Billionaires Are Selling Nvidia Stock and Buying 2 Red-Hot Artificial Intelligence (AI)

For many investors, Nvidia is the quintessential artificial intelligence (AI) stock. Its graphics processing units power many of the most advanced AI systems, and the company holds over 80% market share in AI processors. In short, from a semiconductor perspective, Nvidia is almost single-handedly enabling the AI boom. That drove shares 239% higher in 2023.

Even so, the hedge fund billionaires listed below sold down their positions in Nvidia during the fourth quarter, while simultaneously redeploying capital across Palantir Technologies (PLTR 1.94%) and Amazon (AMZN 3.20%), two red-hot AI stocks up 191% and 77%, respectively, in the past year.

• Israel Englander of Millennium Management sold 1.7 million shares of Nvidia in the fourth quarter, reducing his stake by 45%. Meanwhile, he increased his position in Palantir by 1,100%, and increased his stake in Amazon by 1%.

• Joel Greenblatt of Gotham Asset Management sold 13,480 shares of Nvidia in the fourth quarter, reducing his stake by 16%. Meanwhile, he increased his position in Palantir by 1,800% and increased his stake in Amazon by 3%.

• Steven Cohen of Point72 Asset Management sold 1.1 million shares of Nvidia in the fourth quarter, reducing his stake by 66%. Meanwhile, he started a small position in Palantir and increased his stake in Amazon by 11%.

The three fund managers discussed above outperformed the S&P 500 during the three-year period that ended in December 2023. That provides investors with additional incentive to consider their recent purchases. Are Palantir and Amazon still worth buying?

1. Palantir Technologies

Palantir specializes in data analytics. Its software lets businesses capture and integrate data, develop and manage artificial intelligence and machine learning (ML) models, and build applications that incorporate those data sets and models. Those applications help workers make better decisions, which theoretically leads to better business outcomes. The company recently debuted a new product called AIP, or Artificial Intelligence Platform, which brings support for large language models and generative AI to its existing software.

Industry analysts have praised Palantir for its technological prowess. For instance, Forrester Research ranked its Foundry software as the best AI/ML platform on the market in a report published in July 2022. Likewise, Dresner Advisory Services ranked Palantir as a leader in the AI/ML and data science market in a report published in August 2023. Around the same time, Dresner also recognized the company as a leader in ModelOps (model operations), a discipline focused on model lifecycle management.

Palantir reported encouraging financial results in the fourth quarter. Its customer count climbed 35% and the average existing customer spent 8% more. In turn, revenue increased 20% to $608 million and non-GAAP (adjusted) net income doubled to reach $0.08 per diluted share. CEO Alex Karp said demand for AIP was a key growth driver. “Momentum with AIP is now significantly contributing to new revenue and new customers,” he wrote in his shareholder letter. “The organic and unconstrained demand for its capabilities is unlike anything we have seen in two decades.”

Going forward, Straits Research forecasts that big data analytics spending will increase at 14% annually through 2031. However, Wall Street analysts expect Palantir to grow sales at 21% annually over the next five years. That consensus estimate makes its current valuation of 22.8 times sales look relatively expensive. Personally, I would not buy this stock until that multiple comes down. It’s also worth mentioning that Palantir traded at an average of 18.6 times sales during the fourth quarter, when Englander, Greenblatt, and Cohen were buying shares. I would be more comfortable with that valuation.

2. Amazon

Amazon has a strong presence in three markets. In e-commerce, it operates the largest online marketplace in North America and Western Europe as measured by sales. In digital advertising, it is the largest retail media company in the U.S. and the third-largest adtech company in the world. Amazon has steadily gained share in both markets in recent years, and the shares gains are projected to continue in the future.

In cloud computing, Amazon Web Services (AWS) accounted for 31% of cloud infrastructure and platform services (CIPS) spending in the first quarter, 6 percentage points more than second-place Microsoft Azure. AWS actually lost 1 percentage point of market share over the past year. However, the company remains uniquely positioned to monetize AI given its leadership in the CIPS market.

Additionally, AWS could reclaim lost market share with help from AI products Amazon Bedrock and Amazon Q. Bedrock is a cloud service that lets businesses customize large language models and build bespoke generative AI applications. Amazon Q is a conversational assistant that leans on generative AI to answer questions and automate coding projects. On the first-quarter earnings call, CEO Andy Jassy shared this information: “Q is not only the most functionally capable AI-powered assistant for software development and data, but also setting the standard for performance. Q has the highest-known score and acceptance rate for code suggestions, outperforms all other publicly benchmarkable competitors at catching security vulnerabilities, and leads all software development assistants on connecting multiple steps together and applying automatic actions.”

Amazon topped Wall Street’s expectations with its first-quarter financial report. Revenue rose 13% to $143 billion as growth accelerated across advertising services, cloud services, and online stores. Meanwhile, GAAP net income more than tripled to reach $0.98 per diluted share as the company continued to make progress on cost control.

Retail e-commerce sales are forecast to grow at 8% annually through 2030, and the digital advertising and cloud computing markets are forecast to expand at annual rates of 15% and 14%, respectively. That gives Amazon a good shot at double-digit sales growth. Indeed, Wall Street expects the company to grow sales at 11% annually over the next five years.

The stock currently trades at 3.2 times sales, a reasonable valuation compared to the consensus sales growth forecast by analysts. Personally, I would feel comfortable buying shares at that valuation. But investors should know that Amazon traded at an average of 2.6 times sales during the fourth quarter, when the billionaire fund managers discussed earlier were buying the stock.