Billionaire Philippe Laffont Sells Nvidia Stock and Buys a Mega-Cap AI Stock Down 23% From Its High

Billionaire Philippe Laffont runs Coatue Management, one of Wall Street's most successful hedge funds. It beat the S&P 500 (SNPINDEX: ^GSPC) by 95 percentage points in the last three years, which makes Laffont a great source of inspiration for retail investors.

In the third quarter, he trimmed his position in Nvidia (NASDAQ: NVDA), selling 1.6 million shares. Laffont also added to his position in Meta Platforms (NASDAQ: META), purchasing 355,000 shares. CoreWeave had been his largest holding, but Meta now occupies the top spot and accounts for more than 7% of his portfolio, according to a recently filed Form 13F.

Here's what investors should know.

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Nvidia: The stock Philippe Laffont sold in the third quarter

Nvidia is an accelerated computing company best known for its graphics processing units (GPUs), chips also called artificial intelligence (AI) accelerators because they expedite training and inference workflows. Nvidia has over 90% market share in data center GPUs, a market where spending is forecast to increase at 36% annually through 2033, according to Grand View Research.

Nvidia is well positioned to maintain its leadership not only because its chips generally outperform competing products but also because the company's full-stack approach -- meaning it complements its GPUs with adjacent hardware and software -- often results in systems with the lowest total cost of ownership, according to CEO Jensen Huang.

However, export restrictions have locked Nvidia out of China, the second-largest AI market in the world. President Donald Trump earlier this year agreed to let the chipmaker sell a scaled-back version of its Hopper GPU in China, but Beijing warned companies not to buy them after U.S. Commerce Secretary Howard Lutnick made insulting comments.

More recently, Trump reversed course on a potential deal that would have let Nvidia export scaled-back Blackwell GPUs due to pressure from his advisors. The company commanded 95% market share in China before export restrictions, but that figure is headed toward zero. Jensen Huang recently said, "Currently, we are not planning to ship anything to China."

Wall Street still expects Nvidia's earnings to grow at 36% annually over the next three years, which makes the current valuation of 54 times earnings look fair. Laffont may have trimmed his position during the third quarter due to concerns about China, but investors should not assume he has lost confidence in the company. Nvidia is still his eighth-largest holding and accounts for 4.5% of his portfolio.

Meta Platforms: The stock Philippe Laffont bought in the third quarter

Meta Platforms owns three of the four most popular social media networks as measured by monthly active users. That affords the company insight into consumer preferences that lets it target media and advertising content. That advantage has made Meta the second-largest adtech company in the world, and market share gains are likely, according to Malik Ahmed Khan at Morningstar.

Meta has been spending heavily on artificial intelligence tools. The company has designed custom chips, developed the Llama large language models, and trained machine learning models to recommend ad content. Meta has also debuted AI creative tools for marketers. Those efforts are paying dividends. Users are spending more time on its social media sites, and ad conversion rates -- meaning the number of clicks and purchases -- are increasing.

Meta reported encouraging financial results in the third quarter. Revenue increased 26% to $51 billion, and GAAP (generally accepted accounting principles) net income (excluding a one-time tax charge) increased 20% to $7.25 per diluted share. Nevertheless, the stock fell sharply following the report because Meta plans to spend even more money on AI next year. Shares have now fallen 23% from the high they reached in August.

However, Meta's AI investments are generating returns, so the sell-off looks like an overreaction. Wall Street says the company's earnings will increase at 16% annually during the next three years, a reasonable forecast given that adtech sales are projected to grow at 14% annually through 2030. That makes the current valuation of 27 times earnings look quite reasonable. Now is a good time to buy this stock.

Trevor Jennewine has positions in Nvidia. The Motley Fool has positions in and recommends Meta Platforms and Nvidia. The Motley Fool has a disclosure policy.