop Buying

For investors, the Form 13F released quarterly by the Securities and Exchange Commission (SEC) is like Christmas all over again.

13Fs provide investors with a detailed snapshot of stocks bought and sold by Wall Street’s top money managers in the most recent quarter, in this case the fourth quarter. This means you can get an inside look at which stocks, industries and trends are piqued by the best money managers.

Image source: Getty Images.

For now, there may be nothing more interesting than knowing what Wall Street’s top money managers are doing with artificial intelligence (AI) stocks. AI, which uses software and systems to handle tasks typically supervised by humans, could add an estimated $15.7 trillion to global gross domestic product by 2030, according to a report by PwC last year.

Billionaire investors were eager to reduce their stakes in two popular AI stocks and couldn’t stop themselves from buying shares of another big-name AI-inspired company, according to recent 13F filings.

The No. 1 AI stock that billionaires are boldly selling: NVIDIA

The first artificial intelligence stock invested by prominent billionaire investors is none other than the infrastructure backbone of the artificial intelligence movement. nvidia (NVDA -1.68%). During the quarter ending in December, eight billionaires reduced their respective funds’ stakes in the semiconductor giant. This includes (total number of shares sold in parentheses):

• Israel Englander (1,689,322 shares) from Millennium Management.
• Jeff Yass of Susquehanna International (1,170,611 shares).
• Stephen 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).

If you’re wondering why these top investors are trying to reduce their exposure to some of Wall Street’s hottest megacap stocks, increasing competition and margin erosion may be the answer.

Currently, Nvidia’s A100 and H100 graphics processing units (GPUs) dominate AI-accelerated data centers. analyst Citigroup It has been estimated that Nvidia’s chips could account for 90% of GPUs deployed in high-performance data centers this year. But competition is increasing. advanced micro devices This year, we plan to increase the release of MI300X GPUs. intel It will introduce its Gaudi3 generated AI software chip later this year as a direct competitor to the H100.

Internal competition is also a potential problem. microsoft (MSFT -0.72%) and meta platform Nvidia ranks first and second respectively in total spending. But despite spending big on Nvidia, these companies are hard at work developing their own AI chips. Soon, Microsoft and Meta will become less dependent on Nvidia.

Ironically, Nvidia’s expansion may ruin its business. At least when it comes to the company’s total profits. Most of Nvidia’s data center growth in fiscal 2024 (ending at the end of January) was a result of the A100 and H100 GPU shortage. When a product is scarce and demand is high, sellers typically have excellent pricing power. If Nvidia ramps up production of high-performance GPUs, it could erode its own superior pricing power.

No. 2 AI stock that billionaires are boldly selling: Microsoft

Another AI stock that billionaires have thrown out with the bathwater is Microsoft, the world’s largest publicly traded company by market capitalization. Despite investing aggressively in OpenAI (the company that developed the popular chatbot ChatGPT) and developing its own AI chip, seven genius billionaire investors sold in the fourth quarter. Includes (total number of shares sold in parentheses):

• Ole Andreas Halvorsen of Viking Global Investors (3,024,399 shares).
• Stephen Cohen of Point72 Asset Management (1,569,462 shares).
• Jim Simons of Renaissance Technologies (1,155,782 shares).
• Ken Griffin of Citadel Advisors (796,892 shares).
• Chase Coleman of Tiger Global Management (787,113 shares).
• Terry Smith of Fundsmith (705,498 shares).
• Dan Loeb of Third Point (210,000 shares)

Viking Global and Renaissance Technologies have sold their funds’ entire stake in the world’s largest publicly traded company. The reasons for this sale can be boiled down to a combination of history and valuation.

There has been no shortage of next-generation investment trends over the past 30 years. While some of these trends have made long-term investors noticeably richer (e.g., the advent of the Internet and cloud computing), all of the next-generation investments have passed through their initial bubbles. That said, investors regularly overestimate the initial adoption of new innovations or technologies, and AI is likely to be no exception.

Microsoft’s valuation is another potential stumbling block. Current investors will pay 31 times future years’ earnings. This is a far cry from the year-end multiples of 16 to 25 times future year’s earnings paid by investors between 2014 and 2018.

One thing that could ultimately make these billionaires regret their decision to sell is Microsoft’s incredible cash flow. The perfect blend of high-margin cash flow from legacy segments (such as Windows and Office) and high-growth initiatives such as its cloud services infrastructure platform Azure gives Microsoft the luxury of seizing opportunities on the acquisition and innovation fronts.

Image source: Getty Images.

AI Stock Billionaires Can’t Stop Buying: Amazon

But that doesn’t mean billionaire money managers couldn’t trade all AI stocks during the quarter ending in December. e-commerce company Amazon (AMZN -0.69%)which enhances voice interactions with Alexa and leverages generative AI in a variety of ways to help sellers create more persuasive and personalized ads, was a popular buy for eight billionaires, including (total number of shares purchased in parentheses), including:

• Ken Griffin of Citadel Advisors (4,321,477 shares).
• Jim Simons of Renaissance Technologies (4,296,466 shares).
• Chase Coleman of Tiger Global Management (947,440 shares).
• Ken Fisher of Fisher Asset Management (888,369 shares)
• John Overdeck and David Siegel of Two Sigma Investments (726,854 shares).
• Stephen Cohen of Point72 Asset Management (462,179 shares).
• Israel Englander (85,532 shares) from Millennium Management.

While AI is contributing to the allure of Amazon’s range of products and services, it’s likely that billionaires are increasingly coming from the company’s three fast-growing ancillary divisions:

Most consumers are probably familiar with Amazon because it has the most dominant online marketplace in the United States. Although this segment generates a lot of revenue, online retail sales have low margins. The lion’s share of Amazon’s cash flow can be traced back to its cloud infrastructure services segment, Amazon Web Services (AWS), subscription services, and advertising services.

AWS is Amazon’s superstar. It is a leading provider of cloud infrastructure services globally, with annual execution revenue approaching $97 billion. Not only is enterprise spending on cloud infrastructure services still in its infancy, but the margins associated with cloud services have put e-commerce margins to shame. It’s not uncommon for AWS to account for more than half of Amazon’s operating profits.

Another catalyst that encouraged billionaires to hit the buy button on Amazon stock in the fourth quarter may have been its stock valuation. While traditional price-to-earnings ratios tend to cause value investors to move in the opposite direction, Amazon is historically cheap relative to its cash flow.

Given Amazon’s tendency to reinvest the majority of its operating cash flow into its logistics operations and various high-growth initiatives, cash flow tends to be a smarter way to evaluate Amazon. After spending the entire 2010s at valuations ranging from 23 to 37 times year-end cash flows, investors can buy stocks today for about 12 times 2025 consensus cash flow estimates.