For the better part of three decades, there has been no shortage of the next big investments that have captured the attention of professional and casual investors alike. Since the advent of the Internet forever changed the course of business in the mid-1990s, nothing has generated more buzz on Wall Street than the artificial intelligence (AI) revolution.
The incorporation of AI and machine learning (ML) allows software and systems to learn and become more proficient at tasks over time. PwC analysts believe that AI could add more than $15 trillion to global gross domestic product by the turn of the decade, as the scope of applications for AI will be widespread across nearly every sector and industry. Masu.
Dozens of stocks are benefiting from the AI revolution, but none have boosted sales and earnings as directly as semiconductor stocks. Nvidia (NASDAQ:NVDA).
This ‘infrastructure backbone’ of the AI revolution is on the chopping block by billionaires
In just over a year, Nvidia has become what I like to call the “infrastructure backbone” of the AI movement. The company’s A100 and H100 graphics processing units (GPUs) have come to dominate high computing data centers. Estimates vary, but Nvidia’s ultra-fast GPUs could account for 90% (or more) of the GPUs deployed in AI-powered data centers this year.
The company also enjoys otherworldly pricing power with its GPUs. As demand overwhelmed supply throughout 2023, data center revenue more than tripled, while cost of revenue rose only slightly. This clearly shows that much of Nvidia’s surge in sales and profits is due to its pricing power.
But not everyone is convinced that Nvidia is aiming for greater heights. During the quarter ended December, eight prominent billionaire investors reduced their stakes in this top-performing mega-stock. Among them are the following (total number of shares sold in parentheses).
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Israel Englander of Millennium Management (1,689,322 shares)
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Jeff Yass of Susquehanna International (1,170,611 shares)
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Steven Cohen of Point72 Asset Management (1,088,821 shares)
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David Tepper of Appaloosa Management (235,000 shares)
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Philippe Lafont of Coatue Management (218,839 shares)
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Chase Coleman of Tiger Global Management (142,900 shares)
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David Siegel and John Overdeck of Two Sigma Investments (30,663 shares)
One of the main reasons to be skeptical of Nvidia’s incredible breakthrough is that it’s driven by a GPU shortage. Nvidia plans to significantly increase production this year, and its competitors are: Advanced Micro Devices and intel It’s reasonable to expect that deploying your own advanced AI GPU will reduce its pricing power.
Perhaps even more concerning is that Nvidia’s top four customers by revenue (40% of total revenue) are all developing their own AI-GPUs. This could reduce future dependence on Nvidia, as its own data center chips would complement what his Nvidia produces, or it could phase out Nvidia’s infrastructure altogether. Either way, it’s a worrying development for highly valued stocks.
But while the billionaires raced to exit Nvidia, they didn’t hesitate to hit the buy button on two other fast-growing AI stocks during the fourth quarter.
crowdstrike holdings
Cybersecurity companies are the first strong AI growth stocks to seem to blow the whistle for billionaire money managers in the quarter ended December crowdstrike holdings (NASDAQ:CRWD). Four highly successful billionaires have added their respective stakes to the fund CrowdStrike. This includes (total number of shares purchased in parentheses):
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Jeff Yass of Susquehanna International (400,988 shares)
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Jim Simmons of Renaissance Technologies (97,900 shares)
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David Siegel and John Overdeck of Two Sigma Investments (91,091 shares)
On a macro basis, the cybersecurity industry is poised for steady growth through at least the rest of the decade. As businesses continue to move their data online and into the cloud, third-party providers are increasingly being used to protect this information from hackers.
Additionally, cybersecurity solutions can be successful in any economic climate. A bad day for Wall Street or tough times for the U.S. economy means nothing to hackers and robots looking to steal sensitive information. Because CrowdStrike is a subscription-driven company that protects its end users, it is well-positioned to generate predictable cash flow no matter what is happening in the economy or stock market.
On a more enterprise-specific basis, CrowdStrike offers distinct competitive advantages to customers and investors. The company’s Falcon security platform is powered by AI and ML. Falcon monitors trillions of events each week, allowing us to recognize and respond to potential threats smarter and more effectively.
There are several key performance indicators that show how much influence CrowdStrike has on your company. Although its platform is not the cheapest, its overall retention rate has remained stable at around 98% over multiple years. Additionally, the company’s net retention rate has not fallen below 119% over his five years. This means that the company’s existing customers are increasing their spending by at least 19% year over year.
But the key to CrowdStrike’s success was its ability to upsell to existing customers. Seven years ago, the percentage of customers who purchased four or more cloud module subscriptions was in the single digits, but now 64% of customers own five or more cloud module subscriptions. I am. These add-on sales increased our adjusted subscription gross margin to 80%.
snowflake
The cloud data warehousing company was the second fastest-growing artificial intelligence stock that billionaires were buying in an attempt to corner Nvidia during the quarter that ended in December. snowflake (New York Stock Exchange: Snow). Similar to CrowdStrike, four billionaire investors increased their stake in their funds (total shares purchased in parentheses).
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Ken Griffin of Citadel Advisors (1,985,426 shares)
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David Siegel and John Overdeck of Two Sigma Investments (1,204,387 shares)
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Israel Englander of Millennium Management (888,047 shares)
There are two likely reasons why a billionaire money manager might choose to add to Snowflake stock. It’s about opportunity and competitiveness.
Regarding the former, enterprise cloud spending and AI solutions/applications in the cloud are still in the early stages of expansion. Buying Snowflake stock gives investors exposure to the rapid growth of enterprise cloud and AI.
Another reason why billionaires are thought to have flocked to Snowflake is because of its clearly defined competitive advantage. For example, Snowflake’s infrastructure is layered on top of leading cloud infrastructure service platforms. Sharing data between competing cloud platforms can be difficult, but for Snowflake customers it’s seamless.
Similarly, Snowflake is subscription agnostic. Rather, it charges customers based on the data they store and the Snowflake compute credits they use. This transparent pricing policy seems to resonate with users.
One issue with Snowflake is the company’s valuation. Don’t get me wrong, CrowdStrike is trading at a very high premium, but its sales are still strong. Snowflake’s sales growth rate has slowed from triple digits three years ago to an estimated 22% this fiscal year. Snowflake is valued at 115 times prior-year adjusted earnings, making it an even tougher pill to swallow for a company whose sales growth has slowed from triple digits.
Snowflake appears to have a bright future, but it could be a while before its operating performance reaches its current valuation.
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Sean Williams has a position at Inter. The Motley Fool has positions in and recommends Advanced Micro Devices, CrowdStrike, Nvidia, and Snowflake. The Motley Fool recommends Intel and recommends the following options: These are a long call on Intel at $57.50 in January 2023, a long call on Intel at $45 in January 2025, and a short call on Intel at $47 in May 2024. The Motley Fool has a disclosure policy.
“Forget Nvidia: Billionaires are selling it and buying these two hyper-growth artificial intelligence (AI) stocks instead” was originally published by The Motley Fool.
