It's no secret that artificial intelligence (AI) is the hottest game in town for investors. Much of the big gains for the stock market in 2023 and 2024 have been driven by surging interest in everything AI.
No company has been more at the forefront of the AI boom than Nvidia (NVDA -0.49%). The chipmaker's share price skyrocketed 239% last year and is up close to 75% this year. But is the enthusiasm about Nvidia beginning to fade? Maybe so. Two billionaire investors are selling Nvidia and buying another AI stock instead.
Thumbs down to Nvidia
David Tepper is known to many as the owner of the Carolina Panthers. However, he amassed enough money to buy the NFL franchise by achieving tremendous success with the hedge fund he founded in 1993, Appaloosa Management. Today, Tepper's net worth stands at $20.6 billion.
Tepper is bullish about AI. Eight of the top 10 holdings in Appaloosa's portfolio are AI stocks. Nvidia ranks as the hedge fund's fourth-largest position, but Tepper seems to think the stock's tremendous momentum could be near an end. In the fourth quarter of 2023, he sold almost 23% of Appaloosa's stake in the graphics processing unit (GPU) maker.
He isn't the only billionaire investor now noticeably less excited about Nvidia. Chase Coleman first made his mark in the investment world by working with legendary hedge fund manager Julian Robertson. Coleman next ran his own hedge fund, Tiger Global Management, which later expanded into venture capital. He's now worth $5.7 billion.
Tiger Global Management reduced its position in Nvidia in Q4 by nearly 13%. Nvidia still claims the No. 10 spot in the hedge fund's portfolio with a stake valued at roughly $480 million at the end of 2023. However, Coleman is taking some of his profits off the table with the stock after making big gains.
Thumbs up to Amazon
Both Tepper and Coleman saw Amazon (AMZN 0.38%) as a better AI stock to buy in Q4. Tepper's Appaloosa fund increased its position in the e-commerce and cloud-services giant by more than 5%. Coleman's Tiger Global Management upped its stake in Amazon by 24%.
Why are these two billionaire investors more bullish about Amazon than Nvidia? I suspect Tepper and Coleman might think Nvidia's valuation is now at a level where any sign of trouble could cause a steep sell-off. At the same time, Amazon appears to be building sustainable momentum.
AI is definitely a key growth driver for Amazon. The company's cloud platform, Amazon Web Services (AWS), is the top cloud-services provider based on market share. AWS is especially investing heavily in supporting generative AI development.
Amazon is using generative AI internally as well. CEO Andy Jassy said in the company's Q4 earnings conference call, "[W]e believe it [generative AI] will ultimately drive tens of billions of dollars of revenue for Amazon over the next several years."
Of course, Amazon isn't just an AI stock. The company's efforts to increase profitability in its e-commerce business continue to pay off. Amazon has delivered seven consecutive quarters of improving operating margins in its North America business segment.
It has also become a key player in the digital-advertising market. Amazon's advertising revenue soared 26% year over year in Q4. And that growth came before the company launched its ads on Prime Video.
Buying more shares of Amazon has already paid off for Tepper and Coleman. The stock is up over 20% year to date.
Should you buy Amazon too?
Investors shouldn't sell Nvidia and buy Amazon only because two hedge fund billionaires have. However, it's not a bad idea to examine the potential reasons behind Tepper and Coleman's moves.
I think the reasons Tepper and Coleman added more shares of Amazon in Q4 are still applicable now. The company's profits will likely continue to rise. AI and advertising remain strong growth drivers. Amazon is still an excellent long-term pick, in my view.
