On Wall Street, significant data releases are a routine event, often overshadowed by more prominent reports such as monthly inflation figures or job statistics. Important quarterly earnings from leading corporations can also cause critical market movements, making it easy for some noteworthy events to slip by unnoticed.
One such pivotal moment came on August 14, when institutional investors and well-off asset managers had their final opportunity to file Form 13F with the Securities and Exchange Commission. This important document details the stocks that top money managers have bought and sold in the most recent quarter, ending in June.
For billionaire Philippe Laffont at Coatue Management, this quarter proved particularly telling. Laffont’s hedge fund, renowned for targeting high-growth tech stocks, currently oversees more than $25 billion, distributed across 74 positions. While many stocks saw changes, the noteworthy takeaway was Laffont’s drastic reduction in holdings of Nvidia, a tech giant once at the forefront of his portfolio.
In just 15 months, Laffont’s Coatue has offloaded a staggering 72% of its Nvidia shares. To illustrate, at the end of March 2023, the fund owned a split-adjusted 49,802,020 shares of Nvidia. However, by the close of the second quarter, that number had plummeted to 13,754,447 shares. Such a dramatic cut reflected Nvidia’s fall from Coatue’s top position by market value to number four.
Profit-taking likely explains part of Laffont’s exit strategy. Nvidia’s share price has skyrocketed nearly 750% since the beginning of 2023, adding approximately $2.7 trillion to its market capitalization. Such meteoric growth could influence an investor’s decision to cash in on profits.
Yet, the reasons behind Laffont’s moves may delve deeper. Historically, groundbreaking innovations and technologies often go through cycle bubbles, with investors overstating how fast new tech will penetrate markets. This pattern suggests that the current hype around artificial intelligence (AI) might follow suit, requiring additional time for maturation.
Adding to this caution, Nvidia’s leadership has not signaled strong future expectations either. Notably, there has been no insider buying of shares since CFO Colette Kress’s acquisition in December 2020. This absence of confidence may be sending a clear warning to investors.
Moreover, looming competition is also a legitimate concern. Various chipmakers are rolling out, or have plans for, AI graphics processing units that will compete directly with Nvidia’s top products. Additionally, top clients like Microsoft and Google are developing their GPU platforms. Even if these companies continue utilizing Nvidia’s hardware, their in-house innovations signal potentially dwindling future orders.
In stark contrast, while Laffont has reduced his stake in Nvidia, he has ramped up his investment in Amazon, a distinguished player in two separate industries. During the June-ended quarter, Coatue bolstered its existing holdings in Amazon by acquiring an additional 702,235 shares, raising the total to approximately 10.77 million, now making it the fund’s second-largest position by market value.
Amazon is widely recognized as the dominant force in e-commerce, commanding nearly 38% of the U.S. market share in 2023, miles ahead of its closest rival, Walmart. Although its e-commerce segment garners substantial attention and millions of site visits monthly, earnings from this sector are notably modest. The true value of Amazon lies within its robust ancillary sectors, particularly Amazon Web Services (AWS).
According to recent data from market analysis firm Canalys, AWS claimed a significant 33% share of the cloud infrastructure spending market as of the latest reporting quarter, far outpacing Microsoft’s Azure at 20%. It’s worth noting that cloud service expenditure is still considerably early in its growth phase, especially with Generative AI tools gaining traction within AWS’s services.
Amazon’s advertising services and subscription model contribute further to its financial strength. The company’s streaming partnerships, including exclusive deals with the NBA and NFL, enhance the value of its Prime subscriptions, attracting even greater user engagement.
Another attractive point for Laffont is Amazon’s historically low valuation. Investors typically paid median valuations of around 30 times cash flow throughout the 2010s, but current valuations are approaching just 13 times projected cash flow for 2025. Such a compelling valuation creates conditions for substantial investment potential in comparison to Nvidia.
With Laffont’s enthusiastic pivot towards Amazon and away from Nvidia, investors may want to pay close attention to these trends. Navigating the tech landscape can be complex, but understanding where successful investors allocate their resources offers valuable insights for those looking to optimize their portfolios.