Chipmaker Nvidia (NASDAQ: NVDA) has created substantial shareholder value in recent months. The stock has soared 517% since the beginning of 2023 amid surging interest in artificial intelligence (AI). But several billionaire hedge fund managers sold down their positions in Nvidia during the fourth quarter, while purchasing other AI stocks.
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Israel Englander of Millennium Management sold 1.7 million shares of Nvidia, reducing his stake by 45%.
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Steven Cohen of Point72 Asset Management sold 1.1 million shares of Nvidia, reducing his stake by 66%.
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David Tepper of Appaloosa sold 235,000 shares of Nvidia, reducing his stake by 23%.
Those three billionaires have two important traits in common. They rank among the 15 most successful hedge fund managers in history, and they beat the S&P 500 (SNPINDEX: ^GSPC) over the past three years. Those qualities lend them credibility.
With that in mind, all three hedge fund managers bought shares of Amazon (NASDAQ: AMZN) in the fourth quarter. Englander and Tepper also started positions in HubSpot (NYSE: HUBS). Those companies have already achieved a strong presence in certain AI markets — Amazon in cloud AI developer services, and HubSpot in AI sales assistant software — but both are leaning into AI product development in a way that could create more shareholder value.
1. Amazon
Amazon has three important growth engines in e-commerce, digital advertising, and cloud computing, and the company is working from a position of strength in all three markets. To elaborate, Amazon runs the most-visited online marketplace in the world, which has naturally made it the largest retail advertiser in the world. Meanwhile, Amazon Web Services (AWS) is the leader in cloud infrastructure and platform services, as well as several subcategories, including artificial intelligence (AI) developer services.
Amazon is leaning into AI to improve its standing in all three markets. It recently launched a generative AI shopping assistant called Rufus, and it uses machine learning to optimize inventory and delivery routes for its logistics business. Amazon also introduced a generative AI tool that creates marketing content for advertisers, and the company continuously tweaks its machine learning models to make product recommendations more relevant.
Finally, AWS has made its cloud platform more compelling with two new products: Bedrock is a service for customizing large language models and building generative AI applications, and Amazon Q is a generative AI business assistant that queries and summarizes data from various internal and external sources. CEO Andy Jassy believes generative AI alone will create “tens of billions of dollars of revenue for Amazon over the next several years.”
Amazon reported strong financial results in the fourth quarter, beating expectations on the top and bottom lines. Revenue increased 14% to $170 billion, operating margin expanded for the seventh consecutive quarter, and non-GAAP net income improved to $1.00 per diluted share, up from $0.03 per diluted share in the prior year.
Going forward, Amazon has a good shot at double-digit sales growth through the end of the decade. I say that because retail e-commerce sales are forecasted to increase at 8% annually, the digital advertising market is expected to expand at 15% annually, and the cloud computing market is projected to grow at 14% annually through 2030.
Wall Street analysts have similar expectations. The consensus calls for Amazon to grow sales at 11% annually over the next five years. That makes its current valuation of 3.3 times sales appear reasonable. Investors should consider buying a small position in this stock today, especially as part of a larger basket of AI stocks.
2. HubSpot
HubSpot specializes in customer relationship management (CRM) software. Its platform includes applications for marketing, sales, customer service, and operations teams, as well as tools for commerce and content management. Those products help businesses generate leads, convert leads into customers, and maintain lasting relationships with those customers.
HubSpot designed its CRM platform with small and medium-sized businesses in mind. Customers in that underserved market segment find its user-friendly interface, simple software, and freemium pricing attractive. As a result, HubSpot has achieved a strong presence in several product categories, especially sales and marketing software. Indeed, Morningstar sees HubSpot as a leader in both spaces, and IT consultancy Gartner recently recognized its leadership in marketing automation software, highlighting investments in AI as a key differentiator.
HubSpot delivered a solid financial report for the fourth quarter, surpassing expectations on the top and bottom lines. Its customer count climbed 23% to top 205,000, while the average subscription revenue per customer increased one percentage point. In turn, revenue rose 24% to $582 million, due to especially strong momentum in sales software, and non-GAAP net income increased 53% to $98 million.
Going forward, HubSpot aims to drive adoption of higher-end products by adding more sophisticated functionality and engaging larger businesses. To accomplish that, the company is rolling out a slate of AI capabilities during the first half of this year, most of which are exclusive to more expensive product tiers. Those capabilities include predictive AI for sales forecasts and content recommendations, as well as generative AI for marketing copy and content summaries.
Wall Street expects HubSpot to grow sales at 17% annually during the next five years, but that estimate leaves room for upside. HubSpot is a recognized leader in AI sales assistant software for small businesses, and ongoing investments in AI could be a powerful growth driver. That said, the current valuation of 14.4 times sales seems reasonable even if the Wall Street consensus is correct. Now is a good time for long-term investors to buy a small position in this growth stock.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon and Nvidia. The Motley Fool has positions in and recommends Amazon, HubSpot, and Nvidia. The Motley Fool has a disclosure policy.
Forget Nvidia: Billionaires Are Selling It and Buying 2 Top Artificial Intelligence (AI) Stocks Instead was originally published by The Motley Fool
Source: Forget Nvidia: Billionaires Are Selling It and Buying 2 Top Artificial Intelligence (AI)
