Billionaire Steven Cohen Sold Point72’s Entire Stake in Supermicro and Is Piling Into This Game-Changing Artificial Intelligence (AI) Stock Instead

To add to the above, Super Micro Computer has been incorporating Nvidia‘s (NASDAQ: NVDA) high-powered graphics processing units (GPUs) into its rack servers. Nvidia’s hardware has proven superior to the competition on a computing basis, which has further increased demand for Supermicro’s data center infrastructure.

According to the company, sales in fiscal 2024 (ended June 30) surged 110% to just shy of $15 billion. Meanwhile, Wall Street’s consensus estimate calls for scorching-hot revenue growth of 67% in the current fiscal year to roughly $25 billion.

But there were also a couple of clear-cut reasons for Point72’s brightest investment minds, including Cohen, to ring the register and head for the exit.

In late August, short-seller Hindenburg Research published a report that accused Supermicro of “accounting manipulation, sibling self-dealing, and sanctions evasion.” While the company was quick to refute Hindenburg’s allegations, it nevertheless delayed the filing of its annual report and, per The Wall Street Journal, is facing an early-stage probe of its accounting practices from federal regulators.

To make matters worse, Super Micro Computer’s auditor, Ernst & Young, which had previously raised concerns about the company’s internal controls, resigned in late October. Even though Supermicro announced earlier this week that a review by an independent special committee expected no restatement of the company’s financials, there are simply no certainties until its new auditor signs off on its financial statements and the company files its annual report.

Wall Street and billionaire investors loathe uncertainty, which is likely what sent this hypergrowth stock to the chopping block during the third quarter.

While Steven Cohen was showing Super Micro Computer to the door, he was stuffing 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, which increased its stake by a cool 75% in three months. It should be noted that Point72 also holds call options in Nvidia, which were reduced by 89% during the September-ended quarter. In other words, some of this increase may be the result of Cohen and his team exercising these call options and increasing the number of common shares owned.

The most logical reason to buy shares of Nvidia, 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 called the “Hopper”) and successor Blackwell GPU architecture are backlogged. It’s easy to understand why Nvidia’s share of the AI-GPU market has been monopoly-like to date.

There’s little question that Nvidia has been able to use AI-GPU scarcity to its advantage. With demand for the company’s hardware handily outstripping supply, it’s been able to command $30,000 to $40,000 for each Hopper chip. For some context, this is double to quadruple the price point of Advanced Micro Devices Insight MI300X GPU. A significant price premium has lifted Nvidia’s gross margin to the mid-70% range and sent revenue through the roof.

Credit should also be given to Nvidia’s CUDA platform. CUDA is the software toolkit developers use to build large language models and maximize the computing potential of their Nvidia GPUs. It’s effectively been an umbrella that’s kept customers contained within Nvidia’s ecosystem of products and services.

But even Nvidia has its flaws and may not be the slam-dunk investment Wall Street and billionaire Steven Cohen believe it’ll be. For instance, Nvidia is likely to lose its otherworldly pricing power and GPU scarcity advantages over the next year. In addition to AMD rapidly increasingly its production, many of Nvidia’s largest customers by net sales, which are members of the “Magnificent Seven,” are internally developing AI-GPUs of their own.

Even though these chips won’t have the same computing potential as Nvidia’s hardware, they’re going to be notably cheaper and more easily accessible. In other words, it creates a situation where Nvidia can lose valuable data center real estate in the coming quarters.

The other serious issue for Nvidia is that no game-changing technology or innovation for at least 30 years has avoided an early stage bubble. Investors have persistently overestimated how quickly a new technology would gain utility 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 surrounding AI fades, Nvidia and its shareholders would, presumably, feel the pinch.

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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Berkshire Hathaway, and Nvidia. The Motley Fool has a disclosure policy.

Billionaire Steven Cohen Sold Point72’s Entire Stake in Supermicro and Is Piling Into This Game-Changing Artificial Intelligence (AI) Stock Instead was originally published by The Motley Fool