In case you missed it, one of the most important data releases of the entire quarter occurred on Nov. 14. While most investors were honing in on earnings releases and the October inflation report, institutional investors were filing Form 13F with the Securities and Exchange Commission.
A 13F is a required filing for institutional investors with at least $100 million in assets under management (AUM) that clues investors into which stocks these top-tier money managers bought and sold in the latest quarter (in this case, the September-ended quarter). Though 13F's have their flaws -- since they're filed up to 45 days after the end of a quarter, they may present stale holding data for active hedge funds -- they still provide invaluable insight into which stocks, industries, sectors, and trends have the interest of Wall Street's greatest asset managers.
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While Warren Buffett is the most-prominent billionaire money manager on Wall Street, he's far from the only billionaire that investors closely track. For instance, Ole Andreas Halvorsen of Viking Global Investors was overseeing $27.4 billion spread across 83 stocks at the end of September. Halvorsen and his team tend to be fairly active, with a focus on the financial, technology, and healthcare sectors.
What's perhaps most noteworthy about Halvorsen's third-quarter trading activity is that he disposed of one of Wall Street's hottest artificial intelligence (AI) stocks and absolutely piled into a premier financial company that's skyrocketed since its initial public offering (IPO) in 2008.
Halvorsen's Viking Global sends shares of Broadcom packing
Though ringing the register on profitable positions is nothing new for Halvorsen's fund, it may still come as a surprise that Viking Global's brightest minds chose to sell all 2,930,970 shares of AI networking colossus Broadcom (AVGO +1.01%) during the third quarter.
The excitement surrounding Broadcom's opportunity in the AI arena is thick enough to cut with a knife. The analysts at PwC believe artificial intelligence will add $15.7 trillion to the global economy by 2030, and Broadcom's networking solutions have quickly leaped to the front of the pack in enterprise data centers.
NASDAQ: AVGO
Key Data Points
Last year, it introduced the Jericho3-AI fabric, which is capable of connecting up to 32,000 graphics processing units (GPUs) in AI-accelerated data centers. Broadcom's tools are designed to maximize the computing potential of GPUs and minimize tail latency. The latter is particularly important for AI-driven software and systems that depend on split-second decision-making.
Additionally, Broadcom is much more than just an "AI stock." It's a leading provider of wireless chips and accessories used in next-generation smartphones. A steady device replacement cycle spurred by wireless providers upgrading their networks to support 5G download speeds has been a growth driver for the company.
With so much going Broadcom's way, you might be wondering why Halvorsen and his team cashed in their chips. One possibility is that Viking Global's investment team is acutely aware of history.
There hasn't been a game-changing innovation for 30 years that's avoided an early innings bubble-bursting event. Without fail, investors consistently overestimate the early stage adoption and utility of next-big-thing innovations, which eventually leads to disappointment. If the AI bubble were to burst, it'll undoubtedly be bad news for Broadcom's fastest-growing initiative.
Another reason to ring the register is Wall Street's historically expensive valuation. The S&P 500's Shiller price-to-earnings (P/E) ratio is the third-priciest it's ever been during a bull market, when back-tested to 1871. What's more, the "Buffett Indicator" hit its highest reading ever this month. Growth stocks tend to be hit hard during stock market corrections, and a few predictive valuation tools foreshadow trouble to come.
Lastly, Broadcom is no longer the smoking-hot bargain it once was. Though shares of the company have averaged a reasonably low forward P/E ratio of 16.5 over the trailing-five-year period, Broadcom is currently valued at a 61% premium to this average.
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Halvorsen is piling into a financial leader whose stock keeps climbing
On the other end of the spectrum is a stock Halvorsen couldn't stop buying during the September-ended quarter. I'm talking about globally dominant payment processor Visa (V 1.29%), whose shares have risen by nearly 2,400%, including dividends, since its IPO in March 2008.
Among the 23 new purchases made by Viking Global during the third quarter, none was larger than Visa (3,505,747 shares), which became the fund's fifth-largest holding by market value, and its second-largest financial holding, behind only U.S. Bancorp.
One of the greatest investing catalysts for financial stocks is that they're able to take advantage of the non-linearity of the economic cycle. While recessions are both normal and inevitable, they're historically short-lived.
Since World War II ended in September 1945, only three out of 12 recessions lasted longer than 12 months, and none surpassed 18 months in length. By comparison, most periods of growth have endured multiple years, if not a decade on rare occasion. Financial stocks are able to take advantage of these disproportionately long periods of growth.
NYSE: V
Key Data Points
Another reason investors like Ole Andreas Halvorsen tend to pile into Visa is its dominant role as a payment processor. According to eMarketer, Visa accounted for roughly $6.45 trillion in credit card network purchase volume in the U.S. in 2023, which was more than double its next-closest competitor, Mastercard, at $2.73 trillion. Visa is highly unlikely to cede its leading market share in domestic payment processing anytime soon.
Furthermore, Visa may be able to sustain double-digit sales and earnings growth for years to come thanks to its international opportunity. For fiscal 2024, which ended Sept. 30, Visa recorded cross-border payment volume growth of 15%! Most emerging markets remain chronically underbanked, which should allow Visa to organically or acquisitively expand its reach in the coming years.
Lastly, Visa stock is still inexpensive. Despite its seemingly never-ending rally since its IPO, shares are valued at 24.5 times forward-year earnings. This represents a 14% discount to its average forward P/E ratio over the trailing-five-year period.
While Visa is cyclical and susceptible to downside when recessions occur, the company's competitive advantages far outweigh any short-term concerns.
