Smart Money Is Selling It and Buying These 2 Roaring Artificial Intelligence (AI) Stocks Instead

The last 18 months have been very good for us Nvidia (Nasdaq: NVDA).

The growing demand for artificial intelligence (AI) applications since the launch of ChatGPT has prompted major technology companies to snap up Nvidia GPUs as quickly as they can be manufactured. This has led to a significant rise in revenues and profits for the chipmaker, and a commensurate increase in Nvidia's stock price. Shares are up 425% since ChatGPT's launch on November 30, 2022.

But some of the most influential members of the stock market believe Nvidia's rally may be overdone. Members of Congress and hedge fund billionaires alike are selling Nvidia stock and buying two other AI stocks that could have more upside. Should you follow the smart money and drop Nvidia stock?

Who is selling Nvidia and why?

Nvidia has seen a raft of sellers on Capitol Hill and Wall Street.

Members of Congress who have been selling the stock since last October are:

• Michael McCaul, Republican representative from Texas

• John Curtis, Republican representative from Utah

• Ro Khanna, a Democratic representative from California

• Josh Gottheimer, a Democratic representative from New Jersey

• Dan Meuser, Republican representative from Pennsylvania

• Tom Suozzi, a Democratic representative from New York

• Dan Newhouse, Republican representative from Washington

Eight prominent billionaires have also trimmed their positions in Nvidia, according to their most recent filings with the Securities and Exchange Commission:

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

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

• Steven Cohen, Point72 Asset Management (1,088,821 shares sold)

• David Tepper, Appaloosa Management (235,000 shares sold)

• Philippe Laffont, Coatue Management (218,839 shares sold)

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

• John Overdike and David Siegel, Two Sigma Investments (30,663 shares sold)

To be sure, most of these smart money investors aren't completely exiting their positions in Nvidia. But they are reducing their shares by a significant amount. And it may be more than just a matter of taking profits after Nvidia's impressive price performance.

There are reasons to believe that Nvidia's future is not as bright as its recent past. For one thing, the stock's valuation remains high. Trade stocks for more than 35x Forward earnings Expectations. And while we should see Nvidia Strong demand for the next year or two thanks to several large customersIt is not clear that profits can grow sustainably at such a rapid pace over the long term.

Management noted in its 10-K report that one of its customers represented 13% of its revenue in fiscal 2024. Concentrating its customer base represents a significant risk, especially since Nvidia's largest customers are actively developing alternative chip designs of their own for use. One of Nvidia's biggest advantages right now is its existing relationship with… Taiwan Semiconductor Manufacturing Co., Ltd, the world's leading chip manufacturer. As more competing chips enter widespread manufacturing, demand for Nvidia chips will decline.

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The smart money is buying AI chips instead

While investors on Capitol Hill and Wall Street dumped their positions in Nvidia, they invested more of their money in one of Nvidia's biggest competitors in GPU chip design. Advanced micro devices (NASDAQ:AMD).

Here are the members of Congress who are buying AMD stock:

• Michael McCaul, Republican representative from Texas

• Josh Gottheimer, a Democratic representative from New Jersey

• Markwayne Mullen, Republican representative from Oklahoma

The most prominent billionaires who added AMD to their investment portfolios:

• Ole Andreas Halvorsen, Viking Global (4,737,399 shares added)

• Ken Griffin, Citadel Advisors (3,506,881 shares added)

• Ken Fisher, Fisher Asset Management (570,035 shares added)

• Philippe Laffont, Coatue Management (23,383 shares added)

AMD has struggled to make headway against Nvidia in its data center GPUs, which are used to train AI models, but that may soon change. It released the MI300X AI accelerator and Instinct MI300A APU in December last year. However, management's second-quarter sales forecast disappointed investors when it reported first-quarter earnings.

However, AMD seems poised to increase its share of the AI ​​GPU market in the long term since it's just getting started. It may have a much greater opportunity as more companies invest in inference chips. These are the chips needed to use AI models after they have been trained. The ability to run an AI application on a local device such as a car computer, for example, will become increasingly common. AMD already has many strong relationships with manufacturers there.

However, AMD stock is not cheap. Shares trade at a higher multiple than Nvidia at a forward PE of 41.3x. AMD faces some of the same challenges as Nvidia in ensuring long-term demand for its data center chips. However, its position in the PC market is stable and could represent an opportunity as demand for inference chips increases. Importantly, AMD's growth story may have just begun, while growth may have peaked at Nvidia.

Smart money is moving up the AI ​​food chain

If there's one company that has benefited almost as much as Nvidia from this AI boom, it's it Microsoft (NASDAQ:MSFT). Since making a $10 billion investment in OpenAI at the start of 2023, Microsoft has positioned itself as a leader in the AI ​​space. Both enterprise software and the Azure cloud computing platform have benefited as a result.

Members of Congress and Wall Street have taken notice. The following representatives have recently purchased shares:

• Josh Gottheimer, a Democratic representative from New Jersey

• Pete Sessions, Republican representative from Texas

• Cathy Manning, Democratic Party representative from North Carolina

• Bill Keating, Democratic Representative from Massachusetts

Meanwhile, these Wall Street billionaires added to their positions in the fourth quarter:

• Ken Fisher, Fisher Asset Management (403,409 shares added)

• Stanley Druckenmiller, Duquesne Family Office (68,860 posts added)

• David Tepper, Appaloosa Management (65,000 shares added)

Microsoft is seeing continued demand for its AI services. Its cloud computing division, Azure, saw sales growth of 31% last quarter, much faster than its biggest rivals. Management said the growth was driven by demand for artificial intelligence. In fact, he said, “near-term demand for AI is slightly higher than our available capacity.”

Microsoft is also seeing strong demand for its Copilot software, which uses generative AI to improve productivity in various fields. As a leader in enterprise software, it is in an excellent position to sell more subscriptions to its AI software.

Microsoft's forward PE ratio of 29.8x still represents a premium to the overall market. But she's pretty much in the driver's seat when it comes to her location. No office manager will switch from Microsoft software. Few developers will migrate from Azure. Switching costs are high, which keeps customers around. This makes Microsoft worth the smart money, and probably worth your money, too.

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Adam Levy He holds positions at Microsoft and Semiconductor Manufacturing in Taiwan. The Motley Fool has positions in and recommends Advanced Micro Devices, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. 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.

Forget Nvidia: The smart money is selling it and buying these two buzzy artificial intelligence (AI) stocks instead Originally published by The Motley Fool