A little over three weeks ago, investors received what can arguably be described as the most-important data release of the fourth quarter — and it has nothing to do with any economic report or specific earnings release.
Thursday, Nov. 14, marked the deadline for institutional investors with at least $100 million in assets under management (AUM) to file Form 13F. This is a required filing with the Securities and Exchange Commission no later than 45 days following the end to a quarter that details which stocks Wall Street’s greatest money managers purchased and sold.
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Although 13Fs have their limitations — since they’re filed 45 days following the end to a quarter, they may provide a stale portfolio snapshot for active hedge funds — they can provide valuable information about the stocks, industries, and trends that have the attention of Wall Street’s most-successful investors.
While 13F filing season has historically been about seeing which stocks Berkshire Hathaway‘s Warren Buffett has been buying and selling, he’s far from the only billionaire investor known for their phenomenal returns on Wall Street.
Image source: Getty Images.
For instance, professional and everyday investors tend to pay close attention to billionaire Philippe Laffont at Coatue Management, who’s known for focusing on higher-growth tech and healthcare companies. Laffont’s fund closed out the September-ended quarter with close to $27 billion in AUM that was spread across 81 stocks.
But what’s particularly noteworthy about Laffont’s trading activity over the trailing year (ended Sept. 30) has been his approach to two of Wall Street’s industry-leading growth stocks.
Though Coatue Management completely exited seven positions during the third quarter and reduced its holdings in 17 others, the most eye-popping of all moves has been Laffont’s persistent selling in Wall Street’s most-prized artificial intelligence (AI) stock, Nvidia(NASDAQ: NVDA).
Accounting for Nvidia’s historic 10-for-1 stock split, which occurred in June 2024, Coatue held 45,410,400 shares of Wall Street’s AI darling, as of Sept. 30, 2023. Just 12 months later, this position has been slashed by 78% to just 10,138,161 shares.
Benign profit-taking is certainly a viable explanation for Laffont’s continued selling of Nvidia stock. In less than two years, Nvidia has added more than $3 trillion in market value, with its near-monopoly share of graphics processing units (GPUs) in data centers leading the charge. We’ve never witnessed a market-leading businesses increase in value as quickly as Nvidia.
But digging below the surface reveals other potential sell-side catalysts, which may be influencing Coatue’s brightest minds (led by Laffont) to reduce their stake.
To start with the obvious, competition is picking up in a big way. Although Nvidia is in no danger of ceding its leading market share in AI-GPUs, it’ll have competition for data center “real estate” coming at it from all angles.
As I’ve argued in the past, internal competition is the biggest threat for Nvidia given that Wall Street and investors are primarily focused on external competitors, such as Advanced Micro Devices. Many of Nvidia’s largest customers by net sales, which happen to be members of the “Magnificent Seven,” are developing AI-GPUs of their own. Even though these chips lack the same computing advantages as Nvidia’s Hopper (H100) chip and successor Blackwell GPU, they’re going to be cheaper and more easily accessible. It’s a recipe for Nvidia to lose out on future data center real estate.
Regulators aren’t making life easy for Nvidia, either. In 2022 and 2023, U.S. regulators beefed up restrictions on exports of AI chips and equipment to China. The problem for Nvidia is that China is one of its top markets, and these restrictions are likely to lower its ceiling.
The other problem for Nvidia is that history isn’t on its side. Since the advent of the internet in the mid-1990s, there hasn’t been a game-changing technology or innovation that’s avoided a bubble-bursting event. All technologies need time to mature, and the lack of well-defined game plans from most businesses with regard to their AI investments signals that we’re nowhere close to AI being a mature technology. If history were to rhyme and the AI bubble were to burst, Nvidia stock would be hit hard.
Image source: Getty Images.
Laffont and his crew have been selective buyers of growth stocks, too. Perhaps no industry leader has been added to with more consistency over the trailing year (ended Sept. 30) than fintech goliath PayPal Holdings(NASDAQ: PYPL).
As of Sept. 30, 2023, Coatue held just 27,168 shares of PayPal. But over the next 12 months, more than 8.23 million shares were added, which increased Coatue’s stake in the company by a cool 30,296%! PayPal has become the 14th-largest holding for Laffont’s fund, based on market value.
Similar to Nvidia, PayPal is not without its own unique headwinds. The company is contending with growing digital payment competition and has seen its margins pinched as a result. There have also been concerns about the U.S. economy weakening. PayPal, like most financial and tech stocks, is cyclical, and would likely see its operating performance falter if the U.S. were to enter a recession.
But in spite of these challenges, there are a number of catalysts that make PayPal an attractive investment.
You could argue that the biggest leap forward was the hiring of Alex Chriss as CEO, who took over in September 2023. Chriss has a keen understanding of what small businesses need to excel, and he hasn’t been afraid to pull levers to spur innovation and/or reduce spending.
To build on this point, PayPal hosted an event in January where it unveiled six new innovations designed to support merchants and improve consumer confidence in digital payments. These innovations include passkey integration to expedite checkout, as well as PayPal Smart Receipts, which rely on AI to make predictive suggestions for what consumers might want to purchase next.
Another catalyst worth noting is that PayPal’s key performance indicators are (mostly) heading in the right direction. Despite a period of active account stagnation, total payment volume has consistently grown by high-single-digits or low-double-digits, excluding currency movements. Additionally, the average number of payment transactions by active accounts on a trailing-12-month (TTM) basis has soared from 40.9 to end 2020 to 61.4, as of Sept. 30, 2024. Active users are more engaged than ever, which should lead to steady growth in the company’s gross profit.
Investors would be wise not to overlook PayPal’s generous capital-return program, either. On a TTM basis, ended Sept. 30, the company repurchased 87 million shares of its stock for $5.4 billion. Reducing its outstanding share count is expected to lift earnings per share (EPS) and make the company’s stock more attractive to fundamentally focused investors.
While PayPal still has to prove skeptics wrong, the company’s operating performance and ongoing innovation suggest it’ll happen sooner rather than later.
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Sean Williams has positions in PayPal. The Motley Fool has positions in and recommends Advanced Micro Devices, Berkshire Hathaway, Nvidia, and PayPal. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short December 2024 $70 calls on PayPal. The Motley Fool has a disclosure policy.
