Forget Nvidia: Billionaires Are Ditching It and Turning to These 3 Surprising Value Stocks Instead


For three decades, investors have been waiting patiently for the next big thing that will rival what the Internet has brought to American businesses. The arrival of artificial intelligence (AI) may be just what they need.

Artificial intelligence allows software and systems to oversee tasks that humans would normally perform. The key to AI’s seemingly limitless potential is that software and systems have the ability to learn without human intervention. This gives the technology utility in nearly every aspect of the U.S. and global economy.

While growth estimates vary widely, the most impressive predictions come from analysts at PwC, who estimate that AI could add around $15.7 trillion to the global economy by the end of the decade. With such colossal numbers, it’s no surprise that Wall Street’s smartest and richest money managers have flocked to AI stocks.

A stock chart reflected in the glasses of a professional investor looking at a computer screen.A stock chart reflected in the glasses of a professional investor looking at a computer screen.

Image source: Getty Images.

But what might be shocking is that a leading AI company Nvidia (NASDAQ: NVDA), which has gained nearly $3 trillion in stock market value since the start of 2023, has been one of the top sell candidate for more than half a dozen billionaire fund managers.

Through the quarterly Form 13F filed with the Securities and Exchange Commission, ordinary investors have the opportunity to track the buying and selling of Wall Street’s top money managers. In the quarter ended March, eight billionaires—nine if you include the recently deceased Jim Simons of Renaissance Technologies—sold Nvidia shares. However, the three most prominent selling billionaires were (shares sold in parentheses have been adjusted for Nvidia’s 10-for-1 stock split in June):

  • Philippe Laffont of Coatue Management (29,370,600 shares)

  • Ken Griffin of Citadel Advisors (24,627,160 shares)

  • Israel Englander of Millennium Management (7,200,040 shares)

While profit-taking is one valid reason why prominent billionaire asset managers sent Nvidia to the chopping block during the first quarter, there are a few other headwinds that may have encouraged this exodus.

For starters, Nvidia will almost certainly face increased competition in the coming quarters. Advanced microsystems accelerates production of its MI300X graphics processing unit (GPU) for high-computing data centers, and Intel launches its Gaudi 3 AI accelerator chip in the current quarter.

Additionally, Nvidia’s four largest customers, which account for about 40% of its net revenue, are developing their own AI GPUs. The problem for Nvidia is that even as it maintains its compute advantages and develops a next-generation AI-GPU architecture that outperforms its competitors, the mere presence of other chips is reducing the space available in data centers for Nvidia hardware. It’s also limiting the shortage of AI GPUs that has propelled its pricing power skyward.

Perhaps the most damning factor is that no newsworthy innovation, technology, or trend in the last 30 years has escaped a speculative bubble. History shows that investors consistently overestimate the adoption and usefulness of new technologies, which suggests that AI will follow the same path. If the AI ​​bubble were to burst, Nvidia’s stock would likely take a hit.

But while these top billionaire investors were busy trashing Nvidia stock, they were focusing on three surprising value stocks.

Two people use their smartphones to make a peer-to-peer digital payment. Two people use their smartphones to make a peer-to-peer digital payment.

Image source: Getty Images.

Nvidia’s biggest billionaire seller clearly had his eyes on the leading financial technology (fintech) stock during the first quarter. Coatue Management’s 13F notes that the fund scooped up more than 8 million shares of PayPal Funds (NASDAQ:PYPL), which was worth nearly $539 million as of March 31.

Although competition is intensifying among digital and peer-to-peer payment providers, most key metrics related to PayPal users point to continued growth. Payment transactions increased 11% in the March quarter to 6.5 billion, while total payment volume maintained a double-digit growth rate, excluding currency fluctuations.

Additionally, the company’s active accounts are more engaged than ever. While growth in active accounts has stalled in recent quarters, the average number of payments made by active accounts over the past 12 months has increased from 40.9 at the end of 2020 to 60 at the end of March 2024. Since this is primarily a usage-driven platform, higher engagement is a recipe for increased gross profit.

With Wall Street consensus calling for annualized earnings growth of nearly 16% through 2028, a forward price-to-earnings (PE) ratio of less than 13 makes PayPal stock a real bargain.

The world’s most profitable hedge fund since its inception, overseen by billionaire Ken Griffin, has chosen to trade Nvidia shares for a proven financial institution Bank of America (NYSE: BAC).

Among the largest U.S. banks by assets, Bank of America is the most sensitive to interest rate changes. The Federal Reserve’s most aggressive rate-hike cycle since the early 1980s may not have been well-received by borrowers, but it has been a boon to lenders like Bank of America. The longer the nation’s central bank keeps interest rates on hold, the higher the net interest income for Bank of America and its peers.

Bank of America also deserves credit for its technological prowess. While it may not be the first company that comes to mind when people think of fintech innovation, Bank of America’s digitalization efforts are paying off. In the first quarter, 76% of households banked online or through a mobile app, and exactly half of all loan sales were completed digitally. Digital transactions are significantly cheaper than in-person interactions and will, over time, improve Bank of America’s operational efficiency.

A forward price-to-earnings ratio just above 11 suggests that Bank of America stock remains a good deal for investors.

Although billionaire Israel Englander is known for his love of fast-paced tech stocks, it’s the pharmaceutical company that Merck (NYSE:MRK) which proved to be the apple of his and his investment team’s eye during the quarter ended March.

If there’s one major draw to owning Merck stock, it’s Keytruda, the company’s breakthrough cancer immunotherapy. Improved cancer diagnostics, phenomenal pricing power, increased use in existing indications, and label expansion opportunities have helped Keytruda generate nearly $28 billion in annual revenue. With constant-currency sales growth of 24% in the March quarter, there’s no reason to believe Keytruda’s growth will slow anytime soon.

One of Merck’s unsung heroes that doesn’t get nearly enough attention is its Animal Health segment, which accounts for nearly 10% of the company’s net sales. Between keeping livestock healthy and pet owners willing to spend a small fortune on the well-being of their furry, feathered, gilled and scaly pets, Merck’s Companion Animals division provides a stable base for growth.

With sustained double-digit earnings per share (EPS) growth expected, Merck’s forward P/E of 13 continues to look like value.

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Sean Williams has positions in Bank of America, Intel, and PayPal. The Motley Fool has positions in and recommends Advanced Micro Devices, Bank of America, Merck, Nvidia, and PayPal. The Motley Fool recommends Intel and recommends the following options: long Intel January 2025 $45.00 calls, short Intel August 2024 $35.00 calls, and short PayPal September 2024 $62.50 calls. The Motley Fool has a position in Bank of America, Intel, and PayPal. disclosure policy.

Forget Nvidia: Billionaires Are Ditching It and Turning to These 3 Surprising Value Stocks Instead was originally published by The Motley Fool



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