Wealthy investor Stanley Druckenmiller divested from Nvidia shares and opted for rapid expansion artificial intelligence-focused stock following a stock split.
Stanley Druckenmiller consistently impressed investors with his record-breaking success at Duquesne Capital Management, achieving an annual return of 30% over 30 years without a single loss. Posting his last year at the fund in 2010, he continued investing through the Duquesne Family Office. One of his recent favored stocks has been AI giant Nvidia, which Druckenmiller added to his portfolio in the fourth quarter of 2022 when the AI boom began gaining momentum. In the following months, shares gained 400%, but Druckenmiller later started trimming his position and ultimately sold all his Nvidia shares in the third quarter, citing valuation concerns.
Instead, Druckenmiller invested $41 million in a fast-growing AI company that split its stock after substantial gains and impressive performance. This move represented his second-biggest new position during the quarter. Let's examine this renowned investor's latest moves and evaluate whether they should be followed.
Analysis of Druckenmiller's Nvidia exit
His decision to sell Nvidia shares doesn't necessarily imply a lack of confidence in the company. In fact, Druckenmiller mentioned in press interviews that he saw valuation as reaching its peak, making it a suitable time to secure profits. Despite this move, Nvidia continues to establish new highs, targeting over 180% growth this year. In a later Bloomberg interview, Druckenmiller even admitted that selling his Nvidia shares was a mistake and that he might reconsider purchasing them if the price dipped.
Insight into Druckenmiller's next AI venture
The AI company that captured his interest saw its shares surge by more than 400% over five years, reaching and surpassing $1,000. This company also executed a 10-for-1 stock split during the year to make its shares more accessible to a broader range of investors. Although stock splits do not affect a company's fundamental values, issuing additional shares to current holders lowers the share price.
Broadcom becomes Druckenmiller's target
The AI-focused stock that Druckenmiller favors is Broadcom, trading at 50% of Nvidia's valuation at present. Broadcom is a leading entity in networking, catering to numerous sectors, including data centers, homes, and factories. This company is poised for expansion due to its expanding AI business and the successful acquisition of cloud computing and virtualization company VMware.
Broadcom's recent quarters have experienced robust revenue growth, primarily driven by demand from major cloud service providers, who boosted income in AI networking and custom accelerators. In the most recent quarter, custom AI accelerators saw a more than 300% increase in growth, while Ethernet switching experienced a fourfold increase. Considering the significant growth in AI, with the current $200 billion market expected to reach a trillion dollars by the end of the decade, there's ample reason to be optimistic about these trends continuing.
As for VMware, Broadcom anticipates reaching or exceeding its goal of $8.5 billion in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) within three years of the acquisition. In the latest quarter, Broadcom reported a revenue surge of 47% to $13 billion, mainly fueled by AI demand and VMware's contributions. Broadcom's management also shared projections of a 51% revenue growth in the upcoming quarter.
An analysis of Broadcom and Nvidia valuations
Broadcom's current valuation is less than half that of Nvidia, making it an attractive opportunity for investors seeking entrée into the AI sector. Likewise, Broadcom is expected to gain from the AI boom over the long term.
Should you invest in Stanley Druckenmiller's third-quarter selections? Consider his motivations for buying or selling, as well as your personal investment objectives. Druckenmiller sold his Nvidia shares due to valuation concerns but expressed regret over the decision and stayed bullish on the company's future prospects. If you're a long-term investor, you might choose to keep your Nvidia shares or even initiate a position in Nvidia.
Regarding Broadcom, you could consider joining Druckenmiller by investing into this AI company. Although its stock has seen impressive double-digit growth this year, its relatively low valuation and constant demand for its products suggest that further gains are possible.
Druckenmiller's recent investment in the fast-growing AI company signaled his continued interest in the financial sector, as he allocated a significant sum towards this venture. His decision to invest in Broadcom, an AI-focused company with a valuation less than half that of Nvidia, showcases his strategic approach to investing money into opportunities with high growth potential.
