Sometimes what billionaires do makes sense for your portfolio, too.
With Nvidia‘s incredible stock price performance over the past year, some billionaire investment managers are locking in their gains and using the profits to buy other growth stocks. There are reasons to be cautious about owning Nvidia stock, even just because it has ballooned to become a larger percentage of many total portfolios at its high price. Even if you believe it has further growth in its future, you might want to reallocate at least some of your funds to manage risk.
That raises the question: What other amazing growth stocks are out there to fill a portfolio?
Two fool.com contributors were asked to offer suggestions. They think you should consider perennial winner Amazon (AMZN -0.20%) and newcomer Nu Holdings (NU -1.56%). Both stocks are being bought by billionaires, and both stocks happen to already be in billionaire Warren Buffett’s Berkshire Hathaway portfolio as well.
AI could power huge profit growth for Amazon
Keith Noonan: In the second quarter, Citadel purchased more than 1 million new shares of Amazon stock, bringing its total holdings in the company to approximately 7.7 million shares. Citadel is the most profitable hedge fund in history and is led by founder and billionaire Ken Griffin. With that kind of pedigree, it’s little wonder that some investors pay close attention to the moves that Griffin and Citadel make. Notably, the hedge fund also sold roughly 79% of its Nvidia stake last quarter.
Like Nvidia, Amazon looks poised to be one of the biggest drivers and beneficiaries of the artificial intelligence (AI) revolution. Amazon Web Services (AWS) is the market’s leading cloud infrastructure service, and it’s poised to see long-term growth catalysts connected to the development, training, and scaling of AI applications.
While Amazon is best known as an e-commerce giant and generates most of its sales from online retail, AWS is actually the source of most of the company’s profits. AI-driven demand should help AWS keep expanding and come to account for a greater portion of the tech giant’s overall sales. As AWS makes up a greater portion of the company’s revenue, Amazon’s profit margins should continue to improve.
But while AI’s impact is already serving as a bullish catalyst for AWS, its long-term impact on the company’s e-commerce business is even more exciting. Amazon is the largest e-commerce business by revenue, but it has historically generated relatively small profit margins on its online retail operations.
High costs for warehouse operations and shipping tend to keep margins low, but AI will likely pave the way for significant margin expansion over the long term. Increased automation in warehouses and for deliveries could dramatically reduce operating costs and unlock the profit potential of Amazon’s massive e-commerce imprint. With positive AI-related catalysts still seemingly in the early stages of unfolding, Amazon looks poised to be a winner for Griffin and Citadel — and other long-term investors who build positions in the company.
A no-brainer growth platform
Jennifer Saibil: Nu Holdings isn’t as well known among investors as Nvidia and Amazon, but if you’re interested in growth stocks, it should be on your radar. Nu is an all-digital, Brazil-based bank that’s attracting customers at a high rate and changing the way people bank in Latin America.
Some billionaire investors who recently increased their positions in Nu include BlackRock‘s Larry Fink, who increased the investment firm’s position by 33%, and Millennium Management’s Israel Englander, who increased his company’s position by 371%.
It’s not hard to see the appeal of Nu stock. It’s been growing at incredible rates most companies dream of, and it’s been doing it consistently quarter after quarter. It’s also becoming more and more profitable.
Nu’s platform is similar to other digital banking apps, but it has a few key features that make it stand out. For one thing, it targets the Latin American consumer, and it has a first-mover edge in that region. Brazil has historically been dominated by five traditional banks, and Nu made a splash when it came onto the scene, offering something truly different. These days there are other options, but Nu has already established itself as a leader in Brazil, to the tune of 95.5 million members in Brazil alone, or 56% of the adult population. Nu has added more customers to its platform over the past year than the other top five banks combined.
It started with targeting the mass consumer by hooking them in with low banking fees and high savings rates. Now that it’s established itself, it’s going after the high-income consumer, which could boost revenue further. It already has an excellent reputation among this population, and it’s developing key products to fit this customer profile.
Nu is just getting started in Mexico, where it has 7.8 million customers, and Colombia, where it recently surpassed 1 million. The Brazil business is highly profitable, and it’s investing in these two not-yet-profitable regions that will add tremendous scale as they grow and turn their own profits. So far, the Mexico business is outpacing where the Brazil business was at this stage of growth.
Notably, Nu has a robust credit business with strong risk management that feeds into increasing net interest income. Net interest income rose 77% year over year in the second quarter, and net interest margin expanded to 19.8%.
Nu should continue to grow its business and it’s well positioned to perform even better under lower interest rate conditions.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil has positions in Nu Holdings. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Berkshire Hathaway, and Nvidia. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
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