This has been an incredibly challenging year for professional and everyday investors alike. It's been 52 years since the benchmark S&P 500 delivered a first-half return as poor as 2022.
However, a bear market for the S&P 500 and tech-centric Nasdaq Composite hasn't kept billionaire fund managers from putting their money to work. Based on 13F filings with the Securities and Exchange Commission, billionaires have been piling into innovative growth stocks -- many of which have been some of the hardest-hit names during the bear market downturn.
What follows are four phenomenal growth stocks billionaires have been buying hand over fist as the market plunges.
The first supercharged growth stock that at least two billionaire investors can't get enough of is graphics card manufacturer and semiconductor solutions provider Nvidia (NVDA -0.01%). Form 13F filings show that John Overdeck and David Siegel's Two Sigma Investments purchased nearly 1.27 million shares of Nvidia during the second quarter, ultimately increasing the fund's stake to almost 1.57 million shares.
Overdeck and Siegel's fascination with Nvidia likely has to do with its growing opportunity in data centers and the potential of its ancillary operating segments.
Although Nvidia is probably best known for its graphics cards used in gaming and cryptocurrency mining, the company's data center segment is likely to be its long-term cash cow. Businesses have been shifting data online and into the cloud at an accelerated pace since the COVID-19 pandemic took shape. This has dramatically increased demand for data centers and storage. Nvidia's high-performance data center solutions should enjoy steady growth as the world continues to become more digitally driven.
What's more, Nvidia's solutions are expected to play a key role in the development of the metaverse -- the next iteration of the internet that allows connected users to interact with each other and their environments in 3D virtual worlds. With the exception of the most recent quarter, the company's professional visualization segment has delivered jaw-dropping sales growth as the multitrillion-dollar metaverse takes shape.
Although the next couple of quarters could be a bumpy ride for Nvidia as weaker global growth causes businesses to curtail spending, Overdeck and Siegel appear confident that Nvidia can, once again, outperform.
The second phenomenal growth stock billionaires are buying hand over fist is specialty biotech stock Vertex Pharmaceuticals (VRTX -1.03%). Billionaire Ray Dalio of Bridgewater Associates gobbled up 187,000 shares of Vertex during the second quarter, which represents about a sixfold increase from Bridgewater's stake at the end of March.
Dalio's affinity for Vertex may have to do with its unique positioning in the cystic fibrosis (CF) space. CF is a genetic disease characterized by thick mucus production that can obstruct a patient's lungs and/or pancreas. It currently has no cure.
Vertex has developed four generations of mutation-specific CF therapies focused on improving patients' lung function. Trikafta, the newest of these treatments, was approved by the U.S. Food and Drug Administration five months ahead of its scheduled review date and is pacing nearly $7.6 billion in annual run-rate sales. Thanks to ongoing innovation, Vertex's CF franchise revenue is well protected.
However, the company's pipeline is no slouch either, with more than a half-dozen novel therapies in clinical trials. Having ended June with $9.25 billion in cash, cash equivalents, and marketable securities, Vertex has more than enough capital to fuel internal innovation and encourage collaborative drug development.
In an uncertain environment where Wall Street is desperate for value and innovation, Vertex perfectly fits the mold.
A third fast-paced company that billionaires have been piling into is medical-device manufacturer DexCom (DXCM 0.95%). The maker of continuous glucose monitors (CGMs) was aggressively bought by billionaire Ken Griffin of Citadel Advisors during the second quarter. Griffin's fund scooped up almost 1.82 million shares, pushing its stake to roughly 3.07 million shares.
If you're wondering "Why DexCom?" given its premium valuation, the answer can be found by looking at the bigger picture. For instance, healthcare stocks are defensive plays. No matter how poorly the U.S. economy and stock market perform, people don't stop requiring prescription drugs, medical devices, and healthcare services. This provides consistent demand and cash flow that healthcare stocks like DexCom can count on.
What's more, DexCom's potential pool of patients continues to grow over time. The latest statistics from the Centers for Disease Control and Prevention show that 37.3 million Americans have diabetes. Another 96 million adults have pre-diabetes, which can turn into diabetes if left untreated. In other words, nearly half the adult population in the U.S. is a potential future client of DexCom.
On a more company-specific level, DexCom also benefits from its razor-and-blades-styled operating model. After selling its generally low-margin CGM device to diabetics (the "razor"), the company has the opportunity to generate high-margin recurring revenue from selling these users sensors and/or subscriptions (the "blades").
DexCom may be pricey on a fundamental basis, but its premium appears well warranted given its competitive advantages and exceptionally long growth runway.
The fourth and final phenomenal growth stock billionaires have been buying hand over fist is social media site Pinterest (PINS 2.11%). Activist investing billionaire Paul Singer of Elliott Management disclosed last month that his fund had become the largest individual shareholder of Pinterest.
Although Wall Street has been critical of Pinterest's declining monthly active user (MAU) count in recent quarters, a wide-lens examination of the company's user count, sans the COVID-19-related pop and drop, shows steady growth over a five-year stretch.
What's far more important for Pinterest has been the company's ability to monetize its existing MAUs, no matter how many there are. Despite a 21-million-MAU decline from the prior-year quarter, the company produced global average revenue per user (ARPU) growth of 17% in the June-ended quarter. International ARPU was even higher. This demonstrates that advertisers are willing to pay a premium to reach Pinterest's 433 million monthly active users.
Something else to note about Pinterest's advertising-driven operating model is that it's not being held hostage by data-tracking software. Since the entire premise of Pinterest's platform is to have users freely and willingly share their interests, the company can deliver this critical data to merchants on a silver platter. This makes it incredibly easy for businesses to target customers on Pinterest's platform and should help the company transition into an e-commerce juggernaut throughout the decade.
If you need one more reason to be confident about Pinterest's future, consider that it's sitting on $2.65 billion in cash, cash equivalents, and marketable securities. This is a company that can continue to innovate aggressively without worrying about near-term economic weakness.