It's been tough sledding for the investing community in 2022. At their respective worst, the timeless Dow Jones Industrial Average, benchmark S&P 500, and growth-centric Nasdaq Composite shed as much as 19%, 24%, and 34% of their value. Though all three indexes have bounced from their June 2022 lows, the Nasdaq remains firmly in a bear market.
Yet in spite of this heightened volatility, billionaire investors have stood their ground. Instead of heading for the sideline, Form 13F filings with the Securities and Exchange Commission (SEC) show that most billionaire money managers were active buyers during the first half of the year.
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What's particularly interesting is that select billionaires have been piling into some of Wall Street's most beaten-down growth stocks. The following three supercharged growth stocks are down as much as 94%, yet billionaires can't stop buying shares of them.
Nvidia: Down 62% from its all-time high
The first fast-paced growth stock that's been absolutely pummeled of late is graphics card and networking solutions specialist Nvidia (NVDA 0.76%), which has seen its shares tumble 62% since November.
But this big decline hasn't stopped billionaires John Overdeck and David Siegel of Two Sigma Investments from gobbling up shares of Nvidia. During the second quarter, Two Sigma purchased nearly 1.27 million shares.
The impetus behind Overdeck's and Siegel's aggressive buying of Nvidia shares likely has to do with the expectation of Nvidia growing its data center operating segment. Though most investors are familiar with Nvidia for its graphics processing units, which are used in PC gaming and cryptocurrency mining, data centers mark the company's most intriguing long-term opportunity. With businesses shifting their data into the cloud at an accelerated pace since the COVID-19 pandemic began, demand for everything from storage to data centers is only bound to increase.
Nvidia has an opportunity to be a key player in the development of the metaverse as well. The metaverse is the next iteration of the internet, which is designed to allow connected users the ability to interact with each other and their environment in a 3D virtual world. Although the metaverse is years away from being a serious revenue driver, many analysts view it as a multi-trillion-dollar opportunity.
However, weakening economic growth prospects and geopolitical issues are serious headwinds for Nvidia at the moment.
Last month, an Nvidia filing with the SEC notes that the U.S. government is restricting sales of GPUs sold to China. With reduced or minimal sales to the world's No. 2 economy, Nvidia could lose $1.6 billion (or more) in annual run-rate revenue. That's not a figure that can be easily swept under the rug or replaced overnight.
Okta: Down 80% from its all-time high
A second supercharged growth stock that's been crushed since February 2021 is cybersecurity company Okta (OKTA -0.10%). As of the closing bell on Sept. 20, 2022, shares of Okta were 80% below the company's all-time intra-day high.
However, Okta's share price decline hasn't been enough to scare away billionaire Ken Griffin of Citadel Advisors or Jim Simons of Renaissance Technologies. Citadel and Renaissance respectively bought about 1.6 million shares and 618,300 shares of Okta during the second quarter.
The defensive nature of the cybersecurity industry is what makes it such a smart place to put your money to work. No matter how well or poorly the U.S. economy and stock market are performing, threats from hackers and robots to steal critical data are a constant. This makes cybersecurity solutions at the enterprise and end-user level a must in any economic environment.
Okta's specialty is in identity verification. This is a company that built its infrastructure in the cloud to verify user identities and monitor access. Okta specifically leans on artificial intelligence (AI), which allows its platform to become more efficient at recognizing and responding to threats over time.
Another key aspect of the Okta growth story is its $6.5 billion all-share acquisition of Auth0, which completed in May 2021. Though Auth0 remains an independent entity beneath the Okta umbrella for now, this acquisition broadens Okta's appeal with businesses, and expands the company's sales channels into international markets. Okta has previously stated that its addressable identity security market totals $80 billion.
But it's obviously not all peaches and cream if Okta's shares are down 80%. While the Auth0 acquisition is viewed as a long-term driver for the company's top and bottom line, integration costs have widened its near-term losses at a time when many other cybersecurity stocks have been profitable.
The other issue for Okta is the sizable amount of stock-based compensation (SBC) it's doling out. Unless SBC is reduced considerably in the coming quarters, recurring profitability could still be years away.
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Upstart Holdings: Down 94% from its all-time high
But the disaster du jour award goes to cloud-based lending platform Upstart Holdings (UPST -0.58%), whose shares have plunged by a jaw-dropping 94% since hitting an all-time high of more than $401 less than a year ago.
Despite Upstart's poor performance over the trailing year, billionaire Philippe Laffont of Coatue Management sees brighter days ahead. During the second quarter, Laffont's fund purchased more than 2.36 million shares of Upstart, which gave it a nearly 2.8% stake in the company.
Why Upstart? The simple answer is that the company's AI-driven lending platform offers competitive advantages. Almost three-quarters of all loan approvals on Upstart's platform are automated. This means time and money saved for both loan applicants and the roughly six dozen financial institutions that Upstart has partnered with.
However, the more intriguing differentiating factor is that Upstart's platform is opening up opportunities for folks who wouldn't be approved with the traditional vetting process. Even though the average credit score for Upstart approvals is lower than the traditional vetting process, the delinquency rates between Upstart and the decades-old process have been similar. The takeaway is that banks and credit unions can lean on Upstart's AI-based platform to expand their loan portfolios without adding credit risk.
Also, keep in mind that Upstart is just scratching the surface with regard to its addressable market. After years of focusing on personal loans, it's begun pushing into auto loan originations and small business loans. On a combined basis, the latter two offer an addressable market 10 times the size of personal loans.
But before Upstart has an opportunity to make Laffont richer, it's going to have to prove to Wall Street that it can weather a higher interest rate environment and a possible economic downturn. If delinquency rates rise significantly and auto loan demand slows to a crawl, things could get tricky for Upstart.
