It’s been 30 years since the next big investment trend caught the attention of professional and everyday investors, like the artificial intelligence (AI) revolution. Just as the advent of the Internet changed the course of American businesses 30 years ago, there is a growing belief that AI can lead to the next leap in economic growth and innovation.
The broad potential for AI to transform virtually every sector and industry is not lost on Wall Street and its top investors. Overall, billionaire investors are flocking to AI stocks, and many of Wall Street’s most successful billionaire money managers don’t want to miss the boat.
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After achieving great success, super microcomputers are in trouble.
One company that is definitely benefiting from Wall Street’s sky-high expectations for the AI revolution is server and storage solutions specialists super microcomputer (SMCI 0.12%). Supermicro’s stock ended March 19th, up 220% year-to-date and 853% over the past 12 months, all thanks to artificial intelligence.
While many investors are focused on the full range of generative AI solutions offered by the Magnificent Seven, they are focusing on AI infrastructure companies, the physical infrastructure that enables AI-powered data centers to achieve their objectives. We are a company that provides a strong backbone. It really flourished. Super Micro Computer offers customizable rack servers that businesses use in high-computing data centers.
Supermicro also has a complicated relationship with AI’s darlings Nvidia (NVDA 3.12%). The company’s high-end servers incorporate Nvidia’s H100 graphics processing units (GPUs), which are nothing short of a data center standard for generative AI solutions.
However, not everyone agrees with the idea that super microcomputers offer superior performance. According to Form 13F filings with the Securities and Exchange Commission for the December-end quarter, three billionaire investors were active sellers of Super Micro stock:
- Steven Cohen of Point72 Asset Management: Sold 255,383 shares.
- Ken Griffin of Citadel Advisors: Sold 144,833 shares.
- Millennium Management’s Israel Englander: Sold 93,827 shares.
Nvidia’s reliance on high-performance GPUs is a related and undeniable boost to Super Micro Computer stock, but it also means the company is constrained by a lack of supply of Nvidia’s top chips. .
Additionally, Super Micro has a history of not living up to high expectations. The company’s customizable servers were expected to be the most popular since sliced bread in the early days of the cloud boom. Unfortunately, demand failed to meet the high expectations set by Wall Street and investors. AI could represent another example of the next big trend that persists before the bubble matures.
But while these three billionaires were unloading their shares in the super micro computer, they were collectively buying up shares in six other AI stocks.
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Stephen Cohen adds proven bubble-proof AI stocks
Billionaire Stephen Cohen and his investment team have never been shy about reducing their stake in outperforming AI stocks. Although Nvidia and Super Micro’s positions declined significantly in the fourth quarter, Cohen and his aides added two of his AI stocks, which are proven:
- Amazon (AMZN 0.40%): Purchased 462,179 shares
- Dell Technologies (Dell -1.58%): Purchased 670,677 shares
Most people are familiar with Amazon because it operates the most dominant e-commerce marketplace in the world. But the most important business unit that generates most of Amazon’s cash flow and operating profit is its cloud infrastructure services platform, Amazon Web Services (AWS).
Amazon provides AWS customers with access to a variety of generative AI solutions that can customize messages to customers and improve customer interactions. Given that enterprise cloud spending is still in its infancy, AWS could sustain double-digit revenue growth for the rest of the decade, if not far beyond.
Another interesting move would be to sell supermicrocomputers and buy a stake in rival Dell Technologies. Dell has a lucrative personal computing division that it can fall back on if demand for AI servers tapers off. Super Micro has a strong short-term growth rate, but Dell seems like a smarter investment for those looking for exposure to AI servers without stomach-churning stock price swings.
Ken Griffin joins the backbone of the AI movement’s infrastructure
The second billionaire money manager to not hesitate to rein in super micro computers in the quarter ended December is Ken Griffin of Citadel Advisors. Despite dumping his 56% stake in Super Micro, Citadel was firmly integrated into the backbone of his AI revolution infrastructure.
- Nvidia: Purchased 1,579,153 shares
- Advanced Micro Devices (AMD 0.54%): Purchased 3,506,881 shares
No company has benefited more directly from the rise of AI than Nvidia. According to analysts, citygroup, Nvidia could account for 90% (or more) of the GPUs used in AI-powered data centers this year. As long as demand continues to outstrip the supply of its high-performance chips, Nvidia should have no problem charging high prices for its superior products.
At the same time, I’ve pointed out that there’s no shortage of reasons why Nvidia could become the bubble of the century. Aside from the fact that history hasn’t been in its favor, the biggest concern for NVIDIA may be that its top four customers, accounting for 40% of total sales, are developing their own AI-GPUs. . It is clear that these companies want to reduce their dependence on Nvidia or completely replace this AI giant in their data centers.
Mr. Griffin’s fund also bought up shares in Nvidia’s rival AMD. Last June, AMD announced its MI300X AI-GPU as a direct competitor to Nvidia’s H100. AMD began rolling out this core AI product to some customers last year, and production and deliveries are expected to increase significantly this year.
Don’t forget that AMD is also chipping away at central processing unit (CPU) market share. intel. CPUs aren’t growing nearly as fast as GPUs, but if the AI bubble bursts, AMD’s underlying CPU business could help isolate the company far more than Nvidia.
Israel Englander selects some components of the Magnificent Seven
The last seller of Super Micro Computer stock in the fourth quarter was billionaire Israel Englander of Millennium Management. Englander and his team relinquished 82% of their previous stake in Supermicro in favor of two constituents of the Magnificent Seven.
- alphabet (Google 2.15%) (GOOG 2.04%): Purchased 2,446,316 shares of Class A stock (GOOGL)
- apple (AAPL 0.53%): Purchased 2,174,695 shares
Buying big on Wall Street’s most influential stocks represents a relatively safe way to take advantage of AI growth while protecting yourself in case AI adoption fails to live up to sky-high expectations.
Alphabet’s foundation remains the Internet search engine Google. In February, Google had almost 92% of the global internet search share. It’s effectively a monopoly, and it won’t be dethroned anytime soon. This gives the company tremendous advertising pricing power and allows it to generate abundant operating cash flow in most economic conditions.
But Google Cloud may be Alphabet’s area of greatest growth potential. This profitable platform captures a 10% global share of cloud infrastructure spending. Giving customers access to generative AI within Google Cloud could create a new revenue stream for Alphabet.
Apple, on the other hand, has been actively incorporating AI solutions into its physical products for years. A perfect example is the tweaks related to autocorrect and predictive text on the iPhone. Apple relies heavily on advances in AI to increase sales of its beloved physical products.
But perhaps Apple’s biggest long-term growth driver will be its shift to subscription services. Apple hasn’t abandoned the physical products that make users love the brand, but it has supplemented its revenue stream by becoming a platform company. The move should not only be good for the company’s operating margins, but also keep users under the umbrella of Apple’s ecosystem of products and services.
Citigroup is an advertising partner of The Motley Fool’s Ascent. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Sean Williams has held positions at Alphabet, Amazon, and Intel. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, and Nvidia. 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.
