Billionaires Shift Focus: Selling Nvidia, Buying Other AI Stocks

Billionaires Are Selling Nvidia and Buying These 2 Superb Artificial Intelligence (AI) Stocks Instead | The Motley Fool

Billionaires see better AI investment prospects with these two tech giants. Nvidia (NVDA -5.12%) has been one of the best-performing stocks over the past couple of years, literally adding trillions of dollars in value to its shareholder's portfolios. Several big hedge fund managers were among those investors who made a lot of money by investing early in Nvidia. But now they're starting to take their chips off the table and place bets in a couple of other incredible artificial intelligence (AI) stocks. Some hedge fund managers selling investments in Nvidia include: There are many more examples of big sales from institutional investors. After the meteoric rise of Nvidia's share price, it makes sense for them to at least reduce their stake. However, average investors should be more interested in what big hedge fund managers are buying now. Here are two superb AI stocks billionaires are buying as they sell Nvidia. Microsoft (MSFT -0.29%) vaulted to the forefront of the AI space when it added $10 billion to its investment in generative AI leader OpenAI in early 2023. Despite its position as one of the most valuable companies in the world before the AI boom, artificial intelligence is proving to be a substantial growth area for the technology company. Several billionaire fund managers saw an opportunity to buy more shares of Microsoft in the first quarter, including: Microsoft's core AI product is Azure AI, which provides cloud solutions for AI developers looking to use existing foundation models to deploy new AI-powered software solutions. The company grew its Azure AI customers by 60% year over year last quarter, and the average expenditure per customer is growing, too. Microsoft is investing heavily in building out its data center capacity. But management said it will take some time for all of it to come online. As a result, it expects an acceleration in Azure revenue in the second half of fiscal 2025. That's quite a feat, considering it's already the fastest-growing hyperscale cloud provider today. Microsoft also offers its own AI assistants across its enterprise software portfolio, which is called Copilot. Adoption is growing quickly, with customers increasing 60% quarter over quarter. With over 400 million Office 365 commercial seats, there's a long runway for growth for the product. The stock currently trades around 30 times forward earnings estimates. While that's a significant premium to the S&P 500, the stock seems well worth the price. It's leadership in enterprise software solutions and AI development should provide years of outsized growth. Meta Platforms (META -1.05%) has long been at the forefront of AI development. Machine learning algorithms form the backbone of the content feeds on Facebook and Instagram, along with the up-and-coming Threads, which recently passed 200 million monthly active users. Recently, it's turned its attention to generative AI, developing and open-sourcing the Llama family of foundation models, which are behind its Meta AI feature in Instagram and Facebook as well as many other behind-the-scenes features. CEO Mark Zuckerberg has the ambition to turn Meta into "the leading AI company in the world." Billionaires are buying into Zuckerberg's vision and putting their money into the stock. Some high-profile purchases in the first quarter include: While Meta already uses AI across its family of apps for content recommendations, it's starting to integrate it into its advertising services. Zuckerberg said he sees a day when "advertisers will basically just be able to tell us a business's objective and a budget, and we're going to do the rest for them," during Meta's second-quarter earnings call. He also sees Meta facilitating the creation of AI service agents for business, which opens the door for more business messaging monetization opportunities. Put it all together, and AI will have a considerable impact on Meta's continued revenue growth. Increased engagement combined with lower hurdles to creating and targeting advertisements and improving the algorithms needed to target those advertisements as accurately as possible should all result in strong revenue and profit growth for the social media company. Meanwhile, its hardware business, including its Oculus VR headsets and Ray-Ban sunglasses, is showing strong growth bolstered by its AI features. Meta shares currently trade around 23 times forward earnings estimates, which is considerably lower than most AI stocks. That's despite the fact that Meta's bottom line continues to grow at a steady rate in the mid to high double digits, giving it a very attractive PEG ratio. Its continued investments in AI should ultimately produce strong returns for the company and its shareholders.

Prediction: 3 Artificial Intelligence (AI) Stocks That Could Be Worth More Than Nvidia 5 Years From Now | The Motley Fool

Nvidia (NVDA -5.12%) may be the king of artificial intelligence (AI) investing for now, but it doesn't mean it will stay in that position forever. Right now, it's on top because its clients buy thousands of graphics processing units (GPUs) and place them in giant data centers to produce and train AI models. Eventually, this demand will decline as companies build out their capacity, making way for the next wave of AI investments. As a result, I think there are three companies that could be worth more than Nvidia five years from now. They are Taiwan Semiconductor Manufacturing (TSM -0.23%), Alphabet (GOOG 0.13%) (GOOGL 0.41%), and Amazon (AMZN 0.52%). Although the climb won't be easy, I think they can displace Nvidia. Taiwan Semiconductor may be a surprise pick here, as it's significantly smaller than Nvidia right now (Nvidia is valued at $2.6 trillion versus TSMC's $775 billion). However, some tailwinds will push TSMC higher. First, Taiwan Semiconductor is more diversified than Nvidia. Nvidia is basically a one-trick pony with its GPUs and products that complement them. Taiwan Semi may also be a one-trick pony because all it does is produce chips, but the use case for those chips is so wide that it ends up being diversified. For example, Apple is one of Taiwan Semi's largest customers and could see a huge demand ramp-up soon as Apple Intelligence is only available on the latest generation of iPhones. Second, TSMC is working on its 2nm (nanometer) chips, which are capable of the same performance as its 3nm predecessors, except that they consume 25% to 30% less power. That's a huge performance gain, and it will drive the next generation of hardware used to process AI models. However, will the next generation of AI models be run on Nvidia hardware? Not necessarily. Apple Intelligence isn't using Nvidia GPUs. Instead, it's using Alphabet's tensor processing units (TPUs). While this may come as a surprise to some investors, it shouldn't. Nvidia GPUs are fantastic at being flexible and processing various workloads. However, there are more efficient ways to train AI models if the workload is set up properly. That's why Alphabet's TPUs can be a better choice than Nvidia's GPUs. For most of its customers, these TPUs can only be accessed through Google Cloud. As programmers get better at setting up AI models for efficient calculations, this will shift the workloads from GPUs to hardware specifically designed for processing AI, like TPUs. So, all of the technology that TSMC is innovating may end up being used in products like TPUs instead of GPUs, which could cause Alphabet to rise and Nvidia to tumble. But how does Amazon fit in? While most know Amazon as its dominant commerce platform, it's actually the largest provider of cloud computing infrastructure globally. Like Alphabet, Amazon also has purpose-built custom chips to optimize AI training. It will benefit from the same tailwinds that will push Alphabet higher in the next few years, except that the effect may be even more profound as Amazon Web Services (AWS) makes up a higher percentage of Amazon's operating profits than Alphabet's Google Cloud. Furthermore, Amazon's commerce business is still doing well. This is another similarity to Alphabet, as Alphabet has huge growth drivers in the AI space, but its advertising business continues to print money. As Amazon's commerce business continues to grow and become more efficient, Amazon will turn into an even larger business, potentially surpassing Nvidia within five years. While Nvidia has undoubtedly won the first round of AI investing, there are still many to go. As companies shift to load-specific hardware, I think companies like Amazon and Alphabet will succeed, bringing Taiwan Semiconductor (the maker of these chips) along with them.