Billionaire investors are selling it and buying these 2 artificial intelligence (AI) stocks instead.

Over the past 30 years, one of Wall Street’s few constants has been that there is always a next big thing trend or innovation to capture the attention of professional and everyday investors alike.

No trend is attracting investors’ attention and pocketbooks right now like artificial intelligence (AI).

When discussing “AI” I’m talking about the use of software and systems to handle tasks that humans would normally manage. However, the true value of AI is seen with the addition of machine learning, which allows AI software and systems to evolve over time to become more efficient at what they do.

Last year, PwC researchers released a report (“PwC’s Global Artificial Intelligence Study: Exploiting the AI ​​Revolution”) that suggested AI would add $15.7 trillion to the global economy by the end of the decade. This would include $6.6 trillion in productivity gains, as well as $9.1 trillion in consumption side effects.

Image source: Getty Images.

AI’s sector- and industry-wide appeal has not been lost on Wall Street’s smartest and most successful money managers. Billionaire investors in the most watched investment funds are strategically moving their capital in and out of specific AI stocks.

Of particular note is that billionaires have been active sellers of the face of the AI ​​movement – ​​semiconductor stocks Nvidia (NASDAQ: NVDA ) — while stacking into two other AI stocks.

Billionaire money managers are blocking Nvidia.

After the end of each quarter, institutional investors with at least $100 million in assets under management are required to file a Form 13F with the Securities and Exchange Commission. These 13Fs provide investors with a detailed picture of what top asset managers are buying and selling. Based on the latest round of 13F filings, eight prominent billionaires put Nvidia on the chopping block, including (total shares sold in parentheses):

  • Israel Englander of Millennium Management (1,689,322 shares);

  • Jeff Yass of Susquehanna International (1,170,611 shares);

  • Steven Cohen of Point 72 Asset Management (1,088,821 shares);

  • David Tepper of Appaloosa Management (235,000 shares);

  • Philippe Lafont of Coteau Management (218,839 shares);

  • Chase Coleman of Tiger Global Management (142,900 shares);

  • David Siegel and John Overdyke of Two Sigma Investments (30,663 shares);

Nvidia has become what I regularly refer to as the “infrastructure backbone” of the AI ​​movement. Its A100 and H100 graphics processing units (GPUs) are an important part of high-compute data centers. Demand has so far outpaced the supply of Nvidia’s chips, outpacing the pricing power that has sent the company’s data center sales through the roof.

But there’s also no shortage of reasons to believe that the best for Nvidia has come and gone. Apart from increasing external competition from the likes of Intel And Advanced Micro DevicesNvidia can face a large amount of internal competition for AI chips from its top customers. Microsoft, Meta platforms, Amazon (NASDAQ: AMZN )And the alphabetcollectively account for about 40% of Nvidia’s sales, yet all four companies are developing their own high-powered AI chips.

Billionaires could also be turned off by the regulatory headwinds Nvidia is dealing with. An early round of export restrictions to China, the world’s No. 2 economy in terms of gross domestic product, prompted Nvidia to develop the A800 and H800 chips. However, US regulators eventually banned the export of these chips to China as well. China is a key market for Nvidia, and the restrictions threaten to cut billions of dollars in sales each quarter.

The diagnosis doesn’t make much sense, either. Nvidia is close to the same level as Amazon and Cisco Systems Based on 12 months of trailing sales peaking during the dot-com bubble. We’ve never seen a market-leading business trade at such a premium over such a long period of time. It shouldn’t be all that surprising that billionaires are selling Nvidia stock.

The artificial intelligence stock No. 1 billionaire investors are buying instead of Nvidia: Baidu

The first AI stock that billionaire money managers completely ignored during the quarter ending in December, Nvidia, is based in China. Bedouin (NASDAQ: BIDU ). While not all billionaire investors will put their funds into China stocks, eight billionaires were buyers of Baidu during the fourth quarter (say, three times faster), including (total shares bought in parentheses):

  • Jeff Yass of Susquehanna International (290,154 shares);

  • Israel Englander of Millennium Management (147,481 shares);

  • Steven Cohen of Point 72 Asset Management (135,600 shares);

  • Ken Griffin of Citadel Advisors (80,815 shares);

  • Jim Simons of Renaissance Technologies (47,000 shares);

  • David Siegel and John Overdyke of Two Sigma Investments (38,966 shares);

  • Philippe Lafont of Coteau Management (5,545 shares);

Baidu’s use of AI can be seen in two of its fastest-growing segments: cloud and intelligent driving. The company’s AI cloud can allow marketers to use creative AI solutions to tailor ads to individual customers. Meanwhile, Apollo Go is the world’s most successful autonomous ride-hailing service, with more than 5 million collected rides on public roads since its launch. AI-fueled projects are helping Baidu’s offline marketing segment grow by more than double-digit percentages.

As for Nvidia, what billionaire investors can appreciate with Baidu is that its core operating segment will keep it from collapsing if the AI ​​bubble bursts. Baidu’s Internet search segment has accounted for between 60% and 85% of China-based Internet search share over the past nine years. Being the clearly dominant search engine in China should afford Baidu strong ad pricing power in most economic climates.

Billionaires are also likely to be attracted to Baidu’s modest valuation. Even taking into account the regulatory risks of investing in China-based companies, Baidu is valued at just 8 times forward earnings and less than 2 times trailing 12-month sales. That’s a far cry from the massive valuation Wall Street assigned to Nvidia, and likely puts a safe floor below Baidu’s stock.

Image source: Getty Images.

The artificial intelligence stock No. 2 billionaire investors are buying instead of Nvidia: Amazon

The other AI stock that billionaires forgot about Nvidia is none other than “Magnificent Seven” component Amazon. During the quarter ending in December, eight successful billionaire investors piled into Amazon stock, including (total shares purchased in parentheses):

  • Ken Griffin of Citadel Advisors (4,321,477 shares);

  • Jim Simons of Renaissance Technologies (4,296,466 shares);

  • Chase Coleman of Tiger Global Management (947,440 shares);

  • Ken Fisher of Fisher Asset Management (888,369 shares);

  • David Siegel and John Overdyke of Two Sigma Investments (726,854 shares);

  • Steven Cohen of Point 72 Asset Management (462,179 shares);

  • Israel Englander of Millennium Management (85,532 shares);

Amazon is incorporating AI solutions into its operations in more ways than can be enumerated here. Some of the more interesting applications include a lean on generative AI solutions within its cloud infrastructure services platform Amazon Web Services (AWS) to help marketers personalize ads for consumers, as well as products for marketers. Relying on generative AI to improve the quality of listings.

While most people are familiar with Amazon for its market-leading e-commerce platform, online retail sales contribute little in the way of operating cash flow or profitability because it is a low-margin segment. The majority of cash flow generated by Amazon can be derived from its subsidiary operations: AWS, Subscription Services, and Advertising Services.

AWS is a key cog that powers Amazon’s cash flow. Enterprise cloud spending is still in the early stages of growth, which suggests that AWS may retain its significant share of global cloud infrastructure service spending. Despite accounting for only one-sixth of Amazon’s net sales, AWS was responsible for two-thirds of Amazon’s operating income last year.

Amazon is also historically cheaper, when compared to Nvidia. The stock is priced at 13 times consensus cash flow per share for 2025, which represents a 44% discount to Amazon’s average multiple to cash flow over the past five-year period.

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John Mackey, former CEO of Whole Foods Market, is a member of the board of directors of The Motley Fool, an Amazon subsidiary. Randy Zuckerberg, former director of market development and spokeswoman for Facebook and sister of MetaPlatforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. Sean Williams has positions in Alphabet, Amazon, Baidu, Intel and Meta Platforms. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Beidou, Cisco Systems, MetaPlatforms, Microsoft, and Nvidia. The Motley Fool recommends Intel and the following options: Long January 2023 $57.50 calls on Intel Long January 2025 $45 calls on Intel Long January 2026 $395 calls on Microsoft Short January 2026 $405 calls on Microsoft and short May 2024 $47 calls Intel Motley Fool has a disclosure policy.

Forget Nvidia: Billionaire Investors Are Selling It and Buying These 2 Artificial Intelligence (AI) Stocks Instead Originally published by The Motley Fool

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