While this high-flying stock is making Nancy Pelosi and her venture capitalist husband richer, more than a half-dozen billionaires have sent it to the chopping block.
Since the advent of the Internet nearly three decades ago, more than a dozen next-big-thing investment trends and innovations have sought to capture Wall Street’s attention. However, none of these innovations have impressed investors as much as the artificial intelligence (AI) revolution.
When discussing “AI” I’m talking about the broad definition of using software and systems to oversee tasks that would normally be assigned to humans. What makes AI a potential game changer for corporate America is machine learning, which allows these systems to become more effective at their assigned tasks, and/or learn new tasks over time, without human intervention. Gives
It’s easy to get carried away by AI from an investment perspective when analysts are casually throwing around the “t” word (trillions) to describe its potential. According to PwC’s 2023 report, artificial intelligence could provide a $15.7 trillion lift to the global economy by the end of the decade.
Seemingly every investor wants to showcase the rise of AI — and that includes members of Congress.
Nancy Pelosi and other congressional leaders are meeting with then-President Donald Trump. Image source: Official White House photo by Sheila Craighead.
Nancy Pelosi is piling into the “infrastructure backbone” of the AI movement.
Thanks to the STOCK Act, which passed in 2012, lawmakers on Capitol Hill are required to report their trades of $1,000 or more 45 days after they’re completed. These periodic trade reports show that Democrats, on average, outperformed their Republican peers in the return column last year (31.18% vs. 17.99%).
Key to that outperformance were technology stocks, which are disproportionately held by Democrats in the House and Senate.
However, former Speaker of the House Nancy Pelosi (D-CA) has proven that she is no ordinary Democrat when it comes to beating the benchmark. S&P 500. While the S&P 500 gained more than 24% last year, Extraordinary Wheels’ “Congressional Trading 2023” report estimates that Nancy Pelosi’s portfolio gained more than 65%. Beating the broader market has become routine for Pelosi.
Although the former Speaker of the House and her venture capitalist husband Paul Pelosi have invested primarily in industry-leading, megacap businesses, it has made several timely investments in semiconductor behemoths, the infrastructure backbone of the AI movement. Is. Nvidia (NVDA -10.01%)which has fueled this outperformance.
Although there have been some modest profits along the way, Pelosi’s periodic transaction reports, via Capital Trades, show:
- Call option purchase of $250,000 to $500,000 of Nvidia stock on July 23, 2021.
- Combined purchase of $500,000 to $1 million of Nvidia stock on July 23, 2021.
- Combined purchase of $1 million to $5 million of Nvidia stock on July 26, 2022.
- Purchases of $1 million to $5 million of Nvidia $120 strike call options on November 22, 2023.
Recent options trading has been particularly productive for Pelosi, with the value of those contracts increasing by nearly $2 million in less than five months.
Nvidia’s growth momentum is unlike anything we’ve ever witnessed from a megacap company.
Nvidia’s climb from a $360 billion company at the start of 2023 to the third-largest publicly traded company, with a market cap of about $2.2 trillion as of April 16, is the result of its graphics processing units (GPUs). That storm
Although estimates vary, Nvidia’s A100 and H100 GPUs are expected to account for nearly 90% of GPUs deployed in AI-accelerated data centers this year. Nvidia’s infrastructure is the “brain” helping to train large language models and oversee creative AI solutions.
On top of its monopoly like market share in high-compute data centers, Nvidia has won orders from nearly every influential tech company on Wall Street. “Magnificent Seven” members Microsoft, Meta platforms, AmazonAnd the alphabet It accounts for about 40 percent of net sales. Meta alone is spending in the neighborhood of $10 billion to order 350,000 H100 GPUs for its data centers.
The increased demand has been particularly beneficial for Nvidia’s pricing power. The law of supply and demand states that if there is limited supply in demand for a good or service, the price of that good or service will rise until demand decreases. In fiscal 2024 (ending January 28, 2024), Nvidia’s data center sales grew 217%, while its cost of revenue (across all segments) rose a more modest 43%. This makes it clear that much of Nvidia’s data center sales growth has come from its second-world pricing power.
After recording nearly $27 billion in full-year sales in fiscal 2023, Nvidia more than doubled its revenue last year to nearly $61 billion. If Wall Street’s consensus estimates are anywhere in the ballpark, Nvidia is expected to reach $110 billion in sales this year and $138 billion in fiscal 2026.
We’ve never seen a company as big as Nvidia sustain this level of growth.
Image source: Getty Images.
Eight of Nvidia’s most prominent billionaire investors are vying for the exits.
While it’s clear the former House speaker and her husband like Nvidia, more than a half-dozen prominent billionaire investors can’t sell the company’s shares fast enough. Form 13F filings with the Securities and Exchange Commission for the quarter ending in December show that the eight most successful billionaires sold shares, 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);
- John Overdyke and David Siegel of Two Sigma Investments (30,663 shares);
One possible reason why these eight billionaires went against the grain is history. The investment trend of every next big thing for three decades, including the Internet, has worked its way through the early innings bubble. Regardless of innovation, investors have a terrible habit of overestimating the adoption and use of new technologies. If history rhymes, once again, the AI bubble is about to burst. No company has benefited more directly from the AI revolution than Nvidia. Thus, if the bubble bursts, it may suffer the most.
A strong argument can also be made that Nvidia is its own worst enemy. Nvidia is ramping up production of its AI-GPUs, with its entrance Advanced Micro Devices And Intel With their high-powered GPUs, can quickly reduce the decline that drove AI-GPU prices into the stratosphere. In short, Nvidia’s pricing power and gross margins should decline.
Perhaps the biggest worry for Nvidia, and the reason why eight billionaires reduced their respective shares of the fund during the fourth quarter, is that the company’s top four customers are producing GPUs in-house for their data centers. This internal innovation is almost certain to result in a decrease in future orders from Nvidia.
Despite Nancy Pelosi’s exceptional track record of outperforming the S&P 500, both actions by these eight billionaires, combined with historical superiority, suggest that Nvidia stock is in a bubble.
Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. 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. Sean Williams has positions in Alphabet, Amazon, Intel and Meta Platforms. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, MetaPlatforms, Microsoft, and Nvidia. The Motley Fool recommends Intel and recommends the following options: 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 on Intel. The Motley Fool has a Disclosure Policy.