Nvidia could be flashing a big buy signal.
There’s no question that Nvidia (NVDA 0.89%) has been the biggest winner in the artificial intelligence (AI) boom. The AI chip stock added a whopping $3 trillion in market cap since the beginning of 2023, shortly after ChatGPT was launched.
However, throughout the first half of the year, there was a surprising rotation out of Nvidia stock. A number of billionaire investors who had capitalized on the stock’s initial gains sold the AI stock, arguing that there were better opportunities elsewhere.
Among those investors were David Tepper of Appaloosa Management, Israel Englander of Millennium Management, Ken Griffin of Citadel Advisors, George Soros of Soros Capital Management, and Stanley Druckenmiller, who ran Duquesne Capital Management for more than two decades.
Druckenmiller, who occasionally discusses his stock moves in interviews, was early to jump on the AI trend in Nvidia. The investor, whose hedge fund delivered annual average returns of 30% when it was active, first bought shares of Nvidia in the fourth quarter of 2022, recognizing that the launch of ChatGPT would lead to demand for Nvidia’s GPUs, which were used for AI applications.
However, even Druckenmiller seemed surprised by Nvidia’s dramatic surge through 2023 and 2024, and since sold out of the high-flying stock. Back in May, he acknowledged cutting his Nivida position, saying, “A lot of what we recognized has become recognized by the marketplace now.” In other words, he believed that the upside potential in the stock was limited in late March when he sold it.
Image source: Getty Images.
Druckenmiller’s mea culpa
More than six months after that sale, Druckenmiller now has some regrets.
In an interview with Bloomberg, the billionaire said the decision to sell Nvidia was a “big mistake.” He said he sold most of his position when Nvidia was priced between $80 and $95 (post-split) and the stock has now run up past $130, meaning the value of Nvidia has increased roughly 50% since he did most of his selling.
In 2023, Druckenmiller said he expected to own the stock for years, but he thought the “valuation was rich” after the stock tripled in just a year.
At one point, Nvidia was his biggest holding. At the end of Q2 2023, he had 9.5 million (post-split) shares of the stock worth roughly $400 million. He sold 754,000 in third quarter of 2023, 2.57 million in Q4 of that year, 4.42 million in the first quarter of 2024, and 1.54 million in the next quarter. He’s since sold his remaining 214,060 shares of Nvidia, according to the Bloomberg interview.
It’s difficult to know precisely when the Duquesne boss sold those shares, but using the end-of-the-quarter Nvidia share price from each of its sales, Druckenmiller left roughly $500 million on the table with Nvidia stock.
A bullish signal for Nvidia
In addition to calling the Nvidia sale a mistake, Druckenmiller also remained bullish on the long-term future of AI, saying, “We are long-term believers in AI, and there are still many ways we’re playing AI.” He also added, “And yes, I think Nvidia’s a wonderful company, and were the price to come down we’d get involved again, but right now I’m licking my wounds from a bad sale there.”
Nvidia stock might be expensive at a price-to-earnings ratio of 65, but the business has certainly demonstrated it deserves to trade at a premium. It’s still delivering monster sales growth with revenue more than doubling for five quarters in a row, and demand for its Blackwell platform has been “insane,” according to CEO Jensen Huang. The new hardware is already sold for the next 12 months after it was just released.
Druckenmiller may not get another opportunity to buy Nvidia at a price that makes sense for him, but Nvidia investors should take comfort in knowing that one of the most influential investors in the market now admits he was wrong to underestimate the company.
With the Blackwell platform off to a roaring start, the future for Nvidia still looks as bright as ever.
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