May 13, 2024
Artificial intelligence (AI) has emerged as a prominent trend in the tech sector. As a leading chipmaker powering numerous AI advancements, Nvidia (NVDA) has become a market favorite.
Over the last five years, Nvidia shares have surged from $42 to $904, marking a staggering gain of more than 2,000%.
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Among those who profited big time from Nvidia’s massive rally is billionaire investor Stanley Druckenmiller.
In a recent interview with CNBC, Druckenmiller explained what got him on the profit train.
“I wasn’t early with Nvidia, my young partner was early with Nvidia. He called me in the fall of ’22 and said that he thought all this excitement about blockchain was going to be far outweighed by AI and I asked him how to play it and he told me I should buy this company, Nvidia. I didn't even know how to spell it — I bought it,” he said.
Druckenmiller recalled that one month after he invested in Nvidia, ChatGPT emerged, prompting him to upsize his stake.
“Even an old guy like me could figure out, OK, what that meant. So, I increased the position substantially,” he said.
‘I’m not Warren Buffett’
Druckenmiller certainly made a good decision, as Nvidia shares truly began to soar after ChatGPT came to public attention.
But as shares skyrocketed to astronomical levels, Druckenmiller began to take some profit.
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A 13F filing from his company Duquesne Family Office revealed that Druckenmiller sold 257,162 shares of Nvidia in Q4 of 2023, reducing his position by 29.4%.
And the billionaire continued to trim his position in the chipmaker.
“When the stock went from $150 to $900, I'm not Warren Buffett, I don’t own things for 10 or 20 years. I wish I was Warren Buffett — and $150 to $900 — yes we did cut that position and a lot of other positions in late March. I just need a break. We've had a hell of a run,” he told CNBC, adding that much of what his team identified has now been recognized by the marketplace.
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AI vs internet
Speaking about the massive future potential of AI, Druckenmiller also mentioned another transformative force that has had a huge impact on society: the internet.
“If we were all sitting here in 1999 talking about the internet, or anybody was talking about it, I don't think anybody would have estimated it would be as big as it has gotten in 20 years,” he said.
While the internet has indeed become monumental and enriched many investors, Druckenmiller emphasized that its journey wasn’t always sunshine and rainbows.
“We didn’t have the iPhone, we didn't have Uber, we didn't have Facebook, yada yada. And yet if you bought the NASDAQ in 99, it went down 80% before that all came to fruition,” he pointed out.
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Druckenmiller believed that the NASDAQ situation is “not going to happen with AI.” In fact, he emphasized that for the long term, his team is as bullish on AI as they’ve ever been.
However, he drew parallels between the two forces.
“AI could rhyme with the internet. As we go through all this capital spending we need to do, the payoff — while it's incrementally coming in by the day — the big payoff might be four to five years from now,” he explained.
In other words, investors eyeing big returns from the sector will likely need to be patient.
“So AI might be a little overhyped now, but underhyped long term,” Druckenmiller remarked.
Wall Street is also optimistic about the sector's potential, evident from bullish price targets set for key AI players. For instance, HSBC analyst Frank Lee has assigned a ‘Buy’ rating to Nvidia with a price target of $1,350, implying a potential upside of 50% from the current levels.
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Jing is an investment reporter for MoneyWise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.
