Forget Nvidia: Instead, billionaires seem to be fascinated by these two hypergrowth stocks

With the steady stream of economic data releases and thousands of companies reporting financial results every three months, it can be easy for investors to miss a major announcement. Last month, one of the most important announcements of the quarter likely went unnoticed by some investors.

On August 14, institutional investors with assets under management of at least $100 million were required to submit Form 13F to the U.S. Securities and Exchange Commission (SEC). The form gives investors a compact overview of which stocks Wall Street's brightest investment minds bought and sold in the last quarter.

Even though this information can be up to 45 days old at the time of filing, the 13Fs still provide valuable insight into which stocks, industries, sectors and trends are attracting the interest of top asset managers – including billionaire investors.

Perhaps the biggest surprise of the quarter ended in June is that while artificial intelligence (AI) is still a popular trend, billionaires have not been afraid to divest from stocks of NVIDIA (NVDA -0.96%)But while Nvidia was dumped, 13Fs make it clear that billionaire investors were apparently intrigued by two other hypergrowth stocks.

Seven billionaire asset managers sold Nvidia shares

The quarter ended in June was the third consecutive quarter in which at least seven prominent billionaire asset managers sold Nvidia shares. The latest round of sales included (number of shares sold in parentheses):

• Ken Griffin of Citadel Advisors (9,282,018 shares)
• David Tepper of Appaloosa (3,730,000 shares)
• Stanley Druckenmiller of the Duquesne Family Office (1,545,370 shares)
• Cliff Asness of AQR Capital Management (1,360,215 shares)
• Israel Englander of Millennium Management (676,242 shares)
• Steven Cohen of Point72 Asset Management (409,042 shares)
• Philippe Laffont from Coatue Management (96,963 shares)

Considering that Nvidia shares have gained 603% since the start of 2023 through the close on Sept. 6, profit-taking is a valid reason that likely explains some of this selling activity. But there's more to this story than just billionaires cashing in their chips for tax or diversification reasons.

First of all, investors' expectations of the AI ​​revolution are probably too high. For 30 years, every highly touted innovation and technology has experienced a bubble burst at the beginning of its existence. This is a reflection of investors consistently overestimating consumer and corporate adoption of new technologies/innovations. Since most companies do not have a clearly defined plan on how they will monetize AI, it is likely that artificial intelligence is simply the next in a long line of hyped bubbles.

The rapidly growing external and internal competition is another reason for billionaire investors to turn their backs on Nvidia.

Although Nvidia's artificial intelligence graphics processing units (GPUs) have clear computational advantages over external competitors, the company's extensive chip backlog, combined with the much cheaper price of AI GPUs from other manufacturers, is likely to force at least some companies to turn to rivals.

In addition, Nvidia's four largest customers by net revenue, all of which are part of the “Magnificent Seven,” are internally developing AI GPUs to be deployed in their data centers. It is foreseeable that Nvidia's chips will miss out on valuable data center space in the future.

But while billionaire asset managers were busy dumping Nvidia shares in the second quarter, they were also actively buying the following two fast-growing stocks.

Image source: Amazon.

Amazon

The first high-growth stock that billionaire investors attracted in the June quarter is e-commerce market leader Amazon (AMZN 1.54%). Form 13F filings show that five high-profile billionaire investors were buyers, including (number of total shares purchased in parentheses):

• Ole Andreas Halvorsen of Viking Global Investors (2,391,262 shares)
• Ray Dalio of Bridgewater Associates (1,597,676 shares)
• Ken Fisher of Fisher Asset Management (1,214,055 shares)
• Ken Griffin of Citadel Advisors (1,114,948 shares)
• Philippe Laffont from Coatue Management (702,235 shares)

Although most people know Amazon as the world's leading online marketplace, this business segment is not the reason why these five billionaires bought Amazon shares in the second quarter.

The main incentive for Amazon as an investment is its world-leading cloud infrastructure services platform. Technology analytics firm Canalys estimated Amazon Web Services (AWS)'s global market share at 33% in June 2024. AWS has a sustained double-digit growth rate, generates more than $105 billion in annual revenue, and consistently accounts for between 50 and 100% of Amazon's operating profit.

AWS is also Amazon's vehicle to capitalize on the rise of AI. The company plans to use generative AI solutions to help AWS customers improve their business and better reach consumers. The enterprise cloud and AI revolution are still in their infancy, which bodes exceptionally well for the future of AWS.

But there's more to Amazon than just AWS and its e-commerce platform. Amazon attracts over 3 billion visitors each month, making it a magnet for companies looking to advertise. Revenue from advertising services has grown at least 20% year-on-year over the past two years.

In addition, it has a growing content library and exclusive sports partnerships – an 11-year streaming rights deal with the NBA and the streaming rights for Football on Thursday evening – should give the company exceptional pricing power with its Prime subscription.

Nio

The second hyper-growth stock that billionaires seem to be fascinated by besides Nvidia is the China-based electric vehicle (EV) maker. Nio (NIO -3.95%). Despite the stock's low nominal value, which hovered around $5 for most of the second quarter, half a dozen billionaires got in, including (number of total shares purchased in parentheses):

• Steven Cohen of Point72 Asset Management (4,018,659 shares)
• Israel Englander of Millennium Management (1,484,185 shares)
• Jeff Yass of Susquehanna International (626,300 shares)
• John Overdeck and David Siegel of Two Sigma Investments (395,000 shares)
• Ken Fisher of Fisher Asset Management (30,868 shares)

On the one hand, we have certainly seen a slowdown in EV demand in 2024. Competition in the EV space has increased, and consumers have been somewhat reluctant to take the plunge given the lack of EV charging infrastructure. But despite these challenges, we have seen significant sales growth and a significant increase in production at Nio.

Since China lifted its cumbersome COVID-19 containment measures in December 2022, Nio has been able to expand production relatively steadily. With no supply chain constraints, the company has been able to produce around 20,000 electric vehicles per month. By August, deliveries were up nearly 36% from the same period in 2023.

Nio also scores points for its innovative strength. The company has been launching at least one new electric vehicle every year for years and has benefited from increasing demand since the launch of its NT 2.0 platform, which includes a range of new driver assistance features.

In addition, Nio introduced its ONVO brand to the world in May. While Nio has traditionally focused on premium electric vehicles, the ONVO brand is more family-oriented and will potentially offer a more attractive price point for Chinese consumers.

Finally, management's efforts to keep costs under control while improving margins are starting to pay off. Vehicle margin rose six percentage points to 12.2% in the quarter ended in June from the same period a year ago, while adjusted net loss shrank nearly 17%. Although Nio still has a lot of work to do to become profitable, the company is taking steps in the right direction.