Last week yielded one of the most important data releases of the third quarter. Thursday, Nov. 14, marked the deadline for institutional investors with at least $100 million in assets under management to file Form 13F with the Securities and Exchange Commission.
A 13F is a filing released no later than 45 calendar days following the end to a quarter that provides an under-the-hood look at which stocks Wall Street's premier money managers have been buying and selling. Even though 13Fs have their limitations -- e.g., the data can be stale for active hedge funds -- they nevertheless offer an inside look at which stocks and trends have the undivided attention of Wall Street's greatest investors.
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Although Warren Buffett is, arguably, at the top of the list among Wall Street's most-prominent money managers, there are plenty of other billionaires known for their success. For instance, billionaire Steven Cohen of Point72 Asset Management oversees more than $39 billion for his highly successful hedge fund.
But among the thousands of trades completed by Cohen and his team during the third quarter, two stand head-and-shoulders above the crowd.
Cohen's Point72 is piling into artificial intelligence colossus Nvidia
The eye-popper of all purchases for the September-ended quarter by Cohen's Point72 Asset Management is shares of artificial intelligence (AI) kingpin Nvidia(NASDAQ: NVDA). In spite of Nvidia's historic ascent, and most billionaire money managers selling some of their shares to lock in gains, Cohen's fund added 1,574,796 shares of Nvidia, which increased Point72's stake in the company by 74%.
Cohen's belief that shares of Nvidia will head higher likely boils down to three factors. First, there's the company's monopoly like market share of AI-graphics processing units (GPUs). According to TechInsights, Nvidia accounted for roughly 98% of all GPUs shipped to data centers in 2022 and 2023. Considering that orders are backlogged for the company's ultra-popular H100 ("Hopper") chip and next-generation Blackwell GPU architecture, it's safe to say that Nvidia's first-mover advantage is here to stay.
Secondly, Nvidia's pricing power is a thing of beauty. With demand for AI-GPUs handily swamping supply, Wall Street's Ai darling has been commanding between $30,000 and $40,000 for its Hopper chip. For context, this ranges between a 100% and 300% premium to the price of competing chips. The end result for Nvidia is a gross margin that's soared to the mid-70% range.
The third factor that likely has Cohen and his team captivated by Nvidia is its computing superiority. The company's next-gen Blackwell chip is notably faster and more energy-efficient than its predecessor. What's more, its CUDA software platform is working in-tandem with its hardware to keep clients loyal to its ecosystem of offerings.
But as I've argued previously, having superior computing capabilities may not be enough for Nvidia. In addition to growing external competition, nearly all of Nvidia's top customers by net sales -- many of which are members of the "Magnificent Seven" -- are internally developing AI-GPUs for use in their data centers. These chips will be cheaper and more easily accessible than Nvidia's, which may eventually (key word!) cost the latter valuable data center real estate.
Furthermore, history hasn't exactly been kind to next-big-thing innovations over the last 30 years. Including the internet, every game-changing technology has endured an early stage bubble-bursting event. It takes time for all innovations to mature, and nothing, thus far, suggests artificial intelligence is an exception to this unwritten rule.
Nvidia will need virtually flawless execution to maintain the near-parabolic increase in its share price, and history suggests this isn't likely to happen.
Image source: Amazon.
Billionaire Steven Cohen sent every share of this dual-market leader to the chopping block
But it's not just Cohen's buying activity during the third quarter that's raising eyebrows. Point72's 13F shows that Steven Cohen dumped all 3,163,439 shares of dual-industry leader, and Magnificent Seven constituent, Amazon(NASDAQ: AMZN).
Aside from simple profit-taking, valuation might be one of the catalysts that compelled Point72's chief to cash in his fund's chips. Amazon is currently valued at 43 times trailing-12-month earnings per share (EPS) and has a market cap north of $2.1 trillion. Most Magnificent Seven stocks have needed time to grow into their trillion-dollar valuation milestones.
The other possible sell-side catalyst for Cohen and his team is Wall Street's historically high valuation premium. The S&P 500's Shiller price-to-earnings ratio is at its third-highest multiple during a bull market when looking back 153 years. In previous instances where stock market valuations were this extended, Wall Street's major indexes eventually lost 20% or more of their value. In other words, Cohen might be anticipating that stocks with premium valuations, like Amazon, may be exposed to meaningful downside in the event of a correction.
However, selling over 3.1 million shares of Amazon is something Cohen is likely to regret.
As most people know, Amazon is the world's leading e-commerce platform. Even though the margins associated with online retail sales are nothing to write home about, this consumer-facing segment helps to promote its fast-growing advertising services division and is the dangling carrot that's led to meaningful subscriber growth for Prime.
On top of being the No. 1 e-commerce site, Amazon is also the world's leading cloud infrastructure service platform through Amazon Web Services (AWS). AWS has accounted for 33% to 35% of global cloud infrastructure spending each quarter since 2022 began, based on data from tech-analysis firm Canalys. With most businesses still early in their cloud-spending cycle, and the margins associated with cloud services coming in lights years ahead of those associated with online retail sales, AWS is expected to be Amazon's key cash flow and profit driver over the long run.
Lastly, an argument can be made that Amazon is actually an inexpensive stock. The price-to-earnings (P/E) ratio isn't a particularly effective measure of value for growth stocks or businesses like Amazon that reinvest a significant percentage of their operating cash flow. After spending the entirety of the 2010s valued at 23 to 37 times cash flow, shares of Amazon can be purchased right now for roughly 13 times forecast cash flow in 2025.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Sean Williams has positions in Amazon. The Motley Fool has positions in and recommends Amazon and Nvidia. The Motley Fool has a disclosure policy.
