When the “Big Seven” stocks in the US stock market skyrocket, the investment engines have already been preparing for a mild bubble…
Nvidia has experienced the most rapid growth, with an increase of nearly 60% as of February 26th, following last year’s skyrocketing 239% surge. Meta closely follows with a 36% increase, while Amazon and Microsoft have slightly lower gains at 15% and 8.4% respectively. Tesla, on the other hand, has stumbled and lost nearly 20% in value.
The significant growth highlights the strong consensus in the market regarding artificial intelligence as the main trend. However, this “easy” way of making money in AI comes with a mix of joy and anxiety.
Nvidia’s dynamic price-to-earnings ratio has reached 65.9 times, which is not its highest level. Despite Cathie Wood, the CEO of Ark Invest and also known as “Wood Sister,” reducing her Nvidia position, many institutions have expressed their diverse opinions through their actions in the technology stock investment wave.
During the period when Nvidia’s profit soared last week, Wood Sister’s Ark Invest funds, including ARKQ and ARKW, still sold 5,067 shares worth approximately $4 million.
In fact, as early as the first quarter of last year, Wood Sister sold Nvidia positions in ARKK, completely missing its explosive growth. Wood Sister stated that this globally valuable chip manufacturer was “priced ahead.”
Nvidia currently ranks 11th in Ark Invest’s portfolio with a weight of 2.54%. Wood Sister’s fund still holds 29,060 shares of Nvidia stock, valued at approximately $22.9 million.
Currently, Wood Sister is betting on the growth potential of lesser-known software companies such as UiPath and Twilio. The former is a global software company that develops robotic process automation platforms, while the latter primarily focuses on cloud communication platforms.
Capital Group: Adjusting the structure of technology investment portfolio
Capital Group, with assets under management of $2.6 trillion, is adjusting the position structure of its technology stocks.
Andy Budden, Director of Equity Investments, stated at a briefing held in Singapore that Capital Group is reducing positions in stocks that have performed well and exhibit characteristics of a “moderate bubble.” They are also increasing holdings in some large semiconductor companies other than Nvidia, the favored child in chip manufacturing.
He further mentioned that due to the strong rebound of the “Big Seven” stocks and attractive valuations of other companies in the market, their funds have been reducing positions in the “Big Seven” over the past year.
Although one of the world’s largest asset management companies has become more selective in technology investments, they are far from being as cautious as many other companies and are simply rebalancing their positions.
The latest research report released by the capital group is titled “Who Says Anything Is Right in the World” and states that positive trends in technology, healthcare, and other fields are changing people’s lives and bringing opportunities for the company and patient investors. There are many reasons why we are confident about the future, one of which is that the AI productivity boom is just beginning.
Pershing Square, founded and led by Bill Ackman, has achieved an astonishing annualized return of 28% over the past five years.
But the investment portfolio of Pershing Square looks very traditional. It includes the largest holding, Chipotle Mexican Grill, and the second largest holding, a food and beverage international brand company that owns Tim Hortons and Burger King, which together account for more than 35% of the portfolio (as of the end of last year).
Looking at the past investment style, Ackman’s investment in technology stocks is not large. However, in the first quarter of 2023, the situation began to change when Pershing Square invested heavily in Alphabet.
Ackman increased his holdings of Alphabet’s Class A and Class C stocks. 13F filings show that these two positions now account for over 18% of the portfolio.
In a recent podcast, Ackman discussed his investment in Google. He believes that the market has not given Google enough credit and thinks it is not logical to consider the company lagging behind in the key race of artificial intelligence.
“Because Google is a large company, global business regulatory agencies scrutinize it extremely carefully. They cannot operate with the same freedom as a startup like OpenAI to release products. I think Google has taken a more cautious approach.”
Ackman believes that it is currently a tie. And all the data that Google possesses, such as search data, email data, various applications, etc., give them an advantage in training models with more training data. Moreover, the company is financially strong and has abundant talent.
“I still believe it may be the cheapest among the seven giants.”
Castle Investments, led by the legendary figure in the quant world, Ken Griffin, had over 200 positions in its portfolio valued at over $100 million at the end of last year, and it placed nearly $2 billion worth of options bets on Meta.
Long-term investor Baillie Gifford also added a significant position in Meta in the fourth quarter of last year, making it the 18th largest holding.
In its latest report, the company states, “Within our long-term framework, we must remain open to the possibility of radical change and be prepared to change our ideas.
We sold our stake in enterprise software developer Appian because machine-written code is likely to replace its low-code system development approach; and we are looking for new winners among existing companies, seeking companies that have both compelling technology products and emerging business models.”
Fisher Investments, focusing on growth stocks, showed in its year-end US stock portfolio that its top ten holdings were all being increased. Apart from the Vanguard Intermediate-Term Corporate Bond ETF, the other nine in the top ten are all technology stocks.
Interestingly, the top four are also the “Big Seven”: Apple, Microsoft, Amazon, and Alphabet.
What’s interesting is that when it comes to chip manufacturers, Fisher Investments still chooses Su Mama’s AMD over Huang Renxun’s Nvidia.
Whether you are a technology enthusiast going all-in or an investment manager who adheres to traditional approaches, everyone honestly faces the fact that artificial intelligence is leading us into the future.
“The era of everything staying the same has come to an end, and artificial intelligence may well write a new chapter in growth investing.” These words from Berkshire Investment are filled with both nostalgia and excitement.
Fisher Investments manager Tom Slate says that when there are clear signs of traction, one must be prepared for “unreasonably priced growth.”
Buffett once said not to equate industry prospects with capital returns. In his latest shareholder letter, he wrote, “At Berkshire, we particularly favor companies that can use new capital to generate high returns in the future and are few in number.”
Buffett also warns that the market today is more like a casino than when he was young.
Perhaps it’s always important to consider the valuation, stable business models, and long-term returns when it comes to technology investments.
Smart investors should have this realization.
