These wealthy hedge fund managers trimmed their positions in Nvidia during the first quarter.
Nvidia completed a 10-for-1 stock split after the market closed on Friday, June 7. That split follows substantial price appreciation driven by enthusiasm surrounding artificial intelligence (AI). Nvidia shares are up more than 200% in the past year.
Yet, several billionaire hedge fund managers trimmed their positions in Nvidia during the first quarter, before the stock split was announced, and reinvested the money in other AI companies.
- Philippe Laffont of Coatue Management sold 2.9 million shares of Nvidia, reducing his stake by 68%. Meanwhile, he increased his position in Alphabet (GOOGL -1.28%) (GOOG -1.35%) by 155%, making it the ninth-largest holding in his portfolio.
- Steven Schonfeld of Schonfeld Strategic Advisors sold 96,793 shares of Nvidia, reducing his stake by 58%. Meanwhile, he increased his stake in Alphabet by 195%, making it the ninth-largest holding in his portfolio, excluding options contracts.
- Paul Tudor Jones of Tudor Investment sold 103,337 shares of Nvidia, reducing his stake by 78%. As a caveat, Jones purchased call options on Nvidia, which allow him to benefit from a price increase with a smaller capital outlay. Meanwhile, he increased his stake in Snowflake (SNOW -0.63%) by 54%, though it remains a relatively small position.
- Louis Bacon of Moore Capital Management sold 2,006 shares of Nvidia, reducing his stake by 19%. He also started positions in Alphabet and Snowflake, though neither rank among the top 25 holdings.
The trades made by those hedge fund managers do not mean Nvidia is a bad investment. All four fund managers still have exposure to the chipmaker, as do plenty of other wealthy investors. However, Alphabet and Snowflake warrant further consideration.
1. Alphabet
Alphabet is the largest ad tech company and the third-largest cloud infrastructure and platform services provider in the world. Its leadership in advertising is predicated on its ability to engage internet users and collect data with popular web platforms, such as Google Search, YouTube, and Chrome. Similarly, its strong presence in cloud computing reflects its technological prowess and extensive data center footprint.
Alphabet is slowly losing ground in digital advertising. Its market share is projected to slip to 27.4% this year, down from 28.1% last year. But Google Cloud Platform is actually gaining market share in cloud infrastructure and platform services, accounting for 11% of spending in the fourth quarter, up from 10% in the prior year.
Alphabet is integrating its latest AI model, Gemini, into both ecosystems to boost growth. For instance, Gemini powers AI overviews designed to make Google Search more engaging and streamlines ad campaign creation with a conversational interface. Gemini also automates tasks in Workspace applications, like Google Docs and Google Sheets, and it can be fine-tuned by Google Cloud customers to create custom generative AI applications.
Alphabet is particularly well positioned to monetize AI through its cloud computing business. Forrester Research recently ranked Google Cloud Platform as the leader in AI infrastructure solutions, awarding the company the highest scores in current offering, development strategy, and market share. Forrester also ranked Google’s Gemini as the leading large language model, ahead of OpenAI’s GPT-4.
Alphabet reported encouraging financial results in the first quarter. Revenue increased 15% to $80.5 billion due to strong momentum in cloud computing and modest growth in advertising. Meanwhile, generally accepted accounting principles (GAAP) net income jumped 57% to $23.7 billion, helped along by cost-optimization efforts, like headcount reductions and the integration of different business teams.
Going forward, Wall Street analysts estimate that Alphabet will grow earnings per share at 17.2% annually over the next three to five years. That forecast makes its current valuation of 26.7 times earnings seem reasonable. From that price, I think Alphabet can outperform the S&P 500 over the next three to five years.
2. Snowflake
Snowflake is best known as a cloud data warehouse, a system that stores data optimized for queries and business intelligence. In fact, Forrester recently recognized the company as a leader among cloud data warehousing platforms. But Snowflake also functions as a data lake, a system that stores raw data for analytics and AI, and its platform supports data sharing.
Beyond that core functionality, Snowflake provides several adjacent solutions. Its Snowpark developer framework supports the training of AI models, its Cortex service brings generative AI and machine learning models to Snowflake data, and its Native Application Framework allows businesses to build and deploy applications on the platform. Snowflake is unique in its ability to support those features on a single platform across multiple public clouds.
The company reported mixed first-quarter financial results. Its customer count jumped 21% to 9,822, and the average existing customer spent 28% more. In turn, revenue increased 33% to $829 million on strong growth in core storage and analytics capabilities. But management also mentioned encouraging momentum with newer products. More than half of customers now use Snowpark, and over 750 customers have already used Cortex (which launched in May).
The bottom line was more troubling. Non-GAAP operating margin contracted one percentage point in the first quarter, and non-GAAP net income declined 7% to $0.14 per diluted share. Snowflake also lowered its full-year margin guidance, but management attributed that to increased costs related to AI product development. CFO Michael Scarpelli told analysts, “We view these investments as key to unlocking additional revenue opportunities in the future.”
Going forward, the data lake and data warehousing markets are projected to expand at 24% annually through 2030. Meanwhile, Wall Street expects Snowflake to grow sales at 23% annually over the next three years. Personally, I think that leaves room for upside if Snowflake is successful in its AI ambitions. But even if Wall Street is correct, the current valuation of 14.4 times sales is quite reasonable. Indeed, Snowflake has never traded at a cheaper valuation.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Nvidia, and Snowflake. The Motley Fool has a disclosure policy.
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