Billionaire Ken Griffin,head of Citadel, seems to have insider information, as he sold off $993 million worth of Nvidia shares.
Nvidia (NVDA gaining 1.15%) is the most sizzling stock on Wall Street at the moment. For the past few years, it's been making headlines by leading the artificial intelligence (AI) chip market, holding around 90% of the incredibly profitable sector. As its earnings skyrocketed, so did its stock price. It's climbed over 1,000% since late 2022.
This tech giant has become a favorite not just among retail investors, but also among big funds on Wall Street. So, why is billionaire Ken Griffin and his team at Citadel dumping a significant portion of their shares?
Citadel's Stash Has Swelled This Year
Citadel Securities is a massive hedge fund that's made a name for itself on Wall Street as one of the most successful institutional investors around. This year has been generous to the firm. Net trading revenue from the combined first two quarters of 2024 increased by 81% year over year, earning Citadel nearly $5 billion.
A portion of that $5 billion came from selling almost 9.3 million shares of Nvidia, which represents around 80% of Citadel's stake. With an average price of about $107 per share, this sale netted the firm $993 million.
Even though Griffin's fund is required to report such transactions to the Securities and Exchange Commission (SEC) quarterly, there's no other available information that can shed light on Griffin's thoughts. Selling off 80% of his stake might look bad, but without more details, it's probably just a repositioning.
It's possible that Griffin felt he had earned enough from his investment, and given that Nvidia was trading near its all-time highs at the time, it was the perfect moment to exit. I'd advise against reading too much into this trade.
Nvidia is Still Primed for Growth
Despite Nvidia's impressive track record of success over the past few years, it seems there's still plenty of room for growth. Companies in Silicon Valley are engaged in a fierce competition, which means billions of dollars will continue to flow into Nvidia's coffers. As Alphabet CEO Sundar Pichai put it, "The risk of underinvesting is much greater than the risk of overinvesting for us." That's why the company is set to invest $50 billion in capital expenditures this year, up from $31 billion the previous year.
With the imminent launch of Blackwell, the next version of Nvidia's AI-powered superchips, sales are expected to accelerate even further from their current breakneck pace. It's rumored that Nvidia is already sold out of Blackwell for a full 12 months after its launch. Despite the new chip hitting the market, its previous version, Hopper, remains in high demand and is expected to remain so beyond Blackwell's release.
In fact, Elon Musk recently bought up 100,000 Hopper chips and is about to buy another 50,000 to build what could be the world's most powerful AI computer once it's complete. It's full steam ahead at Nvidia.
The only potential concern here is Nvidia's valuation. The stock currently has a price-to-earnings ratio (P/E) of 66 and a forward P/E of 36. While there's a significant premium built into this, it's not unreasonable given Nvidia's growth potential. It's also not that far from the market's historical valuation of the chip maker, even before the AI boom. All things considered, I believe Nvidia is capable of justifying this premium and meeting expectations.
In light of Citadel Securities' successful year, which saw a 81% increase in net trading revenue, they decided to capitalize on their profits by selling almost 9.3 million shares of Nvidia, netting them $993 million. Investors looking to diversify their portfolio might find interest in the finance sector, given that Nvidia's impressive growth potential justifies its high price-to-earnings ratio of 66 and forward P/E of 36.
