The GPU leader is losing some of its luster among top investors.
There's no question about it. Nvidia (NVDA 3.51%) has been the hottest stock of the generative artificial intelligence (AI) era.
The graphics processing unit (GPU) and AI hardware specialist has added more than $2 trillion to its market capitalization since ChatGPT was launched, well ahead of any other stock, and its shares are up by roughly 700% since the start of 2023.
While some billionaires caught on to that trend early, buying Nvidia shares as the disruptive potential of generative AI became clear, now it seems that many of those investors are beginning to think its surge has run out of steam. According to hedge-fund tracker WhaleWisdom, more top investors cut their stakes in Nvidia than added to them in the first quarter: 207 hedge funds increased their holdings of Nvidia in Q1, down from 269 in the fourth quarter. Meanwhile, 336 hedge funds reduced their holdings in the chip giant, roughly 60% more than the number of hedge funds that added to their positions.
Among the billionaires selling Nvidia stock were Ken Griffin of Citadel, Israel Englander of Millennium Management, and Paul Tudor Jones of Tudor Investment Group.
That pattern seems to be a sign that there's fatigue surrounding the stock, and these hedge fund managers are taking the opportunity to lock in their profits.
Image source: Getty Images.
Reasons to sell
Hedge fund managers' 13F filings don't come with commentary, but investors can make a few educated guesses as to why these Wall Street luminaries are selling this stock.
Taking some profits off the table seems like the most obvious reason, especially considering recent chatter that capital gains tax rates on the wealthy could be increased. Berkshire Hathaway CEO Warren Buffett said that was one of the reasons his company sold shares of Apple in the first quarter.
Another reason is that greater competition is on the way. Advanced Micro Devices and Intel have both launched competing data center GPUs, and tech companies such as Meta Platforms and Microsoft are also developing their own AI-capable chips in-house to reduce their dependence on Nvidia.
One billionaire investor, Stanley Druckenmiller, explained his decision to start unwinding his stake in Nvidia, saying that much of what his firm had recognized earlier in the stock has now been recognized by the broader market. Indeed, Nvidia's dominance of the AI chip sector and its skyrocketing growth have become clear.
What billionaire investors are buying instead
The hedge fund managers that are selling Nvidia stock are buying a wide range of companies in its place, but you might be surprised to learn that one of the choices to replace Nvidia has been Ford Motor Company (F -0.59%).
Citadel, Millennium Management, and Tudor Investment Group were all among the hedge funds that bought Ford last quarter. Citadel added 5.45 million shares and Millennium Management added 7.34 million shares. Tudor added 1.76 million shares, but that made Ford one of its biggest buys in the quarter.
Ford was also more favored than not among hedge funds: 116 funds added to their stakes in the automaker while only 92 sold its shares.
Ford has struggled in recent times, but it could be sitting at the intersection of a number of favorable trends. First, pure-play electric vehicle (EV) makers are struggling as demand growth for EVs is slowing, and valuations in that sector are coming down. That has made traditional auto stocks more popular, and while Ford's EV business hasn't yet turned a profit, the company is finding success with hybrids.
Ford should also benefit from the expected decline in interest rates later this year, which will make cars more affordable. Finally, the company has growth potential in areas like EVs, hybrids, and autonomy, and the stock is cheap, trading at a forward P/E of 6.
Still, Ford has a low valuation for a reason. Investors assume it will be disrupted by fast-growing rivals like Tesla.
However, for investors looking to rotate out of a growth stock like Nvidia and into a cyclical dividend stock with upside potential, Ford looks like a good choice, especially given its dividend yield of 5% at the current share price.
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. Jeremy Bowman has positions in Meta Platforms. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Berkshire Hathaway, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short August 2024 $35 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
