Nvidia (NASDAQ: NVDA) has so far been the heart of the artificial intelligence (AI) boom. However, the hedge fund billionaires listed below trimmed their positions in Nvidia stock during the second quarter, while purchasing shares of Super Micro Computer (NASDAQ: SMCI).
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Cliff Asness of AQR Capital Management sold 1.3 million shares of Nvidia, trimming his stake by 8%. He also bought 1,040 shares of Supermicro, nudging his position 2% higher.
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Israel Englander of Millennium Management sold 676,242 shares of Nvidia, cutting his stake by 5%. He also bought 553,323 shares of Supermicro, upping his position by 807%.
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Ken Griffin of Citadel Advisors sold 9.2 million shares of Nvidia, slashing his stake by 79%. He also added 98,752 shares of Supermicro, increasing his position by 96%.
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David Shaw of D.E. Shaw & Co. sold 12.1 million shares of Nvidia, reducing his stake by 52%. He also opened a new position in Supermicro.
Trades made by Griffin, Shaw, and Englander are especially noteworthy because they manage the three most successful hedge funds as measured by net gains since inception, according to LCH Investments. Importantly, all four fund managers still have major exposure to Nvidia, so we cannot assume they view the chipmaker as a bad investment.
But we can assume the fund managers see Supermicro as a worthwhile investment, and two Wall Street analysts evidently agree. Nehal Chokshi at Northland Securities and Hans Mosesmann at Rosenblatt have put 12-month price targets of $1,300 per share on Supermicro. Those forecasts imply 215% upside from its current share price of $413.
Here’s what investors should know about Nvidia and Supermicro.
1. Nvidia
Nvidia holds a market share of more than 90% in data center graphics processing units (GPUs), chips that speed up the processing of complex workloads like artificial intelligence (AI) applications. The company accounts for more than 70% of AI chip sales, and some analysts estimate its revenue share is above 90%. Nvidia also dominates the market for generative AI networking, according to Morningstar.
Hardware leadership is fantastic, but Nvidia has extended its ability to monetize AI with subscription software and cloud services, both of which generate recurring revenue. For instance, the Nvidia AI Foundry platform supports the development of custom generative AI models. And the Nvidia AI Enterprise platform supports the development of AI applications across use cases like robotics, recommender systems, and logistics route optimization.
Nvidia delivered a strong financial performance in its fiscal 2025 second quarter (which ended in July). Sales rose by 122% to $30 billion on strong demand for AI hardware and software. Non-GAAP earnings surged by 152% to $0.68 per diluted share.
CFO Colette Kress said production of Blackwell GPUs would ramp up in the fourth quarter, about three months later than originally anticipated. Blackwell is Nvidia’s next generation of data center chips. It offers up to four times faster AI training and 30 times faster AI inferencing than the previous Hopper architecture. “The anticipation for Blackwell is incredible,” CEO Jensen Huang told analysts.
Wall Street expects Nvidia to grow its earnings at an annualized rate of 37% over the next three years. That estimate makes its current valuation of 50 times earnings look reasonable. At that price, I wouldn’t be surprised to learn that the fund managers mentioned earlier have been buying Nvidia stock in the third quarter.
2. Super Micro Computer
Supermicro develops high-performance computing platforms for enterprise and cloud data centers. Its products range from individual servers to full server racks equipped with networking and storage. The company has secured a leadership position in the AI server market due to its internal manufacturing capabilities and its modular approach to product development.
Those advantages let the company quickly build a broad range of server products with the latest chips from suppliers like Nvidia. Supermicro can typically bring new technologies to market faster than its competitors, often two to six months earlier. That time-to-market advantage should keep the company at the forefront of the AI server market.
Supermicro reported mixed financial results in its fiscal 2024 fourth quarter (which ended in June). Sales increased by 144% to $5.3 billion due to record demand for AI infrastructure. But gross profit margin contracted by nearly 6 percentage points, such that non-GAAP net income increased just 78% to $6.25 per diluted share. Management said its weaker margins came from temporary headwinds, but shares still plunged 20% the day after the Q4 report came out.
Shortly thereafter, shareholders got hit with more bad news when short-seller Hindenburg Research published a report alleging “glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures, and customer issues.” Supermicro shares have plunged by 24% since the report was released in late August, such that the stock is now 65% off its all-time high.
In the last five years, Hindenburg has flagged alleged malfeasance at more than two dozen companies, sometimes with lasting consequences. For instance, Nikola shares have plunged 99% since the short-seller accused the company of lying to shareholders in September 2020. But some of Hindenburg’s short reports have come to nothing. For instance, Block shares have advanced by 5% since the fintech was targeted by the short-seller in March 2023.
Given the available information, Samik Chatterjee at JPMorgan is not particularly concerned about the allegations regarding Supermicro. “We see the report as largely void of details around alleged wrongdoings,” he wrote in a recent note. He also maintained his price target of $950 per share, implying 130% upside.
More broadly, Wall Street still expects Supermicro to grow earnings by 46% annually over the next three years. That makes its current valuation of 21 times earnings look cheap. Those figures give it a price/earnings-to-growth (PEG) ratio of 0.46, which is a substantial discount to its three-year average of 0.89.
Here’s the bottom line: The stock probably won’t triple in the next 12 months, and there is certainly risk surrounding the short report. However, the current price is a reasonable entry point for patient investors, and Supermicro has a good shot at beating the market over the next three to five years.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennewine has positions in Block and Nvidia. The Motley Fool has positions in and recommends Block, JPMorgan Chase, and Nvidia. The Motley Fool has a disclosure policy.
Billionaires Are Selling Nvidia Stock and Buying 1 AI Stock That Could Soar 215%, According to Certain Wall Street Analysts was originally published by The Motley Fool
