Nvidia and Apple Stock Differences: Wealthy Individuals Purchase One While Offloading the Other before 2025
Nvidia (NVDA up 2.99%) and Apple (AAPL down 2.62%) are two highly sought-after stocks among individual and institutional investors. Two notable hedge fund managers, Ken Griffin of Citadel Advisors and Steven Cohen of Point72 Asset Management, made significant moves in these stocks during the third quarter:
- Ken Griffin of Citadel Advisors significantly increased his stake in Nvidia by purchasing 4.7 million shares, nearly tripling his position. This now makes Nvidia his third-largest holding, excluding options. He also sold 4.9 million shares of Apple, significantly reducing his position by 90%. This stake had previously been his fourth-largest, excluding options.
- Meanwhile, Steven Cohen of Point72 Asset Management increased his stake in Nvidia by purchasing 1.5 million shares, boasting a 75% increase. Now, Nvidia is his largest holding, excluding options. Conversely, he sold 1.5 million shares of Apple, completely exiting the position.
Hedge fund managers Griffin and Cohen, known for their success in the industry, can serve as inspirational sources for investors. However, it's important to conduct thorough research before making investment decisions.
Nvidia: The stock some select hedge fund managers purchased in the third quarter
Nvidia is an enterprise focused on advanced computing, primarily recognized for its graphics processing units (GPUs). It commands a 98% market share in data center GPUs in terms of revenue and shipments. These chips excel at handling computationally complex tasks, such as training large-scale language models and running artificial intelligence (AI) applications. Nvidia GPUs have become the go-to choice for AI computing due to their exceptional performance.
What sets Nvidia apart is its holistic approach. In addition to GPUs, the company also builds central processing units (CPUs), interconnects, and networking gear. Nvidia has developed a comprehensive ecosystem of development tools that simplifies writing GPU-accelerated applications and has earned the title of "the world's de facto enabler of AI" according to Susquehanna analyst Chris Rolland.
Despite strong growth in the last two years (up 800%), some may argue that Nvidia is overvalued. However, shares currently trade at 52 times earnings, which is a discount compared to the multiple of 62 times earnings seen in January 2023. Furthermore, the current price seems reasonable given Wall Street's expectations for 38% annual growth in earnings over the next three years.
Long-term investors may find comfort in investing in Nvidia today. Although the likelihood of a 800% return in the next 24 months is remote, there's a possibility that Nvidia could still deliver higher returns than the S&P 500 (^GSPC -0.22%) over the next five years. A potential entry strategy could involve starting with a small position and gradually increasing it during price dips.
Apple: The stock some hedge fund managers sold in the third quarter
Apple has gained significant brand recognition and pricing power through its design prowess spanning both hardware and software. The company's ecosystem of luxury consumer electronics devices offers a distinctive user experience. Apple's leadership position in smartphone sales and consistent second-place ranking in terms of shipments attest to its strength in the market.
A growing portion of Apple's revenue comes from its services business, which allows for more effective monetization of its substantial installed base. The App Store, AppleCare, Apple Pay, iCloud storage, and subscription products are among the major revenue streams. However, this services business segment presents regulatory risks. For example, European legislation has compelled Apple to permit third-party app stores on its devices, while a federal court ruled that Alphabet had engaged in illegal practices by favoring its search engine for default placement on phones. Alphabet reportedly paid Apple $20 billion in 2022, but this revenue, which falls under the services segment, could be at risk when the case is eventually resolved.
Valuation is another concern for Apple stock. Despite a near-doubling in value in the last two years, the surge was due to multiple expansion rather than earnings growth. Currently, Apple stock trades at 42 times earnings, making it twice as expensive as its valuation of 21 times earnings in early 2023. This premium becomes increasingly difficult to justify when annual earnings growth is forecasted to reach 10% in the next three years.
Personally, I perceive Apple stock as overvalued. The company has yet to demonstrate its ability to capitalize on artificial intelligence, and its last significant innovation with wide appeal was AirPods in 2016. Potential investors may wish to explore alternative opportunities, while current shareholders could consider reducing their positions.
Investors might consider looking into various finance options for funding their Nvidia investments, such as low-interest loans or selling other assets to free up money. It's essential to carefully evaluate the potential risks and returns of such investments, considering factors like market trends, industry analysis, and individual financial situations.
Regarding Apple, some investors may choose to reinvest their profits from selling the stock into other undervalued tech companies or diversify their portfolios across different sectors to minimize risk. It's crucial to maintain a disciplined investing strategy and regularly review and adjust investment decisions to ensure they align with long-term financial goals.
