Wall Street has been waiting for decades for the next game-changing innovation to rival what the Internet did for corporate America in the mid-1990s. After a long wait, artificial intelligence (AI) He seems to have answered the call.

The ability of AI-supported software and systems to become more proficient in their tasks over time and learn new skills without human intervention gives this technology almost unlimited potential. Accordingly Sizing the PrizeAnalysts at PwC predict that AI will add $15.7 trillion to the global economy by 2030 through a variety of production improvements and consumption side effects.

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But no company has benefited more directly from the rise of AI than the semiconductor titan Nvidia (NVDA 0.61%)quarterly Form 13F applications Findings from the Securities and Exchange Commission show billionaire money managers consistently favor two other AI stocks over Wall Street’s favorite.

More than half a dozen billionaire investors became sellers of Nvidia shares

Nvidia has managed to extend its first mover advantage to an increase of approximately $3.2 trillion in market value since the beginning of 2023. To date, AI graphics processing units (GPUs) hold a virtual monopoly of market share in high-throughput data centers. .

Despite this competitive advantage, More than a half-dozen billionaires were determined sellers of Nvidia shares The quarter ended June (including total shares sold in parentheses) included:

• Jeff Yass of Susquehanna International (52,497,275 shares)
• Ken Griffin of Citadel Advisors (9,282,018 shares)
• David Tepper from Appaloosa (3,730,000 shares)
• Stanley Druckenmiller of Duquesne Family Office (1,545,370 shares)
• Cliff Asness of AQR Capital Management (1,360,215 shares)
• Israel UK Millennium Management (676.24 shares)
• Steven Cohen of Point72 Asset Management (409,042 shares)
• Philippe Laffont from Coatue Management (96,963 shares)

Considering Nvidia’s historic rise of over 800% in about 22 months, it’s likely that some of this sales activity is driven by profit. But there may be more to this sale than meets the eye.

For example, US regulators limit Nvidia’s sales and profit potential in the last two years. Regulators have restricted exports of the company’s high-powered AI chips to China, one of Nvidia’s highest dollar markets.

Insider activity has been another pain point for Nvidia. While there are many reasons for senior executives and board members to sell, some well-intentioned, there is only one reason for insiders to buy shares; They expect share prices to be higher. December will mark four years since the last open market purchase by an Nvidia insider. By the way, there is 83 insider sales in the last 12 months.

Nvidia can also expect increased competition leading data center slowly reducing market share. New entrants into the AI-GPU arena, combined with Nvidia’s largest customers all developing their own AI chips internally, are expected to negatively impact Nvidia’s so far out-of-this-world pricing power and margins.

Finally, the next big innovation has no market leader Avoided balloon burst incident in the last 30 years. Investors have a terrible habit of overestimating the adoption of new technologies, and there’s no sign that AI will be an exception.

Billionaire money managers consistently choose to buy the following two AI stocks rather than holding Nvidia shares.

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Super Micro Computer

The first AI group billionaires clearly favored over Nvidia in the second quarter is the customizable rack server and storage solutions specialist Super Micro Computer (SMCI 1.92%). Based on the latest 13F filings, Half a dozen billionaire asset managers were buyers of Super Micro(including total shares purchased in parentheses and adjusted for company status) 10-for-1 stock split at the end of September):

• Israel UK Millennium Management (5,533,230 shares)
• Jeff Yass of Susquehanna International (5,088,140 shares)
• Ken Griffin of Citadel Advisors (987,520 shares)
• Steven Cohen of Point72 Asset Management (450,660 shares)
• Ray Dalio of Bridgewater Associates (157,770 shares)
• Cliff Asness of AQR Capital Management (10,400 shares)

The logical reason why investors should believe in Super Micro’s growth story is that businesses that want a first-mover advantage in AI will need to rapidly expand their data center infrastructure. Super Micro is a logical choice to achieve this, as evidenced by the company’s 110% net sales growth in fiscal 2024 (ending June 30) and 87% sales growth relative to the midpoint of its expected full-year 2020 guidance. current fiscal year.

Here’s what makes this an odd choice for billionaires: Super Micro Computer’s rack servers include Nvidia’s H100 GPUs. On the one hand, this acts as a dangling carrot that keeps its infrastructure in high demand. Conversely, it leaves Super Micro at the mercy of its suppliers, including Nvidia, which is dealing with a backlog of orders for its GPUs.

I would be remiss if I didn’t also mention that famous short seller Hindenburg Research published a report in late August. Allegation of “accounting manipulation” at Super Micro. Although the company has denied these allegations, reports have emerged that the US Department of Justice is conducting an early-stage investigation. On top of that, Super Micro delayed filing its annual report, which drew attention on Wall Street — and not in a good way.

There’s no question that Super Micro Computer’s shares are historically cheap based on next year’s earnings per share (EPS) estimates; But there are also some very big questions that need to be answered before this stock gets a clean bill of health.

Microsoft

The second AI stock that billionaires consistently choose is Nvidia, one of three $3 trillion companies. Microsoft (MSFT 0.03%). In the quarter ending June, Eight prominent billionaire money managers buy shares of Microsoft(including total shares purchased in parentheses):

• Ken Fisher of Fisher Asset Management (1,340,392 shares)
• Ole Andreas Halvorsen from Viking Global Investors (695,444 shares)
• Ray Dalio of Bridgewater Associates (510,822 shares)
• Israel UK Millennium Management (240,624 shares)
• David Siegel and John Overdeck of Two Sigma Investments (177,726 shares)
• Stephen Mandel of Lone Pine Capital (90,287 shares)
• Philippe Laffont from Coatue Management (20,684 shares)

While Nvidia and the Super Microcomputer represent the backbone of the AI ​​revolution, Microsoft is seen as the beneficiary based on the utility of the AI ​​solutions it includes in its services. For example, Microsoft has incorporated AI into its search engine (Bing) and web browser (Edge) with the help of OpenAI, the company behind the wildly popular chatbot ChatGPT. Microsoft is a notable investor in OpenAI.

Additionally, Microsoft plans to focus on artificial intelligence solutions in Azure, its fast-growing cloud infrastructure service platform. Giving enterprise customers the ability to build and train large language models as well as run productive AI solutions Help Azure maintain double-digit sales growth and at worst, it will retain its position as the global No. 2 cloud infrastructure service platform.

Beyond AI, billionaire asset managers are likely influenced by: Microsoft’s cash flow machine. Although legacy segments like Office and Windows aren’t the growth stories they once were, their impressive market shares and juicy margins continue to grow.

Exorbitant amounts of cash generated from Microsoft’s operations Gives the company the ability to take risks. Microsoft is no stranger to making major acquisitions and ended fiscal 2024 (June 30) with over $75 billion in cash, cash equivalents and short-term investments.

If the AI ​​bubble were to burst, Microsoft would have the sales channels and cash to weather the storm much better than Nvidia.