Reading:Billionaire Steven Cohen sold Point72's entire stake in Supermicro and is instead piling into this game-changing artificial intelligence (AI) stock
In November, Wall Street and investors were privy to a flood of major data releases. Election Day, monthly economic data reports, and earnings season – the six-week period each quarter when a majority of S&P500 companies announce their operating results – make a meaningful announcement easily overlooked.
For example, investors may have been so overwhelmed by other news events that they completely missed the November 14 deadline to file. Form 13F with the Securities and Exchange Commission. A 13F is a required filing for institutional investors with at least $100 million in assets under management (AUM) that provides a concise overview of the stocks that Wall Street's largest money managers are buying and selling.
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As you might have guessed, no 13F is more anticipated than that of Warren Buffett has Berkshire Hathaway. When you crush the benchmark S&P 500 like Buffett has done for six decades, you're going to get the following result.
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However, Berkshire's “Oracle of Omaha” is far from the only billionaire fund manager that investors are paying close attention to. For example, investors are also closely following trades made by billionaire Steven Cohen of Point72 Asset Management.
Cohen's fund closed the quarter ended September with more than $39 billion in assets under management, which includes various put and call options, as well as positions in common stocks. But what really stood out about Point72's business activity during the third quarter was what Cohen and his team did in the area of artificial intelligence (AI).
In Sizing the pricePwC analysts predict a $15.7 trillion increase in global gross domestic product by 2030, driven by the rise of AI. But history also teaches us that not every company linked to a revolutionary trend will necessarily be a winner.
During the quarter ended in September, Cohen's Point72 Asset Management exited its entire position in the customizable rack server and storage solutions specialist. Super microcomputer (NASDAQ: SMCI), which represented 45,066 shares as of June 30. This means that Cohen's fund was liquidated before Supermicro performed its first-ever 10-for-1 stock split after trading closed on September 30.
On paper, a lot of things went well for Supermicro. Companies that want to take advantage of the AI revolution are investing heavily in data center infrastructure, hoping to gain/maintain first-mover advantage. Supermicro's customizable rack servers are a preferred choice for businesses operating AI-accelerated data centers.
To add to the above, Super Micro Computer has integrated Nvidia(NASDAQ: NVDA) high-power graphics processing units (GPUs) in its rack servers. Nvidia's hardware has proven to be computationally superior to the competition, further increasing demand for Supermicro's data center infrastructure.
According to the company, sales in fiscal 2024 (ended June 30) jumped 110% to just under $15 billion. At the same time, Wall Street's consensus estimate calls for revenue growth of a whopping 67% in the current fiscal year, to around $25 billion.
But there were also a few clear reasons why Point72's brightest investing minds, including Cohen, rang the register and headed for the exit.
In late August, short seller Hindenburg Research released a report accusing Supermicro of “accounting manipulation, sibling trading, and sanctions evasion.” Although the company rushed to refute Hindenburg's allegations, it nevertheless delayed the filing of its annual report and, according to The Wall Street Journalfaces a preliminary investigation into its accounting practices from federal regulators.
To make matters worse, Super Micro Computer's auditor, Ernst & Young, who had previously raised concerns about the company's internal controls, resigned in late October. Although Supermicro announced earlier this week that a review by an independent special committee did not include any restatement of the company's financial statements, there is simply no certainty until its new auditor approves its financial statements and that the company files its annual report.
Wall Street and billionaire investors hate uncertainty, which is likely what sent this hypergrowth stock to the chopping block during the third quarter.
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While Steven Cohen was showing Super Micro Computer out the door, he was lining Point72's proverbial pockets with shares of Wall Street's most cutting-edge AI stock, Nvidia.
Cohen's fund purchased 1,574,796 shares during the third quarter, increasing its stake by 75% in three months. Note that Point72 also holds call options on Nvidia, which were reduced by 89% during the quarter ended in September. In other words, part of this increase could be due to Cohen and his team exercising these call options and increasing the number of common shares held.
The most logical reason to buy Nvidia stock, which I alluded to earlier, is that its hardware is in high demand and superior from a computing standpoint. Orders for the company's flagship H100 GPU (commonly known as “Hopper”) and its successor Blackwell GPU architecture are behind schedule. It's easy to understand why Nvidia's market share of the AI GPU market has been near monopolistic until now.
There is no doubt that Nvidia has been able to use the scarcity of AI GPUs to its advantage. With demand for the company's hardware far outstripping supply, it was able to get between $30,000 and $40,000 for each Hopper chip. In some contexts, this represents double or even quadruple the price of Advanced microdevices Insight MI300X GPU. A significant price premium pushed Nvidia's gross margin to around 70% and sent revenue skyrocketing.
Also worth recognizing is Nvidia's CUDA platform. CUDA is the software toolkit that developers use to create large language models and maximize the computing potential of their Nvidia GPUs. It is effectively an umbrella that keeps customers within Nvidia's ecosystem of products and services.
But even Nvidia has its flaws and may not be the slam-dunk investment that Wall Street and billionaire Steven Cohen believe it to be. For example, Nvidia risks losing its supernatural pricing power and GPU scarcity advantages over the next year. In addition to AMD rapidly ramping up production, many of Nvidia's largest customers by net sales, which are members of the “Magnificent Seven,” are developing their own AI GPUs in-house.
While these chips won't have the same computing potential as Nvidia's hardware, they will be significantly cheaper and more easily accessible. In other words, this creates a situation where Nvidia may lose valuable data center real estate over the coming quarters.
The other serious problem for Nvidia is that no breakthrough technology or innovation in at least 30 years has avoided an early-stage bubble. Investors have consistently overestimated how quickly a new technology could become useful and be adopted. The lesson is that all technologies take time to mature, and artificial intelligence is unlikely to be an exception. If the euphoria around AI fades, Nvidia and its shareholders will likely feel the effects.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Advanced Micro Devices, Berkshire Hathaway and Nvidia. The Mad Motley has a disclosure policy.
