In the first quarter of 2024, several large hedge fund managers backed out from some high-paying AI stocks. Many AI-related stocks rallied last year, marking enormous gains, but investors’ sentiment is changing now as many of them are reducing their positions in three main AI stocks.
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The richest investors are divesting from Nvidia, Supermicro, and Meta Platforms. This is happening despite the Grand View Research prediction that the global AI market is expected to grow at a compound annual growth rate (CAGR) of 36.6% from 2024 to 2030. Many analysts such as the Bank of America expect these shares to grow but hedge fund managers are taking profits according to a report by The Motley Fool.
Nvidia’s sales exceed supply
Nvidia is breaking the market charts for producing high-end data center GPUs that handle complex AI tasks. However, in the first quarter of 2024, Nvidia saw a significant liquidation of investments: prominent billionaire investors Philippe Laffont and Ken Griffin both sold 68% of their shares, while Israel Englander cut back his fund’s holdings by 35%.
These sales appear hasty, considering that the demand for Nvidia’s data center GPUs is massively exceeding its available supply, leading to a price monopoly. From fiscal 2024 to fiscal 2027 (which ends in January 2027), Nvidia’s revenue is expected to grow at a CAGR of 46% as its earnings per share (EPS) increases at a CAGR of 53%. Nvidia’s projected growth is strong, given that the stock is currently priced at less than 50 times its expected future earnings.
Super Micro Computer market share is expected to grow
Billionaires are also reducing funds in Super Micro, a prominent producer of dedicated AI servers. Richard Driehaus, Ken Griffin, and Cliff Asness claimed profits in Supermicro by 41%, 8%, and 73%, respectively, in the first quarter.
The divestments were surprising as forecasts for Super Micro’s market share show a positive outlook. Dedicated AI servers are a prominent source of revenue and according to analysts at Bank of America, market share is expected to grow from 10% to 17% over the next three years. According to Research and Markets, the global AI server market could continue to expand at a CAGR of 26.5% from 2024 to 2029.
From fiscal 2023 to fiscal 2026 (which ends in June 2026), Supermicro’s revenue and EPS are expected to increase at CAGRs of 58% and 52%, respectively. Even though Supermicro’s stock is priced at 27 times its expected earnings for the next year, according to the report.
Hedge fund managers are divesting from Meta Platforms
Meta has several big names under its belt: Facebook, Instagram, and WhatsApp. The company’s share price saw a rapid hike as its main advertising business produced impressive results. However, in the first quarter, several big billionaire investors—including Lee Ainslie and Ken Griffin—divested 51% and 47% of their shares, respectively.
Meta’s ad sales experienced a strong blow in 2022. Apple initiated privacy-oriented iOS changes, competition increased from ByteDance’s TikTok and general economic challenges impeded ad sales. Meta rebounded by developing new AI algorithms to adapt to Apple’s changes, growing its short video feature called Reels, and attracting investments from Chinese e-commerce and gaming companies that targeted overseas consumers.
Also read: Meta faces complaints in EU for alleged abuse of personal data to train AI
Between 2023 to 2026, Meta’s revenue and EPS is expected to increase at CAGRs of 14% and 21%, respectively. This is a promising future with its stock priced at 24 times its expected future earnings according to the publication. However, big investors are concerned about a possible reduction in investment from its Chinese advertisers and increased competition in the advertising market.
Hedge fund managers prioritize stability over long-term growth, said the report. They often sell their winning positions more cautiously, generating steady, reliable returns each year to satisfy their wealthy clients. In stark contrast, growth-oriented retail investors focus on long-term multi-bagger gains over several decades.
Since the end of the first calendar quarter on March 31, Nvidia’s stock went up by 40%. However, Meta’s stock has risen less than 1%, while Supermicro’s stock went down by 13%.
