Billionaire investors have flocked to artificial intelligence (AI) stocks in recent times, and many have scored major wins by investing early in today’s market giant: Nvidia (NVDA 2.15%). Shares of the leading AI chipmaker are heading for a gain of about 170% this year and have climbed 2,300% over the past five years. This is thanks to Nvidia’s triple-digit revenue growth quarter after quarter along with the company’s commitment to innovation to stay ahead of rivals.
But now, some of the world’s most successful investors are unloading shares of Nvidia and turning to another AI player that potentially could soar in the coming quarters. Billionaires Ray Dalio of Bridgewater Associates, Philippe Laffont of Coatue Management, and Stanley Druckenmiller of the Duquesne Family Office each have made the same move. They’ve sold shares of Nvidia in favor of an AI player that, like Nvidia, completed a stock split this year.
Though this company has seen its stock climb about 40% in 2024, its valuation remains lower than Nvidia’s, suggesting there may be plenty of room for this AI player’s stock to run. Let’s find out more about the billionaires’ moves and the potential of this stock they piled into in the third quarter.
Image source: Getty Images.
A networking giant benefiting from AI demand
So which stock are these investors potentially viewing as the next big AI winner? The answer is Broadcom (AVGO 1.51%), a networking giant that’s seen demand for its products take off along with the AI boom. Before I talk about the Broadcom story, here are the details of the billionaires’ recent moves:
- Ray Dalio of Bridgewater sold 27% of his Nvidia holding and now owns 4,754,271 shares. He increased his holding in Broadcom by more than 290% and now owns 955,433 shares.
- Philippe Laffont of Coatue sold 26% of his Nvidia position and now owns 10,138,161 shares. He lifted his holding of Broadcom by 52% and now owns 4,323,026 shares.
- Stanley Druckenmiller of the Duquesne Family Office sold all of his Nvidia stock. He opened a new position in Broadcom and holds 239,980 shares.
It’s important to note that Dalio and Laffont still own millions of Nvidia shares. Clearly, they continue to believe in the company’s potential for gains. And Druckenmiller actually said in a Bloomberg interview that he regrets his sale of Nvidia and would consider buying the stock again at the right valuation. So these investors haven’t given up on the AI chip powerhouse.
That said, they’re betting that Broadcom may be one of the next winners in this AI revolution. Broadcom is a company that powers a lot of the technology around us, selling thousands of products used in data center networking, home connectivity, smartphones, and more.
The next big growth driver
This has helped the company increase earnings over time, but in recent quarters, it’s the area of AI that’s started to represent the next big growth driver. In the latest quarter, for example, Broadcom said demand from major cloud service providers for AI networking and custom AI accelerators helped drive a 47% increase in revenue. This is as these customers build out and scale their operations. Considering growth prospects for the entire AI market — with forecasts of a $1 trillion market by the end of the decade — there’s likely plenty of growth ahead. Broadcom is already increasing near-term expectations as it now forecasts $12 billion in fiscal 2024 AI revenue, up from earlier forecasts for $11 billion.
Broadcom completed a 10-for-1 stock split this year, a move that doesn’t change anything fundamental about the company. But it is positive because, by lowering the per-share price, it opens up the investment opportunity to a wider range of investors.
Meanwhile, in spite of Broadcom’s gain this year, the stock only trades for 25 times forward earnings estimates, a bargain considering its prospects in the high-growth AI market in the years to come. And Broadcom looks particularly cheap compared to Nvidia, which trades for about 45 times forward earnings.
All of this means it’s no surprise that billionaires have locked in some gains in Nvidia stock and turned to Broadcom as a new source of potential growth. And the great news is you don’t have to be a billionaire to pick up a few Broadcom shares right now and bet on the company’s future in the exciting AI market.
Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
