Is NVIDIA Corp (NVDA) Stanley Druckenmiller’s Best AI Stock Pick?

Insider Monkey recently analyzed billionaire Druckenmiller's latest Q1'2024 portfolio to see which AI stocks the billionaire was buying. NVIDIA Corp (NASDAQ:NVDA) is part of the 10 Best AI stocks to Buy According to Billionaire Stanley Druckenmiller. But the interesting question to answer is: Is NVIDIA really the best AI pick of Druckenmiller?

NVIDIA Corp (NASDAQ:NVDA)

Number of Hedge Fund Investors: 173

NVIDIA Corp (NASDAQ:NVDA) ranks 7th in Stanley Druckenmiller's Q1'2024 portfolio. If you want to take a look at the billionaire's top stock picks, click to see Druckenmiller's Family Office portfolio.

After making huge profits on his NVIDIA Corp (NASDAQ:NVDA) stake, which he bought in the fourth quarter of 2022, billionaire Stanley Druckenmiller cut his stake in the AI chips company by 72% in the first quarter of 2024, a move that surprised many. Insider Monkey's data shows that Druckenmiller loaded up on 582,915 NVIDIA Corp (NASDAQ:NVDA) shares during the fourth quarter of 2022 at an average price of $146.65 per share. Near the end of the first quarter of this year, NVIDIA Corp (NASDAQ:NVDA) stock was hovering around $902 per share. Stanley Druckenmiller also liquidated his call options on NVIDIA Corp (NASDAQ:NVDA) which he'd bought in the fourth quarter of 2023 for $242 million.

Wall Street Continues to Love NVDA

Despite the massive bull run in NVIDIA Corp (NASDAQ:NVDA) shares, Wall Street analysts are continuing to shower the stock with bullish ratings. UBS earlier this month published a list of stocks that are set to benefit from the massive surge in the AI industry, which the firm believes could touch $400 billion in revenue in the next three years. NVIDIA Corp (NASDAQ:NVDA) was part of the list.

NVDA: The Bull Case Based on Catalysts

NVIDIA Corp (NASDAQ:NVDA) is continuing to refresh and update its AI chips product line as demand is skyrocketing. Analysts expect NVIDIA Corp's (NASDAQ:NVDA) H200 chips and Spectrum-X platform to offer cutting-edge processing and networking solutions for companies that are making generative AI software and applications. NVIDIA Corp (NASDAQ:NVDA) bulls believe that the company's growth catalysts are strong enough to justify its currently high valuation metrics. After all NVIDIA Corp (NASDAQ:NVDA) still enjoys an 80% market share in the GPU industry, and its products are expected to see high demand in other industries, like automotive, gaming and mobile devices.

NVDA's New Customer: Elon Musk

NVIDIA Corp's (NASDAQ:NVDA) "real world" AI segment is thriving. Tesla CEO Elon Musk recently revealed that his company currently has 35,000 H100 chips. Tesla also can become the third-biggest NVIDIA Corp (NASDAQ:NVDA) customer as the EV company plans to have 85,000 Nvidia H100 chips by the end of 2024 to train its AI models.

Valuation Concerns and Risks

However, some circles have voiced concerns on NVIDIA Corp's (NASDAQ:NVDA) valuation following the eye-popping stock price gains NVIDIA Corp (NASDAQ:NVDA) has enjoyed over the past few months. This comes as major NVIDIA Corp (NASDAQ:NVDA) customers like Meta Platforms, Microsoft, Amazon and Google begin to mull producing AI chips in-house. NVIDIA Corp (NASDAQ:NVDA) is also outsourcing its production to Taiwan Semiconductor, which makes NVIDIA Corp (NASDAQ:NVDA) vulnerable to any geopolitical risks especially when President Biden is upping the ante against China with new traffics and hawkish tone.

Wolfe Research in recently replaced Nvidia Corp (NASDAQ:NVDA) with its competitor AMD in its Alpha List. Wolfe Research cited NVIDIA Corp's (NASDAQ:NVDA) massive stock price gains year to date as a reason behind this move.

Hedge Fund Sentiment on NVDA

Insider Monkey's database of 933 hedge funds shows that 173 funds had stakes in NVIDIA Corp (NASDAQ:NVDA). Druckenmiller wasn't the only hedge fund manager who reduced his stake in NVIDIA Corp (NASDAQ:NVDA) after enjoying massive stock price gains. Insider Monkey's data shows Ken Griffin's Citadel Investment Group, Donald Sussman's Paloma Partners and Paul Tudor Jones' Tudor Investment Corp decreased their stakes in NVIDIA Corp (NASDAQ:NVDA) by more than 70% each in the first quarter of 2024.

Patient Capital Opportunity Equity Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its first quarter 2024 investor letter:

“This quarter we entered two new positions, while exiting four positions. Our first new position was NVIDIA Corporation (NASDAQ:NVDA), which we bought early in the quarter. Nvidia is the market leader in designing and selling Graphics Processing Units (GPU), which has recently benefited from the insatiable demand of artificial intelligence (AI) models. The company currently captures 92% market share of data center GPUs and grew revenue, earnings and FCF an astounding 126%, 392%, and 610%, respectively, over the last year. While much of the focus is on Nvidia’s market cap reaching $2.3T, up 230% over the last year, the company’s valuation has actually come down over that period. As of 3/31/23, consensus was valuing the company at 61x forward EPS. This compares to today, where the company is being valued at 37x. While yes, we have never seen a company expand their market cap by so much so quickly, we have also never seen a company grow their fundamental earnings and cash generation so quickly (and which is actually expanding faster than valuation). While competitors are working to enter the GPU space, Nvidia has created a moat around their GPUs with their CUDA software offering. While we do expect the large cloud players to continue to move into the market, we think NVDA can continue to demand top market share. With leading edge technology, an increasing innovation cycle and strong cash generation, the company is well positioned for the increased adoption of accelerated computing and artificial intelligence (AI).

Nvidia Corp. (NVDA) was a top performer in the quarter gaining 82.5% in the period. While the company has had an impressive run, gaining 242% over the last year, the valuation has been supported by the impressive growth in Revenue (126%), EPS (392%) and free cash flow (610%) over the last year. The company has solidified its position in the GPU space supported by its proprietary software CUDA. While we expect competition to increase, we think NVDA can continue to maintain top market share. With leading edge technology, an increasing innovation cycle and strong cash generation, the company is well positioned for the increased adoption of artificial intelligence (AI).”

 

Is Nvidia The Best AI Stock Pick of Stanley Druckenmiller?

 

NVIDIA Corp (NASDAQ:NVDA) is not the best AI stock pick of Stanely Druckenmiller, based on Insider Monkey's research.

 

Click to see Stanley Druckenmiller's 10 Best AI Stocks to Buy That are Better that Nvidia.

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