Data is the fuel that keeps Wall Street's engine humming along. The issue for investors is that there's often more data available than they can possibly digest. Between earnings season -- the six-week period each quarter where most S&P 500 companies report their operating results -- and near-daily economic data releases, it's easy for something important to fall through the cracks.
For instance, investors might have overlooked the flurry of Form 13F filings in mid-November. A 13F is a required filing no later than 45 days following the end of a quarter for institutional investors with at least $100 million in assets under management. These filings intricately detail the stocks Wall Street's brightest money managers bought and sold in the latest quarter (in this instance, the quarter ended Sept. 30).
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Although the newly retired Warren Buffett has long been the most-followed billionaire fund manager on Wall Street, he's far from the only billionaire investor known to make waves. For example, Viking Global Investors' chief, Ole Andreas Halvorsen, has a history of outperforming the stock market's major indexes.
But the biggest surprise you'll find in Halvorsen's fund, which is overseeing close to $39 billion in assets under management, is his approach with members of the trillion-dollar club. During the September-ended quarter, Halvorsen completely jettisoned his fund's stakes in artificial intelligence (AI) titans Nvidia (NVDA +1.67%) and Amazon (AMZN 0.60%), while making another trillion-dollar company a new top-five holding.
Viking Global Investors' billionaire boss shows Nvidia and Amazon to the door
For most billionaire investors, members of the "Magnificent Seven" are commonly held stocks. These are seven of the most influential businesses on Wall Street that possess one or more sustainable moats. But for Ole Andreas Halvorsen, two of these leading businesses were given the heave-ho.
NASDAQ: AMZN
Key Data Points
During the third quarter, Viking Global's billionaire boss dumped all 3,897,092 shares of Amazon (previously the fund's eighth-largest holding) and sent all 3,681,935 shares of Nvidia (previously the 26th-largest holding by market value) to the chopping block.
Simple profit-taking may explain why Halvorsen oversaw big-time selling in two stocks that are widely held by other billionaires and everyday investors. The average stock in Viking Global's portfolio has been held for less than 19 months, which indicates Halvorsen isn't afraid to cash in his fund's chips when presented with the opportunity.
The worry is that there may be more nefarious reasons that Halvorsen showed Nvidia and Amazon to the door.
NASDAQ: NVDA
Key Data Points
For instance, there's skepticism about the sustainability of the AI revolution. While most investors recognize the long-term potential of this technology, historical precedent shows that every game-changing technology has endured an early stage bubble over the last three decades. Investors consistently overestimate the adoption and/or optimization rates of innovations, leading to lofty expectations that go unmet. If an AI bubble were to form and burst, graphics processing unit titan Nvidia would be hit especially hard.
Another possible reason for this selling is Halvorsen's displeasure with the valuations of Nvidia and Amazon amid an already pricey stock market. Historically, a price-to-sales (P/S) ratio above 30 for a company at the forefront of a next-big-thing trend is indicative of a bubble. Nvidia's P/S ratio briefly surpassed 30 in early November.
As for Amazon, it's inexpensive relative to its forward cash flow potential, but quite pricey based on the traditional price-to-earnings (P/E) ratio. Halvorsen and his top advisors may have had little interest in paying a P/E ratio of 34 for Amazon.
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Ole Andreas Halvorsen has a new favorite trillion-dollar stock
However, Viking Global's chief investor has also done his fair share of buying. The fund's most recent 13F shows that Halvorsen oversaw the opening of 15 new positions during the third quarter, none of which looms larger than trillion-dollar titan Microsoft (MSFT +0.51%).
During the September-ended quarter, Viking Global Investors acquired 2,429,412 shares of Microsoft, worth almost $1.26 billion. This purchase slots Microsoft in as the fund's fifth-largest holding and accounts for 3.2% of invested assets.
Make no mistake about it -- Microsoft's future is very much reliant on the success of artificial intelligence. Azure, the company's cloud infrastructure service platform, is incorporating generative AI and large language model solutions to attract new clients, retain existing subscribers, and increase its already robust subscription pricing power. Azure's constant-currency growth rate in Microsoft's fiscal first quarter (ended Sept. 30) was a scorching-hot 39%.
Given the potential for an AI bubble-bursting event, Microsoft's stock may be exposed to downside pressure. The caveat is that AI application companies are likely to endure less pain than AI hardware providers like Nvidia.
NASDAQ: MSFT
Key Data Points
The silver lining for Microsoft is that it's far more than just an AI stock. While cloud services and AI tend to hog all the glory, legacy segments, Windows and Office, continue to generate high margins and an abundance of operating cash flow. Even though these segments are well past their glory days, they've retained significant market share and provide Microsoft with cash that can be used to invest in several high-growth initiatives, including AI, cloud computing, and quantum computing.
Speaking of cash, Microsoft has more than it knows what to do with. It closed out September with $102 billion in combined cash, cash equivalents, and short-term investments, and generated $45 billion in net cash from its operating activities in just the first three months of its fiscal year. This level of cash generation enables the company to conduct buybacks, pay a sizable dividend, and lean on acquisitions as a steady part of its corporate diet.
Lastly, Viking Global's billionaire boss may be enticed by Microsoft's comparatively attractive valuation. Its forward P/E of 25 marks a 16% discount to its average forward P/E over the trailing half-decade.
