You may not realize it, but last week saw one of the most important data releases of the quarter for investors – and I'm not talking about the highly anticipated April inflation report.
May 15 was the deadline for institutional money managers with at least $100 million in assets under management to file. Form 13F With the Securities and Exchange Commission. The 13F allows investors to look over the shoulders of major Wall Street investors to see what they were buying and selling in the last quarter (in this case, the quarter ended in March).
since “Seven greats“Stocks have been credited with pushing broad market indexes to record highs, so it makes sense to examine how the smartest billionaire investors on Wall Street treated these companies in the first quarter.
When I say Magnificent Seven, I'm talking about seven of the largest and most influential companies in the country today, including:
What these stocks have in common is massive index outperformance Standard & Poor's 500 over the past 10-year period, along with well-defined competitive advantages. For example, Alphabet's Google has held at least a 90% monthly share of global Internet searches dating back nine years. Meanwhile, Apple has the strongest return on capital program on the planet among publicly traded companies. Since launching the buyback program in 2013, it has repurchased $674 billion of its own shares. Buybacks of this size can provide a significant increase in earnings per share.
However, billionaires have very different expectations for these seven stocks. Based on the latest round of 13Fs, billionaires dumped shares of two Magnificent Seven stocks, while completely accumulating in another.
The #1 Big Seven Billionaires have been sent to the chopping block: Nvidia
The first member of the Magnificent Seven that prominent billionaire investors apparently didn't want to deal with in the first quarter is the infrastructure backbone of the artificial intelligence (AI) revolution, Nvidia. As we saw during the fourth quarter, eight well-known billionaires were sellers, including (total shares sold in parentheses):
-
Philippe Laffont from Coatue Management (2,937,060 shares)
-
Ken Griffin of Citadel Advisors (2,462,716 shares)
-
Israel Englander from Millennium Management (720,004 shares)
-
Stanley Druckenmiller of Duquesne Family Office (441,551 shares)
-
David Siegel and John Overdike of Two Sigma Investments (420,801 shares)
-
David Tepper of Appaloosa Management (348,000 shares)
-
Steven Cohen of Point72 Asset Management (304,505 shares)
Why are billionaires selling what are arguably the hottest mega stocks on Wall Street? Aside from simple profit-taking, there are a few potential red flags that Wall Street's brightest investors might pay attention to.
First of all, Nvidia is set to face increased competition from all angles. Although it's well known that third-party competitors will vie for GPU market share in AI-accelerated data centers this year, the biggest threat may come from Nvidia's largest customers.
Interestingly, the Magnificent Seven components Microsoft, Meta Platforms, Amazon, and Alphabet are Nvidia's top four customers – about 40% of net sales. Each of these companies is developing their own AI-GPUs for deployment in collaboration with Nvidia's H100 GPUs in their own high-compute data centers. In-house development of AI-GPUs from other Magnificent Seven companies strongly suggests that we are seeing a peak in Nvidia chip orders.
History has also been incredibly harsh on the next big investment trends. Over the past three decades, there has not been a buzzy innovation or trend that did not undergo a bubble bursting event at some point early in its existence. Investors often overestimate the extent to which institutions absorb new technologies, which leads to bubbles. If the AI bubble follows history and bursts, no company will be hurt more than Nvidia, which saw its sales more than double last year due to demand for AI-GPUs.
The #2 billionaires of the Magnificent Seven showed up at the door: Meta Platforms
The second surprising Magnificent Seven stock that billionaires were shunning during the quarter ending in March was social media giant Meta Platforms. Nine successful billionaires — or 10, if you include the recently passed Jim Simons of Renaissance Technologies — have been sellers of Meta shares, including (total shares sold in parentheses):
-
Ole Andreas Halvorsen from Viking Global Investors (2,259,650 shares)
-
Philippe Lafont of Coatue Management (1,313,528 shares)
-
Ken Griffin from Citadel Advisors (1,164,151 shares)
-
Steven Cohen of Point72 Asset Management (779,637 shares)
-
Stephen Mandel of Lone Pine Capital (735,911 shares)
-
David Tepper of Appaloosa Management (727,500 shares)
-
David Siegel and John Overdike of Two Sigma Investments (175,614 shares)
-
Terry Smith from Fundsmith (29,157 shares)
It is very likely that the main reason behind this sale is to take profits. Since hitting their bear market lows in 2022, Meta shares have risen nearly 500%.
Billionaires may also have been apprehensive about Meta's somewhat unpredictable capital spending forecast. Shares have been under pressure in 2022 due to CEO Mark Zuckerberg's willingness to spend on Metaverse and augmented/virtual reality innovations. They started to rise significantly last year when spending expectations were held back a bit. But based on Meta's guidance for 2024, it looks as if Zuckerberg and his team are poised to spend aggressively again on AI and other innovations that may not have a significant return for years to come.
A third possibility for this selling activity could be concern about the health of the US economy. Meta generates approximately 98% of its sales from advertising, as well as ad spend Extremely patrol. The stock market is incredibly expensive right now, and the historic decline in the M2 money supply — the first since the Great Depression — points to the possibility of a recession in the not-too-distant future.
But unlike Nvidia, I think billionaires will regret diluting their stakes in Meta. It owns the best social media assets around the world (Facebook, WhatsApp, Instagram, Threads, and Facebook Messenger), and has managed to maintain strong ad pricing power in most economic climates. Meta remains one of the cheapest Magnificent Seven stocks, based on forward year cash flow.
The 7 Great Billionaire Investors Can't Stop Buying: Amazon
While the Magnificent Seven's trading activity was decidedly skewed to the sell side with Nvidia and Meta, and was mixed in with other components, the one member the billionaires couldn't stop buying at all was e-commerce pioneer Amazon. Nine billionaire investors were willing to buy Amazon stock during the first quarter, including (total shares purchased in parentheses):
-
Israel Englander from Millennium Management (2,390,755 shares)
-
Ole Andreas Halvorsen from Viking Global Investors (1,972,702 shares)
-
Chase Coleman from Tiger Global Management (1,438,600 shares)
-
Jeff Yass from Susquehanna International (1,336,042 shares)
-
Ray Dalio of Bridgewater Associates (1,047,891 shares)
-
Dan Loeb from Third Point (900,000 shares)
-
Ken Fisher of Fisher Asset Management (785,018 shares)
-
Ken Griffin of Citadel Advisors (352,453 shares)
-
Philippe Lafont of Coatue Management (241,514 shares)
Although Amazon is best known for its world-leading online marketplace, the company derives the lion's share of its operating income and cash flow from two of its fastest-growing ancillary segments. It was likely these additional operations that attracted billionaires to buy Amazon shares during the quarter ending in March.
There is arguably no more important operating segment than the Amazon Web Services (AWS) cloud infrastructure services platform. AWS is the world's top-spending cloud infrastructure services platform, currently generating over $100 billion in annual sales. Best of all, the cloud service margins are there Significantly Higher than online retail margins, meaning AWS typically accounts for the majority of Amazon's operating income.
Advertising and subscription services also hold their ground, with sustained double-digit sales growth. Amazon attracts more than 2 billion people to its site each month, giving it exceptional ad pricing power. Meanwhile, the company surpassed 200 million global Prime subscriptions in April 2021, and has likely added to that total since securing exclusive streaming rights to Thursday Night Football.
The ultimate selling point for billionaires may be Amazon's valuation. Since Amazon reinvests most of its operating cash flow back into its business, cash flow is a much better valuation metric than the traditional price-to-earnings ratio. After spending the entire 2000s at multiples of 23 to 37 times its year-end cash flow, Amazon can now be bought for just 12.4 times its consensus 2025 cash flow.
Should you invest $1,000 in Nvidia now?
Before you buy shares in Nvidia, consider the following:
the Motley Fool stock advisor The analyst team has just defined what they think it is Top 10 stocks Let investors buy it now… and Nvidia wasn't one of them. The 10 stocks that were discounted could deliver huge returns in the coming years.
Think when Nvidia I prepared this list on April 15, 2005… If you invested $1,000 at the time of our recommendation, You will have $584,435!*
Stock advisor It provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. the Stock advisor The service has More than four times The return of the S&P 500 since 2002*.
*Stock Advisor returns as of May 13, 2024
Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Susan Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Sean Williams He has positions at Alphabet, Amazon, and Meta platforms. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has Disclosure policy.
Find out 2 of the “7 Cool” Stocks That Billionaires Are Selling, and the #1 Stocks They Can't Stop Buying Originally published by The Motley Fool