The hottest stock in the market over the past couple of years has been Nvidia (NASDAQ: NVDA). As artificial intelligence (AI) technology advanced, Nvidia capitalized, having prepared for this revolution over the past two decades.
But after Nvidia’s stratospheric rise, several major hedge funds and technology-focused mutual funds recently took some or all of their Nvidia chips (pun intended) off the table. Here are three major investors who got out before this summer’s swoon.
Baillie Gifford trims its largest position
Perhaps the most “bullish” sale of Nvidia stock last quarter came from one of its biggest supporters, Baillie Gifford. The $128.4 billion mutual fund based in Edinburgh, Scotland, is regarded as one of the best technology growth stock investors in the world.
In the second quarter, Baillie sold a whopping 21 million shares in Nvidia, decreasing its position by 20.3%.
But that doesn’t mean Nvidia shareholders should panic. Nvidia remained Baillie’s largest holding, at 7.9% of its portfolio, even after this big trim. Many mutual funds have caps on the size of positions they can take, and many portfolio managers tend to rebalance after a holding appreciates to a big allocation. That appears to be what’s happening here.
So, investors may not be concerned over Baillie slashing its Nvidia stake.
David Tepper’s Appaloosa sells most of its stake
Perhaps more bearish than Baillie was the big 84% hack to Appaloosa Management’s Nvidia position.
Appaloosa is run by the legendary value investor David Tepper, who was one of the top-performing hedge fund managers of his generation. After founding Appaloosa in 1993, Tepper compounded his investors’ wealth by a staggering 40% over the next 20 years.
Appaloosa did benefit handsomely from its Nvidia holding through the first quarter of 2024, as it had been a top 10 position for the hedge fund in the first quarter. However, it appears Tepper and his team slashed that stake by 84% in Q2, lowering the allocation from 5.91% at the end of Q1 to just a 1.38% position as of June 30. Nvidia went from a top 10 holding to the 25th–largest position out of just 37 long positions.
Interestingly, Tepper still appears to believe in technology and AI, as his top positions include Alibaba (NYSE: BABA) and several other Magnificent Seven stocks. So, this big trim may have been either valuation-related or that Tepper potentially sees competition for Nvidia on the horizon. After all, he also holds Advanced Micro Devices (NASDAQ: AMD) in a larger allocation now, which has come out with its MI300 graphics processing unit (GPU) this year, as well as all the major cloud infrastructure players now designing their own accelerators for AI in-house.
Elliot Management sells out: It doesn’t believe the hype
Finally, massive $75 billion hedge fund Elliott Management also had a position in Nvidia in the first half of 2024. However, this fund, which specializes in value investing and activist investing situations, soured on the stock big-time.
Interestingly, Elliott bought the stock in Q1, but just a toe-dip at a minuscule 0.03% allocation. However, it appears Elliott’s portfolio managers had a change of heart and thought even that was too much, with Elliott liquidating its entire position by the end of Q2.
Not only that, Elliot said in its second-quarter letter that it doesn’t really believe AI will be all that transformative, noting there are few relevant use cases of AI other than “summarising notes of meetings, generating reports and helping with computer coding.”
Now that’s a buzzkill and is at odds with what we are hearing from most technology CEOs, who expect improved usefulness as AI models improve. But Elliott took the hate one step further, with its biggest long position at the end of Q2 in put options on the Invesco QQQ Trust (NASDAQ: QQQ) — essentially a bet against the tech sector. That seemed prescient, as tech stocks had a big pullback over the summer. Meanwhile, none of the company’s top 25 long positions are in technology, with the bulk in energy and financials.
3 distinct risks
In the second quarter, we saw three different flavors of Nvidia sales. Baillie’s sale appears to be mere risk management after a lot of out-performance, but still with a key belief in Nvidia as a winner going forward. Appaloosa’s sale seems to indicate a preference for less expensive technology names that may begin to make competitive inroads against Nvidia in the age of AI. But Elliott’s sale and commentary indicate a total lack of belief in the hype around AI, with a preference for more unloved sectors of the market.
Which view will prove correct? It largely comes down to how useful AI ultimately becomes as the technology progresses and whether Nvidia’s multiple competitors are able to breach its formidable moat. As they say, only time will tell.
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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
Billionaires Are Deciding to Sell Shares of This Well-Known Stock was originally published by The Motley Fool
