It's once again time for asset managers to file Form 13Fs with the Securities and Exchange Commission. On a quarterly basis, institutional investors with over $100 million in assets under management are required to disclose their U.S. equity holdings, and the 13Fs are where those disclosures take place. That requirement was put in place in 1975 as a way to improve transparency in the financial system, giving smaller investors the chance to model their own portfolios after Wall Street's top stock pickers.
In the latest round of filings, billionaire Ken Fisher of Fisher Asset Management added 271,000 shares of Nvidia (NVDA -0.80%) to his hedge fund, bringing the total position to 5.1 million shares. Similarly, billionaire James Simons of Renaissance Technologies added 1.3 million shares of Texas Instruments (TXN -0.64%) to his hedge fund's portfolio, increasing his position more than fourfold during the fourth quarter.
Clearly, these billionaires saw something they liked in these two stocks. Before adding these semiconductor stocks to your own portfolio, let's take a closer look.
Image source: Getty Images.
1. Nvidia
Over two decades ago, Nvidia's invention of the graphics processing unit (GPU) revolutionized the entertainment industry, bringing ultra-realistic computer-generated visuals to films and video games. Thanks to its parallel processing capabilities, the GPU has also seen adoption in data centers, where it accelerates data-intensive workloads like scientific computing and artificial intelligence (AI) processing. Nvidia has also added high-performance networking solutions to its portfolio, further enhancing its data center business.
Beyond hardware, Nvidia also offers a range of software and application frameworks. The former includes solutions for AI model training and inference, while the latter help developers build AI applications in areas like genomics, cybersecurity, robotics, and autonomous vehicles. That comprehensive approach has made Nvidia's brand synonymous with AI. And on eight consecutive occasions, the company has received top scores in the MLPerf benchmarks, a series of trials designed to test the performance of AI training and inference technology.
Fueled by strength in its gaming and data center businesses, Nvidia continued to post impressive financial results over the past year. Revenue surged 61% to $26.9 billion, operating margin expanded over 1,000 basis points to 37.3%, and free cash flow skyrocketed 73% to $8.1 billion. Going forward, Nvidia is well-positioned to maintain that momentum.
Management puts Nvidia's market opportunity at $100 billion in data centers by 2024, and $25 billion in autonomous vehicles by 2025. Additionally, its graphics cards are the industry standard for gamers and 3D designers, which positions Nvidia as a key player in the emerging metaverse industry. Given those tailwinds, it's not surprising to see Fisher Asset Management buying more stock, and it's why Nvidia is one of my largest holdings.
2. Texas Instruments
Texas Instruments specializes in analog chips and embedded processors, two semiconductors widely used across the industrial, automotive, and consumer electronics industries. In fact, analog chips are present in every electronic device, and embedded processors are present in most. And in both cases, Texas Instruments holds more market share than any of its rivals.
Its success is due in large part to cost advantages derived from in-house manufacturing. The company owns four fabrication plants where semiconductors are made from 300-millimeter silicon wafers, and it's preparing to start construction on two more in Sherman, Texas. That's important, because the 300-millimeter process is 40% cheaper (per unpackaged chip) than the 200-millimeter process used by most rivals. Texas Instruments also handles the majority of semiconductor testing and assembly in-house, furthering its ability to control costs and manage its supply chain.
Fueled by those advantages, Texas Instruments turned in an impressive financial performance last year, despite widespread chip shortages sparked by supply chain disruptions. Revenue rose 27% to $18.3 billion, and free cash flow jump 14% to $6.3 billion. Better yet, the future looks just as bright for this semiconductor company.
Over the years, Texas Instruments has done a phenomenal job of creating wealth for shareholders. The company has raised its dividend at an annualized rate of 25% since 2004, and the stock has delivered annualized returns of 10% over the same period. Going forward, given its strong competitive position in a critical industry, Texas Instruments is well-positioned to extend that track record. And from that perspective, Renaissance Technologies' decision to double down on this stock makes a lot of sense.
