NVDA, SMCI, AVGO - >>> Step Aside, Nvidia: Billionaires Are Selling It in Favor of 2 Other High-Growth Stock-Split Stocks
by Sean Williams
Motley Fool
September 13, 2024
https://finance.yahoo.com/news/step-aside-nvidia-billionaires-selling-085100760.html
Although artificial intelligence (AI) has been all the rage on Wall Street since 2023 began, excitement surrounding stock splits has given AI a run for its money this year.
A stock split gives publicly traded companies the ability to superficially alter their share price and outstanding share count by the same magnitude. Splits are surface-scratching in the sense that they don't change a company's market cap or in any way affect underlying operating performance.
Although there are two types of stock splits -- forward and reverse -- investors usually gravitate to companies conducting forward splits. This type of split is designed to lower a company's share price to make it more nominally affordable for investors who are unable to purchase fractional shares through their broker. Companies enacting forward splits are usually outpacing their competition from an execution and innovation standpoint.
Since 2024 began, a little over a dozen leading businesses have announced or completed a stock split -- all but one of which was of the forward-split variety.
However, the outlook for some of these premier stock-split stocks is mixed among Wall Street's brightest and richest investors. Based on the latest round of form 13F filings with the Securities and Exchange Commission, billionaires were decisive sellers of cutting-edge AI stock Nvidia (NASDAQ: NVDA) in the second quarter, but were avid buyers of two other high-growth stock-split stocks.
Billionaires continue to reduce their stakes in Wall Street's AI darling
For three consecutive quarters, dating back to the start of October 2023, no fewer than seven billionaire money managers have reduced their respective stakes in Nvidia. The June-ended quarter featured seven billionaire sellers, including (total shares sold in parenthesis):
Ken Griffin of Citadel (9,282,018 shares)
David Tepper of Appaloosa Management (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 Englander of Millennium Management (676,242 shares)
Steven Cohen of Point72 Asset Management (409,042 shares)
Philippe Laffont of Coatue Management (96,963 shares)
With Nvidia completing its largest-ever forward split (10 for 1) in June, these billionaires might have chosen to ring the register and diversify their respective portfolios. But there looks to be more to this story than simple profit taking.
Although Nvidia has undeniably benefited from its first-mover advantages as the standout supplier of AI graphics processing units (GPUs), competition is now coming at it from all angles.
With the debut of Nvidia's Blackwell chip delayed by at least three months due to reported design flaws and supply chain issues, and the company's prized H100 GPU backlogged, it should be relatively easy for external competitors like Advanced Micro Devices to find strong demand for their AI GPUs.
Moreover, Nvidia's top customers are signaling an eventual reduced reliance on the AI kingpin. Its four largest clients by net sales are all developing AI GPUs that they plan to use in their data centers. Even with Nvidia's chips maintaining their computing advantage, the writing is on the wall that these customers intend to use their cheaper internally developed hardware.
Billionaires might also be spooked by the persistent insider selling at Nvidia. While not all insider selling is necessarily nefarious (e.g., insiders sometimes sell stock to pay their tax bill), it is noteworthy that not one executive or board member has purchased shares on the open market since December 2020.
Lastly, billionaire asset managers might be concerned about what history tells us. Since the advent of the internet roughly three decades ago, every next-big-thing trend has worked its way through an early-stage bubble. It's unlikely that AI is going to be the exception.
But while billionaires were showing Nvidia to the door, they were busy scooping up shares of two other high-growth stock-split stocks.
Super Micro Computer
The first stock-split stock that struck the fancy of six billionaire money managers during the second quarter is Super Micro Computer (NASDAQ: SMCI), a specialist in customizable rack server and storage solutions. These billionaire buyers were:
Israel Englander of Millennium Management (553,323 shares)
Jeff Yass of Susquehanna International Group (508,814 shares)
Ken Griffin of Citadel (98,752 shares)
Steven Cohen of Point72 Asset Management (45,066 shares)
Ray Dalio of Bridgewater Associates (15,777 shares)
Cliff Asness of AQR Capital Management (1,040 shares)
With the stock catapulting to north of $1,200 during the first quarter, it's not in the least bit surprising to see Supermicro's board approving a 10-for-1 forward split, to take effect after trading ends on Sept. 30.
However, the prospect of a stock split isn't the primary draw for billionaires to Supermicro. The lure is the seemingly insatiable demand from businesses wanting to be among the first to capitalize on the AI revolution by training large language models and running generative Ai solutions. To do so, they'll need the necessary infrastructure in place, which Supermicro can provide.
The company's operating results have also given billionaires reason to be excited. Net sales jumped 110% to $14.9 billion in fiscal 2024 (the company's fiscal year ends on June 30), and the midpoint of its guidance calls for $28 billion in net revenue for the current year. This forecast screams that demand is exceptional at the moment.
But it won't be an easy ride. With its use of Nvidia's H100 GPUs in its customizable data-center rack servers, and the H100 backlogged, Supermicro finds itself at the mercy of its suppliers.
Furthermore, the company is the target of a short-seller report from Hindenburg Research, which has alleged accounting manipulation. Despite denying these allegations, management did delay the annual filing of its operating results, which did little to soothe investor concerns.
Despite its relatively inexpensive valuation, Super Micro Computer has a lot to prove to Wall Street and investors.
Broadcom
The other stock-split stock that billionaires very clearly favored over Nvidia in the June-ended quarter is AI networking solutions and services providers Broadcom (NASDAQ: AVGO). Seven billionaire investors took the plunge in the second quarter, including:
Ole Andreas Halvorsen of Viking Global Investors (2,930,970 shares)
Jeff Yass of Susquehanna International Group (2,347,500 shares)
Israel Englander of Millennium Management (2,096,440 shares)
Ken Griffin of Citadel (1,880,740 shares)
John Overdeck and David Siegel of Two Sigma Investments (1,332,230 shares)
Ken Fisher of Fisher Investments (865,090 shares)
Keeping with the theme of this list, Broadcom also announced a 10-for-1 forward split (the first in the company's history), which was completed in mid-July.
Broadcom's AI ties have certainly been the fuel behind its recent uptick in growth. In particular, the company's networking solutions are responsible for connecting large numbers of AI GPUs in order to reduce tail latency and maximize the computing potential of AI-accelerating hardware. Presumably, demand for its AI networking solutions will remain robust as long as businesses keep gobbling up AI GPUs.
However, billionaires might be equally excited about Broadcom having a solid foundation that extends well beyond artificial intelligence. It generates a significant amount of revenue and profits from the wireless chips and accessories it provides for next-generation smartphones. And it's a key provider of optical components used in automated industrial equipment, as well as networking solutions for next-gen vehicles.
Lastly, billionaires might be impressed with the company's track record of earnings-accretive acquisitions. For example, the $69 billion purchase of cloud-based virtualization software company VMware in November 2023 perfectly positions Broadcom to be an important player in helping businesses with their private- and hybrid-cloud needs.
With a more diverse revenue stream than Nvidia or Super Micro Computer, Broadcom would be best-positioned to navigate an AI bubble-bursting event, should one occur.
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