The AI Computing Stock That Big Money Managers Are Quietly Buying
Key Points
Two prominent billionaire investors have been buying Nvidia shares over the past few quarters.
This comes after a monster run in the stock and increasing competition in the AI chip market.
Nvidia is protecting its lead with an ecosystem of hardware and software solutions for AI researchers.
- 10 stocks we like better than Nvidia ›
Despite its massive run, rising 1,100% since 2022, some of the best professional investment managers continue to buy Nvidia (NASDAQ: NVDA) stock. Third Point Capital's Daniel Loeb and Appaloosa Management's David Tepper are two notable billionaires who have added to their firm's holdings in the past two quarters.
The stakes in the artificial intelligence (AI) chip market have never been higher, as alternative chip options emerge to challenge Nvidia's dominant position. Here's what might explain why these prominent money managers are still building positions after Nvidia's monster run.
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Image source: Getty Images.
Software widens Nvidia's competitive moat
AI continues to provide a significant tailwind for the chip industry. Hyperscalers are investing in expanding data center capacity, and new AI models are requiring more compute power. This creates a favorable backdrop of growing demand for Nvidia's powerful graphics processing units (GPUs). Its data center revenue grew 66% year over year in the most recent quarter.
While some chipmakers, including Broadcom, are winning business by designing custom AI chips, Nvidia is protecting its lead by providing free tools like CUDA, which let developers easily build on Nvidia's hardware. Once AI researchers adopt CUDA, switching to another chip can disrupt product development. Nvidia had 5.9 million developers using CUDA in 2024, up from 4.7 million in 2023.
Considering this critical advantage, I think Loeb and Tepper see value in Nvidia stock right now. The stock trades at a forward price-to-earnings ratio of under 25 as I write this, which is attractive relative to the momentum in its data center business.
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John Ballard has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
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