Stanley Druckenmiller's Recent Investment Moves: A Shift from Nvidia to Broadcom

Nvidia (NVDA) has been at the forefront of the artificial intelligence (AI) surge, which gained momentum following the launch of ChatGPT in November 2022. The company’s stock price has skyrocketed by 895% since that launch, and Wall Street remains optimistic about its future. Currently, 92% of the 62 analysts tracking Nvidia have rated it a buy, and the median target price is set at $175 per share, indicating a potential 30% increase from its current price of $134.

Interestingly, billionaire Stanley Druckenmiller, renowned for his impressive track record as a hedge fund manager with a 30% average annual return over 30 years, recently made significant changes to his portfolio. In the third quarter, he sold his entire stake in Nvidia, which made up 14% of his holdings just a year prior. At the same time, he initiated a new position in Broadcom (AVGO), a chipmaker that recently completed a 10-for-1 stock split after notable gains in its share price.

Nvidia: The Stock Druckenmiller Exited

Nvidia is particularly known for its graphics processing units (GPUs), which are designed to handle complex computations more efficiently than traditional central processing units (CPUs). This capability makes Nvidia’s GPUs top choices for accelerating tasks such as training machine learning models and leveraging AI applications. Nvidia dominates the AI accelerator market, boasting over 80% market share.

What distinguishes Nvidia further is its ability to integrate both hardware and software effectively. The company combines its GPUs with CPUs and networking solutions, allowing it to create data center systems that boast a superior total cost of ownership. Additionally, it provides a robust suite of software development tools for accelerated computing through its CUDA platform.

Nvidia launched CUDA nearly two decades ago, and it now features hundreds of code libraries and pre-trained models that facilitate the development of applications across various fields, including robotics and drug discovery. While other chip manufacturers aim to dethrone Nvidia, they must contend with nearly 20 years of specialized software expertise, alongside producing superior hardware.

The latest financial results for Nvidia, released for the third quarter of fiscal 2025 (ending October 2024), revealed a 94% revenue increase to $35 billion, primarily driven by a 112% surge in data center sales and a 72% rise in automotive and robotics sales. Non-GAAP earnings also more than doubled, reaching $0.81 per diluted share.

Looking ahead, analysts predict that Nvidia's adjusted earnings could rise by 50% within the next four quarters, suggesting that its current valuation of 52 times adjusted earnings is relatively affordable.

Despite these impressive figures, one must consider Druckenmiller's decision to divest from Nvidia. Interestingly, he admitted to Bloomberg that he made a "big mistake" by selling his Nvidia shares.

Broadcom: The Stock Druckenmiller Chose to Invest In

Broadcom specializes in semiconductors and infrastructure software. Its chips are designed for a variety of applications, including Ethernet switches, routers, data center storage, and mobile devices. Broadcom has been a key supplier of integrated Wi-Fi and Bluetooth chips for Apple iPhones. On the software side, its offerings span cybersecurity, mainframe observability, and virtualization.

Broadcom also boasts significant market control in two other semiconductor segments—holding an 80% market share in networking chips and a 60% share in custom AI chips. These markets are projected to experience annual growth rates of 20% to 30% as businesses continue upgrading their data center infrastructures.

In its latest earnings report for the fourth quarter of fiscal 2024 (ending November 2024), Broadcom reported a 51% increase in revenue to $14 billion. Non-GAAP earnings also grew by 28% to $1.42 per diluted share. Notably, the acquisition of VMware significantly boosted revenue growth, contributing 40 percentage points, indicating that organic growth was only 11%.

What raised eyebrows were two statements made by management during the earnings call. They indicated that sales of AI chips to three unnamed hyperscale customers, widely speculated to be Google, Meta Platforms, and ByteDance (the parent company of TikTok), are expected to increase at least fivefold over the next three years. Additionally, Broadcom is anticipating the addition of two high-profile customers—rumored to be Apple and OpenAI—further setting the stage for remarkable growth in AI sales.

Future projections from Wall Street suggest Broadcom's adjusted earnings may grow by 30% within the next four quarters. While this estimate positions Broadcom’s current valuation of 46 times adjusted earnings as reasonable, it is not as appealing as Nvidia’s valuation. Investors might want to consider establishing positions in both stocks.

Suzanne Frey is a member of the board of directors at Alphabet. Randi Zuckerberg, a former director at Facebook, is also a board member for the same company. Trevor Jennewine holds shares in Nvidia. The company positions of The Motley Fool include and recommend shares in Alphabet, Apple, Meta Platforms, and Nvidia, as well as recommend Broadcom.

Druckenmiller, Nvidia, Broadcom