Billionaires Shift Focus from Nvidia to Broadcom Amid AI Boom

Recently, billionaire investors have been investing heavily in artificial intelligence (AI) stocks, leading to remarkable successes, particularly with Nvidia (NVDA 2.15%), a leading AI chipmaker. Over the current year, Nvidia's shares have skyrocketed by around 170%, and in the past five years, they have soared an incredible 2,300%. This success is largely due to Nvidia's consistent triple-digit revenue growth and its dedication to innovation, which keeps it ahead of its competitors.

However, a shift is occurring among some of the most successful investors. Notably, billionaires Ray Dalio from Bridgewater Associates, Philippe Laffont from Coatue Management, and Stanley Druckenmiller from the Duquesne Family Office have begun selling their Nvidia shares. They are primarily focusing on another AI company that has the potential for significant growth in the near future. This company, like Nvidia, had a stock split earlier this year.

While this alternative stock has increased by about 40% in 2024, its valuation is still lower than that of Nvidia, which suggests that there is substantial upside potential for this AI contender. Let’s explore the billionaires’ recent trading actions and learn more about this emerging stock.

A New AI Player on the Rise

So, what stock are these investors betting on as the next big player in the AI space? The answer is Broadcom (AVGO 1.51%), a major networking company that has seen heightened demand due to the AI boom. Here are the key details of the billionaires’ trading moves:

• Ray Dalio of Bridgewater has offloaded 27% of his Nvidia shares, reducing his holdings to 4,754,271 shares, while boosting his investment in Broadcom by more than 290%, bringing his total to 955,433 shares.
• Philippe Laffont of Coatue has sold 26% of his Nvidia stake, now owning 10,138,161 shares, and has increased his Broadcom holdings by 52% to 4,323,026 shares.
• Stanley Druckenmiller has divested all his Nvidia shares and has initiated a new position in Broadcom with 239,980 shares.

It’s important to note that both Dalio and Laffont still possess millions of shares in Nvidia, indicating they believe in the company’s long-term potential. Druckenmiller, on the other hand, has expressed regret about his decision to sell Nvidia, stating he would consider buying back if the valuation is favorable. This suggests that these investors have not completely turned their backs on the AI chip leader.

Nonetheless, they see potential for Broadcom to become a key player in the AI revolution. Broadcom is instrumental in powering various technologies, providing numerous products used in data center networking, home connectivity, smartphones, and more.

Growth Drivers for Broadcom

This robust demand has historically driven Broadcom's earnings growth, but recently, the AI sector has emerged as the next major growth engine. In its latest financial report, Broadcom noted that demand from significant cloud service providers for AI networking and custom AI accelerators fueled a 47% increase in revenue. As these major players expand their operations, the growth outlook for the entire AI market looks promising, with estimates predicting it could reach a $1 trillion market by the end of the decade. Broadcom has even raised its AI revenue forecasts for fiscal 2024 from $11 billion to $12 billion.

Earlier this year, Broadcom completed a 10-for-1 stock split, a strategic move that does not alter the company’s fundamentals but does make the stock more accessible to a broader range of investors by lowering the per-share price.

Despite its gains this year, Broadcom’s stock is trading at approximately 25 times forward earnings estimates, which is seen as a bargain given its growth prospects in the dynamic AI market. In comparison, Nvidia’s stock trades at about 45 times forward earnings, making Broadcom an appealing option for investors.

Therefore, it is understandable why these billionaires are realizing gains by selling off Nvidia shares and shifting their attention to Broadcom as a source of new growth potential. Interestingly, you don't have to be a billionaire to invest in Broadcom and capitalize on the exciting future that the AI market holds.

Billionaires, Stocks, AI