The artificial intelligence (AI) market has grown rapidly over the past few years as companies developed new algorithms to analyze data more efficiently. The rise of generative AI platforms like OpenAI's ChatGPT has also been driving companies to explore new ways to create content, automate tasks, and replace human workers.
According to Grand View Research, the global AI market could still expand at a compound annual growth rate (CAGR) of 36.6% from 2024 to 2030. That's why many AI-driven stocks -- including Nvidia (NVDA +5.93%), Super Micro Computer (SMCI +24.38%), and Meta Platforms (META +1.33%) -- rallied over the past year.
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But in the first quarter of 2024, some closely followed billionaire hedge fund managers sold those three high-flying AI stocks. Let's see how many shares they sold -- and whether it makes sense for long-term investors to follow that lead.
1. Nvidia
Nvidia, the leading producer of high-end data center GPUs for processing complex AI tasks, is still one of the market's hottest tech stocks. However, several prominent billionaire investors -- including Philippe Laffont, Ken Griffin, and Israel Englander -- significantly reduced their positions in Nvidia in the first quarter of 2024. Laffont and Griffin both sold 68% of their shares, while Englander reduced his fund's stake by 35%.
NASDAQ: NVDA
Key Data Points
Those sales seem premature considering the market's demand for Nvidia's data center GPUs is still outstripping its available supply and giving it tremendous pricing power. From fiscal 2024 to fiscal 2027 (which ends in January 2027), analysts expect Nvidia's revenue to rise at a CAGR of 46% as its earnings per share (EPS) increases at a CAGR of 53%. Those are impressive growth rates for a stock that still trades at less than 50 times forward earnings.
2. Super Micro Computer
Billionaires are also taking profits in Super Micro Computer, a leading maker of dedicated AI servers. Richard Driehaus, Ken Griffin, and Cliff Asness reduced their stakes in Supermicro by 41%, 8%, and 73%, respectively, in the first quarter.
NASDAQ: SMCI
Key Data Points
That profit-taking is a bit surprising because Supermicro is still firing on all cylinders. It already generates over half of its revenue from dedicated AI servers, and analysts at Bank of America expect its share of that market to grow from 10% to 17% over the next three years. According to Research and Markets, the global AI server market could continue to expand at a CAGR of 26.5% from 2024 to 2029.
From fiscal 2023 to fiscal 2026 (which ends in June 2026), analysts expect Supermicro's revenue and EPS to increase at CAGRs of 58% and 52%, respectively. At 27 times next year's earnings, it still looks like an undervalued growth stock.
3. Meta Platforms
Meta, the parent company of Facebook, Instagram, and WhatsApp, rallied over the past year as its core advertising business recovered. But in the first quarter, several big billionaire investors backed away. Lee Ainslie and Ken Griffin reduced their positions by 51% and 47%, respectively.
NASDAQ: META
Key Data Points
Back in 2022, Meta's ad sales were throttled by Apple's privacy-oriented iOS changes, competition from ByteDance's TikTok, and other macro headwinds. But in 2023, its ad sales accelerated as it rolled out new AI algorithms to counter Apple's changes, expanded its Reels short video platform to widen its moat against TikTok, and attracted more spending from Chinese e-commerce and gaming companies that wanted to target overseas consumers.
From 2023 to 2026, analysts expect Meta's revenue and EPS to increase at CAGRs of 14% and 21%, respectively. That outlook is bright and its stock seems reasonably valued at 24 times forward earnings, but its big investors might be worried about a slowdown in spending from its Chinese advertisers and tougher competitive headwinds in the advertising market.
Should investors follow suit?
Hedge fund managers have different priorities than retail investors. Instead of focusing on long-term multibagger gains over the course of several decades, hedge fund managers tend to focus on generating stable annual returns to satisfy their wealthy clients. To do so, they'll likely trim their winning positions more prudently than growth-oriented retail investors.
Since the end of the first calendar quarter of March 31, Nvidia's stock has rallied 40%. However, Meta's stock has risen less than 1% while Supermicro's stock has declined 13%. So for the short-term investors chasing billionaire trades, selling Nvidia seemed like a mistake but it was smart to follow their lead and take some profits in Meta and Supermicro.
But if you're a patient long-term investor who plans to hold these AI stocks for at least a few more years, I don't think there's any reason to follow those short-term trades. Nvidia will continue to sell the best picks and shovels for the AI gold rush, Supermicro's share of the AI server market will keep growing, and Meta will continue to use its AI algorithms to craft more effective targeted ads across its social media platforms. Therefore, all three stocks could still generate big multibagger gains for investors who don't get too distracted by the near-term noise and the periodic institutional selling.
