Billionaire Investors Shift Away from Top AI Stocks: Market Insight or Temporary Adjustment?

What's Happening to the AI Rally? Billionaire Investor Stanley Druckenmiller Just Exited Nvidia and Is Now Piling Into Bank Stocks. | The Motley Fool

Artificial intelligence (AI) stocks have been all the rage this year, climbing the charts in hockey-stick-like fashion and reaching meteoric valuations. Some expect the rally to continue as interest rates decline and the Federal Reserve engineers a soft landing for the U.S. economy, in which inflation falls and a major recession is avoided. Others, however, are concerned that scenario won't happen and that the AI market has gotten too frothy. One of these investors appears to be the billionaire hedge fund manager Stanley Druckenmiller, who now invests through his Duquesne Family Office. Duquesne recently filed its 13F filing with the Securities and Exchange Commission (SEC), detailing Druckenmiller's holdings at the end of the third quarter. Here's what it shows. The George Soros protege exited his position in the chipmaker Nvidia (NVDA 4.89%) and is now piling into bank stocks. Let's see what might be the reasons. It's no secret that Druckenmiller has soured on Nvidia. Duquesne in the second quarter of the year cut its stake by 83%. Druckenmiller is undoubtedly a bull on artificial intelligence and believes in its potential. But he grew concerned about the valuation: "What changed is it tripled in a year, and I thought the valuation was rich," he said in an interview with Bloomberg. Still, Druckenmiller said he made a mistake in selling Nvidia too early and would consider buying the stock again on weakness. It's tough to sell businesses you truly believe in, but valuation is important. Bad companies can sometimes trade at attractive valuations worthy of potential investment, while great businesses can do the opposite. Banks are not the most exciting investments. I personally find them interesting and invest in them, but I understand why companies like Nvidia are more attractive. Banks operate many seemingly commoditized businesses and there is a lot of competition with over 4,500 banks in the country. But again, any stock can become interesting at the right price -- and that's what happened to banks. Investors left the sector for dead after a banking crisis in early 2023, a tough regulatory regime, an inverted yield curve, and the threat of much higher regulatory capital requirements. However, with interest rate cuts, a steepening yield curve, and a friendlier incoming Trump administration, bank stocks have soared and have been one of the biggest beneficiaries since Election Day. Druckenmiller read the tea leaves and loaded up in the third quarter, taking the following names: Druckenmiller previously had some bank stocks in his portfolio, but many of his holdings were foreign banks. Now, he's flashing green on the U.S. bank sector. He could have bought the regional banking ETF and called it a day. Instead, he bought most of the super-regional banks. Druckenmiller likely sees growing profits in the new environment. He may also be anticipating the return of bank mergers and acquisitions. With a lighter regulatory regime, some super-regional banks may merge or get bought as the players in this space angle to get bigger and add scale. He has also expressed concern about fiscal recklessness driving up long-term bond yields. This could benefit banks through a widening yield curve. The yield curve maps Treasury bonds of different durations and the yields they pay. A steepening curve occurs when longer-dated Treasuries pay higher yields than shorter-dated bonds. This benefits bank margins because banks typically borrow short and lend long, so Druckenmiller may view banks in some way as a hedge if the country's debt situation gets out of hand and buyers of Treasury bonds demand more yield for the risk. Not necessarily. Duquesne opened a new stake in Taiwan Semiconductor Manufacturing (TSM 1.17%) in the third quarter. But I think Druckenmiller is signaling overbought conditions, and that he would rather wait for dips to buy. Other billionaires like Warren Buffett appear to be articulating the same. Of course, even the best investors get it wrong and retail investors should never follow anyone blindly because everyone has a different mindset, goals, and risk tolerance when investing. However, retail investors should understand that valuations are high and could sell off. If you plan to hold a stock for the next 10 or 20 years, then you don't necessarily need to change your strategy, but don't be surprised if there is a correction at some point.

Billionaires Are Selling This Year's 2 Top Performing Artificial Intelligence Stocks. Is This a Warning for Investors? | The Motley Fool

Artificial intelligence (AI) has been the biggest investing theme on the planet in recent times. Investors have piled into AI stocks -- from those creating the technology to those using it -- amid hopes AI will revolutionize both business and your daily life. Today's $200 billion AI market is forecast to reach $1 trillion by the end of the decade, suggesting major opportunities ahead for companies at the forefront. And these AI stocks have driven gains in the S&P 500, helping the index confirm its presence in a bull market earlier this year. Billionaire investors have led this movement, heavily investing in top AI players, as well as promising up-and-coming ones -- and the rest of the investment community has watched their moves, often for clues about what may happen next. These top investors, scoring many wins over time, have proven their abilities to detect trends and choose the most promising investment opportunities. This brings me to one particular happening in the third quarter. Billionaire investors have been selling shares of two of this year's best-performing AI stocks: Nvidia (NVDA 4.89%) and Palantir Technologies (PLTR 2.81%). Stanley Druckenmiller of the Duquesne Family Office, Israel Englander of Millennium Management, and Jeff Yass of Susquehanna International have sold shares of both. Is this movement away from two of the biggest AI players a warning for investors? First, here's a bit of background on these two AI players. Nvidia is the leader in the global AI chip market, holding more than 80% share, and offers a wide range of other related products and services to customers. This has helped the company report triple-digit revenue gains quarter after quarter and maintain margins wider than 70% in recent times -- showing the chip giant is highly profitable on sales. Nvidia's stock performance has reflected this success, surging more than 180% so far this year and climbing 2,500% over five years. Palantir incorporates AI into its software-as-a-service platform that helps customers aggregate all of their data. It then uses this data to make crucial decisions, develop new products or services, or better manage workflow. Palantir's Artificial Intelligence Platform (AIP) has seen enormous demand and helped the 20-year-old company recently report its highest profit ever. Like Nvidia, Palantir stock has followed this great performance, advancing 250% this year and more than 500% over five years. It's no surprise, then, that investors -- including billionaires -- flocked to these stocks as the AI boom accelerated. But as mentioned above, several billionaires reduced or even closed positions in these AI leaders in the third quarter. Here are a few examples: Let's get back to the question: Is this move to sell two major AI stocks a signal that AI stocks may have reached a top? This would represent a warning to investors who have been adding AI shares to their portfolios hand over fist. But I don't think that's what's happening here. It's true that certain players, such as this year's biggest gainers, have seen valuations soar in relation to forward earnings estimates. This could make some investors think twice before buying -- and limit these particular stocks' gains in the near term. So it's logical that investors who have scored big wins from such stocks may consider reducing or even closing their positions. These moves aren't always permanent, though. Druckenmiller said during a Bloomberg interview that he thought Nvidia had become a bit pricey but would consider buying the stock again if the price were to decrease. It's also logical to see these investors taking winnings from these positions and allocating them to other AI stocks that may not have climbed as much yet -- but have the potential to advance as the AI boom continues. Druckenmiller and Englander both bought shares of Broadcom (AVGO -0.19%) in the recent quarter, an AI player that's climbed about 50% this year and, trading at 26x forward earnings estimates, still has plenty of room to run. Finally, it's important to remember that the AI story is in its early chapters. As mentioned earlier, it's on track to become a trillion-dollar market in a few years. A rotation out of some of this year's top performing AI players isn't a bad sign -- for those particular stocks over time or the market, in general. That means there's still plenty of opportunity to invest in AI stocks -- and even some stocks billionaires have been selling still could make a smart addition to your portfolio if you hold on for the long term.