The artificial intelligence (AI) trade has continued to thrive on Wall Street despite global trade tensions. In the first quarter, these billionaire hedge fund managers sold Nvidia (NVDA 1.56%) and bought Arista Networks (ANET 0.41%), a stock that split in December and has returned 530% in the last five years:
- Ken Griffin at Citadel Advisors sold 1.5 million shares of Nvidia, cutting his exposure 50%. He also added 108,000 shares of Arista, increasing his stake 17%.
- Israel Englander at Millennium Management sold 740,500 shares of Nvidia, trimming his stake 7%. He also purchased 979,600 shares of Arista, increasing his position 43%.
- Paul Tudor Jones of Tudor Investment sold 209,000 shares of Nvidia, reducing his exposure 24%. He also purchased 213,800 shares of Arista, opening a new position.
Importantly, Citadel and Millennium are two of the three most profitable hedge funds in the world, as measured by net gains since inception, which makes Griffin and Englander particularly good sources of inspiration. But the trades shown were made during the first quarter, which ended two months ago.
Here's what investors should know about Nvidia and Arista today.
Image source: Getty Images.
Nvidia: The stock certain billionaires sold in the first quarter
Chinese AI start-up DeepSeek shook investor confidence in Nvidia earlier this year when it reportedly trained sophisticated large language models with fewer and less powerful chips than United States competitors like Anthropic and OpenAI. Investors worried more efficient training methods would reduce demand for Nvidia GPUs, but the opposite is happening, as cheaper models have allowed more businesses to experiment with AI.
Investors are also concerned about the long-term impact of the trade war and chip export restrictions. Nvidia built H20 GPUs for China to comply with existing guidelines, but the Trump administration recently prohibited the sale of those chip in China. CEO Jensen Huang says Nvidia could miss hundreds of billions of dollars in sales in the years ahead because the Chinese market is effectively closed to the company.
Those concerns may explain why certain hedge fund billionaires trimmed their positions in Nvidia during the first quarter, but I don't think individual investors should follow their lead. Nvidia reported exceptional financial results in the first quarter, and the company recently won new business with big companies in Saudi Arabia and the United Arab Emirates, which drove the stock higher in May.
More broadly, Nvidia is the market leader in data center GPUs and InfiniBand networking, both of which play a crucial role in accelerating artificial intelligence workloads. Grand View Research estimates AI infrastructure spending will increase at 30% annually through 2030, and Nvidia is the company best positioned to benefit despite chip export restrictions.
With that in mind, Wall Street expects Nvidia's adjusted earnings to grow at 40% annually through fiscal 2027, which ends in January 2027. That makes the current valuation of 45 times earnings look reasonable. Patient investors should feel comfortable adding a few shares today.
NYSE: ANET
Key Data Points
Arista Networks: The stock certain billionaires bought in the first quarter
Arista develops networking platforms for cloud and enterprise data centers. The company has disrupted the market with two important innovations:
- The Extensible Operating System (EOS) is uniquely programmable software that runs across its entire portfolio of switches and routers. That simplifies network management compared to legacy vendors that use multiple operating systems.
- Arista exclusively sources semiconductors from third-party manufacturers like Broadcom. That lets the company outfit networking gear with the latest chips without spending a substantial amount of money on R&D. It also lets Arista focus on its core competency, which is software.
Arista is the market leader in data center switching platforms, per consultancy Gartner. The company has a particularly strong presence in high-speed Ethernet switches, which are crucial for AI and other demanding workloads. Several major technology companies are Arista customers. The list includes Meta Platforms and Microsoft, as well as newer clients Apple and Oracle.
Additionally, JPMorgan Chase says Arista could win other major customers as hyperscalers connect their data centers. "Although [Alphabet-subsidiary] Google and Amazon have traditionally relied on whitebox solutions, there is an opportunity in the [data center interconnect] space for Arista's solutions as hyperscalers continue to grow their AI data centers," analysts wrote.
Wall Street expects Arista's earnings to grow at 12% annually through 2026. That makes the current valuation of 39 times earnings look relatively expensive. But I think analysts are underestimating the company, as they have in the past. Arista beat the consensus estimate by an average of 14% in the last six quarters. If that trend continues, the current valuation would look reasonable in hindsight.
