Billionaire investors have been flocking to artificial intelligence (AI) stocks lately, and many have scored major gains by investing early in today’s market giant: Nvidia (NVDA 0.28%). Shares of the leading AI chipmaker are headed for a gain of about 170% this year and have climbed 2,300% over the past five years. This is due to Nvidia’s triple-digit revenue growth quarter over quarter as well as the company’s commitment to innovation to stay ahead of its competitors.
But now, some of the world’s most successful investors are dumping Nvidia stock and moving toward another AI player that could potentially soar in the coming quarters. Billionaires Ray Dalio of Bridgewater Associates, Philippe Laffont of Coatue Management and Stanley Druckenmiller of the Duquesne Family Office each made the same move. They sold shares of Nvidia in favor of an AI player that, like Nvidia, completed a stock split this year.
Although this company has seen its stock rise by around 40% in 2024, its valuation remains lower than that of Nvidia, suggesting there could be plenty of room for this AI player’s stock to grow. flow. Let’s find out more about the movements of the billionaires and the potential of this stock they invested in the third quarter.
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A networking giant benefiting from demand for AI
So what stock do these investors potentially see as the next big AI winner? The answer is Broadcom (AVGO 2.73%)a networking giant that has seen demand for its products take off alongside the AI boom. Before talking about the history of Broadcom, here are the details of the billionaires’ recent initiatives:
- Ray Dalio of Bridgewater sold 27% of his stake in Nvidia and now owns 4,754,271 shares. He increased his stake in Broadcom by more than 290% and now owns 955,433 shares.
- Philippe Laffont de Coatue sold 26% of his stake in Nvidia and now holds 10,138,161 shares. He increased his stake in Broadcom by 52% and now owns 4,323,026 shares.
- Stanley Druckenmiller of the Duquesne Family Office sold all of his Nvidia shares. He opened a new position in Broadcom and holds 239,980 shares.
It’s important to note that Dalio and Laffont still own millions of shares of Nvidia stock. Clearly, they continue to believe in the company’s earnings potential. And Druckenmiller actually said in a Bloomberg interview that he regretted the Nvidia sale and would consider buying the stock back at the right valuation. So these investors have not given up on the power of AI chips.
That said, they are betting that Broadcom could be one of the next winners in this AI revolution. Broadcom is a company that powers much of the technology around us, selling thousands of products used in data center networks, home connectivity, smartphones, and more.
The next big growth engine
This has helped the company grow its profits over time, but in recent quarters it has been the area of AI that has started to represent the next big growth driver. In the most recent quarter, for example, Broadcom said demand from major cloud service providers for custom AI networks and AI accelerators contributed to a 47% increase in revenue. This is when these clients develop and scale their operations. Given the growth prospects of the entire AI market – with predictions of a $1 trillion market by the end of the decade – there is likely a lot of growth ahead. Broadcom is already raising its near-term expectations as it now projects $12 billion in AI revenue for fiscal 2024, up from $11 billion previously forecast.
Broadcom completed a 10-for-1 stock split this year, a move that doesn’t change anything fundamental about the company. But it is positive because, by lowering the price per share, it opens up investment opportunities to a wider range of investors.
Meanwhile, despite Broadcom’s gains this year, the stock trades at just 25 times forward earnings, a bargain considering its prospects in the high-growth AI market in the coming years. And Broadcom looks particularly cheap compared to Nvidia, which trades at around 45 times forward earnings.
All of this means it’s no surprise that billionaires have secured some gains in Nvidia stock and turned to Broadcom as a new source of potential growth. And the good news is, you don’t have to be a billionaire to pick up some Broadcom stock right now and bet on the company’s future in the exciting AI market.
Adria Cimino has no position in any of the stocks mentioned. The Motley Fool Ranks and Recommends Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.