It's been a wild ride for Wall Street over the past couple of years. Since the start of 2020, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite have wavered between bull and bear markets multiple times. While looking to the horizon is always a smart move for long-term-minded investors, it also pays to know what Wall Street's brightest minds have been up to within their portfolios.
Every quarter, institutional money managers with at least $100 million in assets under management are required to file Form 13F with the Securities and Exchange Commission. A 13F provides a snapshot of what Wall Street's top investors bought and sold in the most recent quarter.
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While investors have seemingly flocked to Wall Street's five trillion-dollar companies this year -- Apple (AAPL -0.35%), Microsoft (MSFT 1.82%), Alphabet (GOOGL 10.22%) (GOOG 9.96%), Amazon (AMZN 3.43%), and Nvidia (NVDA 6.18%) -- 13F filings show that not all billionaire investors share the same enthusiasm for some of these trillion-dollar stocks.
Based on the latest round of 13Fs, billionaires have been busy selling two of the aforementioned five trillion-dollar stocks and buying the one you might least expect.
Trillion-dollar stock No. 1 billionaires are selling: Alphabet
The first trillion-dollar stock that had four high-profile billionaires running for the exit during the second quarter is Alphabet, the parent company of internet search engine Google, streaming platform YouTube, and autonomous vehicle company Waymo. The four billionaire sellers include (number of Class A GOOGL shares sold in parentheses):
- Chase Coleman of Tiger Global Management (4,551,949 shares).
- Dan Loeb of Third Point (3,325,000 shares).
- Steven Cohen of Point72 Asset Management (3,299,177 shares).
- Ray Dalio of Bridgewater Associates (348,344 shares).
The most logical explanation for the selling we've witnessed in Alphabet likely has to do with the belief that the U.S. and global economy will weaken in the coming quarters. Alphabet generates most of its revenue from advertising, and advertisers tend to quickly pare back their spending at the first signs of trouble. Even with Alphabet's dominant positioning in the ad space, the expectation would be for slower sales growth, if not a revenue reversal, if the U.S. and global economy dip into a recession.
However, heading for the exits based on a forecast of short-term turbulence doesn't seem like a smart move. For instance, Google accounted for nearly 92% of worldwide internet search share in September 2023, and it hasn't held less than 90% of global internet search share in a given month since March 2015. Even if there's temporary weakness in the U.S. and global economy, having a veritable monopoly in internet search is going to help Alphabet maintain substantial ad-pricing power.
We're also seeing Alphabet make significant headway with its cloud infrastructure service platform, Google Cloud. Following years of losses, Google Cloud has been profitable in each of the first two quarters of 2023. Enterprise cloud spending has an exceptionally long growth runway, and Google Cloud is currently the global No. 3 in total cloud infrastructure services spending.
Perhaps most baffling is the fact that Alphabet is historically inexpensive. After averaging a price-to-cash-flow multiple of more than 18 over the past five years, investors can purchase shares of Alphabet right now for less than 15 times Wall Street's forward-year cash flow estimate.
Long story short, the pessimism surrounding Alphabet doesn't make a lot of sense.
Trillion-dollar stock No. 2 billionaires are selling: Amazon
The other trillion-dollar stock that billionaires have been active sellers of is yet another head-scratcher: e-commerce company Amazon. A grand total of 10 prominent billionaires reduced or exited their fund's stake in Amazon during the June-ended quarter, including (number of shares sold in parentheses):
- Jim Simons of Renaissance Technologies (8,999,016 shares).
- Terry Smith of Fundsmith (6,777,831 shares).
- Chase Coleman of Tiger Global Management (5,989,891 shares).
- Ole Andreas Halvorsen of Viking Global Investors (3,226,907 shares).
- Stephen Mandel of Lone Pine Capital (1,709,767 shares)
- David Siegel and John Overdeck of Two Sigma Investments (1,443,520 shares).
- Israel Englander of Millennium Management (1,159,561 shares).
- Steven Cohen of Point72 Asset Management (994,294 shares).
- Ken Fisher of Fisher Asset Management (678,708 shares).
There are two headwinds that may explain this billionaire exodus from Amazon. The first is the aforementioned growing likelihood of a U.S. recession. Multiple economic data points and predictive tools suggest the U.S. economy will weaken in the coming quarters, which wouldn't be good news for Amazon's top revenue generator, its online marketplace.
The other headwind is Amazon's valuation. During periods of uncertainty, investors tend to gravitate to perceived-to-be inexpensive companies. With Amazon valued at more than 100 times trailing-12-month earnings and roughly 60 times forecast earnings for 2023, it doesn't fit the traditional mold of a "cheap" stock.
However, both of these headwinds overlook Amazon's rapidly growing, high-margin ancillary segments -- Amazon Web Services (AWS), subscription services, and advertising services -- which are collectively expected to more than triple its operating cash flow between 2022 and 2026. If Amazon matches Wall Street's forecast, it would be valued at a historically low valuation relative to its future cash flow.
In particular, AWS is Amazon's shining star. Amazon is the global No. 1 in cloud infrastructure service spending, according to Canalys. More importantly, the margins associated with cloud services are considerably higher than the razor-thin margins seen with online retail sales. As AWS grows into a larger percentage of net sales, Amazon will enjoy an outsized increase in its operating cash flow.
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The surprising trillion-dollar stock billionaires are buying hand over fist: Nvidia
While billionaire money managers were busy selling two trillion-dollar stocks that are historically inexpensive relative to their future cash flow, they surprisingly couldn't stop buying the top-performing trillion-dollar stock of 2023 that is, arguably, pricier than ever: Nvidia. A total of 11 billionaire investors bought Nvidia stock hand over fist in the second quarter, including (number of shares purchased in parenthesis):
- Jeff Yass of Susquehanna International (5,401,204 shares).
- Jim Simons of Renaissance Technologies (1,852,712 shares).
- Israel Englander of Millennium Management (1,023,518 shares).
- David Tepper of Appaloosa Management (870,000 shares).
- Steven Cohen of Point72 Asset Management (662,385 shares).
- Stephen Mandel of Lone Pine Capital (641,649 shares).
- David Siegel and John Overdeck of Two Sigma Investments (629,072 shares).
- Chase Coleman of Tiger Global Management (584,700 shares).
- Dan Loeb of Third Point (500,000 shares).
- Ole Andreas Halvorsen of Viking Global Investors (312,400 shares).
The overwhelming buying activity in Nvidia by billionaire money managers unquestionably has to do with the company's role in fueling the artificial intelligence (AI) revolution. AI involves using software and systems to handle tasks typically overseen by humans.
Nvidia is widely viewed as the infrastructure backbone of AI-accelerated data centers. The company's A100 and H100 graphics processing units (GPUs) are expected to account for 90% (or more) of all GPUs being deployed in high-compute data centers in the coming quarters. Thanks to a combination of AI-related hype, business demand, and A100/H100 scarcity, Nvidia's margins have soared, and its sale and profit forecasts have blown even Wall Street's wildest high-end estimates out of the water.
However, Nvidia is set to face multiple headwinds in the coming quarters yet remains priced for perfection. It'll be contending with new competition in the AI-GPU arena from the likes of Advanced Micro Devices and Intel, and U.S. regulators may further restrict the company's ability to export high-powered GPUs to China.
Furthermore, Nvidia's own production expansion could lead to its downfall. Being able to meet more of its customers' demands will reduce its exorbitant AI-GPU pricing power and likely weigh on its gross margin in its upcoming fiscal year (Nvidia's fiscal year typically starts in late January or early February).
