Artificial intelligence (AI) has arguably been the hottest investment theme for two years, and Nvidia has been one of the hottest stocks on Wall Street. But there are other worthwhile trends. The hedge fund managers listed below sold shares of Nvidia in the second quarter, while purchasing shares of e-commerce stocks Shopify(NYSE: SHOP) or MercadoLibre(NASDAQ: MELI).
- Ken Griffin of Citadel Advisors sold 9.2 million shares of Nvidia, slashing his stake 79%. He also bought 17,644 shares of Shopify, adding 1% to his position.
- Philippe Laffont of Coatue Management sold 96,963 shares of Nvidia in the second quarter, reducing his stake 1%. He also bought 66,659 shares of Shopify, adding 2% to his position.
- Steven Cohen at Point72 Asset Management sold 409,042 shares of Nvidia, reducing his stake 16%. He also bought 45,958 shares of MercadoLibre, starting a new position.
- Stanley Druckenmiller of Duquesne Family Office sold 1.5 million shares of Nvidia, cutting his stake 88%. He also bought 36,493 shares of MercadoLibre, opening a new position.
All four billionaire fund managers still have exposure to Nvidia, so it would be wrong to assume they've lost confidence in the chipmaker. Instead, the lesson here is portfolio diversification matters, and e-commerce is a worthwhile investment theme. Here's what investors should know about Shopify and MercadoLibre.
1. Shopify
Shopify provides a turnkey solution for commerce. Its platform lets sellers manage their businesses across physical and digital channels, including online marketplaces, social media networks, and custom websites. Shopify also provides adjacent solutions for marketing, payments, and logistics, as well as more sophisticated tools for data analytics, event management, and business-to-business (B2B) commerce.
Shopify has a strong competitive position. Analysts have recognized its market leadership in e-commerce and omnichannel commerce software. Shopify merchants account for 10% retail e-commerce sales in the U.S. and 6% of retail e-commerce sales in Western Europe. Additionally, Forrester Research and the International Data Corp (IDC) recently recognized the company as a leader in B2B commerce solutions.
Shopify reported solid financial results in the second quarter, exceeding estimates on the top and bottom lines. Revenue rose 21% to $2 billion on strong momentum in subscription software and merchant services. That said, revenue increased 25% when adjusted for the sale of the logistics business last year. Meanwhile, non-GAAP net income increase 85% to $0.26 per dilute share.
Importantly, management reported strong momentum with offline retail, B2B commerce, and international merchants, three areas where the company has prioritized investments. That bodes well for shareholders. Shopify values its addressable market at $849 billion, and more than half of that figure comes from offline retail and B2B e-commerce.
Going forward, Wall Street expects Shopify's adjusted earnings to increase at 26% annually through 2027, which makes the current valuation of 77 times adjusted earnings look expensive. However, Shopify is a brilliant company with a long runway for growth, so patient investors eager to own the stock can buy a very small position today, provided they are comfortable with the idea of a pullback. If shares decline 10% to 20%, investors should use drawdown to buy a bigger position.
2. MercadoLibre
MercadoLibre runs the largest online marketplace in Latin America as measured by visitors and revenue, and the company is still gaining market share. It will account for 29% of retail e-commerce sales in the region in 2024, up from 28.3% in 2023, according to eMarketer.
One reason MercadoLibre is gaining share is its ecosystem of adjacent solutions. It offers logistics support and ad tech software, as well as payment processing and lending services that make its marketplace more convenient for merchants. In fact, it has the "fastest and most extensive delivery network in the region." The company is also the third-largest digital advertiser and one of the largest fintech platforms in Latin America.
MercadoLibre reported very strong financial results in the second quarter. Revenue rose 41% to $5 billion as sales growth accelerated sequentially in the commerce and fintech segments. Meanwhile, GAAP earnings increased 103% to $10.48 per diluted share as net profit margin expanded 3 percentage points to 10.5%, the highest level in eight years.
Importantly, commerce segment sales have now accelerated sequentially in five straight quarters, due in part to strength in advertising and traction with the MELI+ loyalty program. Investors have good reason to believe that momentum will continue. Retail ad spending in Latin America is forecasted to grow at 33% annually through 2028, according to eMarketer. MercadoLibre is the largest retail media company in the region.
Looking ahead, Wall Street expects MercadoLibre's earnings to increase at 45% annually through 2025. That consensus estimate makes the current valuation of 74 times earnings look reasonable. Patient investors should feel comfortable buying a small position in this growth stock today.
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Trevor Jennewine has positions in MercadoLibre, Nvidia, and Shopify. The Motley Fool has positions in and recommends MercadoLibre, Nvidia, and Shopify. The Motley Fool has a disclosure policy.
