Does Billionaire Ken Griffin Know Something Wall Street Doesn’t? The Citadel Chief Sold More than 80% of His Broadcom Stock and Is Piling Into Another Artificial Intelligence (AI) Stock-Split Stock Instead
Ken Griffin’s fund, Citadel, is a “pod shop” in which the firm allocates capital to mini-teams with broad autonomy over the subjects in which they invest.
In the second quarter, Citadel exited most of its position in custom AI chip maker Broadcom.
The firm has become one of the most prominent AI stocks in the market.
One of the richest people in the world, Ken Griffin has an estimated net worth of over $50 billion, according to Forbes, and this comes from his career in finance. The Harvard graduate founded Citadel in 1990 and built the company into one of the world’s largest hedge funds and a major market maker.
While the firm owns thousands of shares of stock, investors are always wondering what the “smart money” on Wall Street is up to. In the second quarter of the year, Citadel divested most of its stake in the specialty chip maker broadcom(NASDAQ:AVGO) and loaded up on another popular artificial intelligence (AI) stock instead.
“Magnificent Seven” Huge tech businesses have become household stocks as their market caps exceed $1 trillion and investors expect them to be big winners. artificial intelligence explosion. Broadcom was not among the Magnificent Seven, but has recently emerged as a similar company. Its stock price is up nearly 91% in the last year and it now has a market cap of about $1.63 trillion.
Image source: Nvidia.
Broadcom makes specialized chips for the AI workloads used by hyperscalers like OpenAI. AlphabetAnd Meta Platforms It attracted intense attention. Nvidia(NASDAQ:NVDA) Broadcom, the main pick-and-shovel game for AI that creates graphics processing units that can handle multiple tasks simultaneously, is focusing on application-specific integrated circuits (ASICs) that make a given task more efficient. For example, Meta used chips it designed with Broadcom for artificial intelligence models focused specifically on advertising and organic content creation.
Wall Street analysts remain bullish on Broadcom and its custom AI chip business. Mizuho analyst Vijay Rakesh recently reiterated that the stock is an outperformer and issued a $410 price target; This represents a 21% increase from current levels. Rakesh calls Broadcom the “King of AI Custom Silicon” and thinks ASIC revenue is growing and the company is attracting more attention to the AI space.
In the second quarter, Citadel sold approximately 82% of its long position in Broadcom. Several reasons may explain the sale. The company trades at 50 times forward earnings. Broadcom still has a fairly small customer list in its custom chip business. While these small numbers of customers could potentially generate tens of billions in revenue for the company over time, reduced AI infrastructure spending could be problematic. It’s also quite possible that Citadel will make gains after a good run.
Funds piled into AI chip king Nvidia as Citadel sold its specialty chip maker. In the second quarter, Citadel more than quadrupled its position in Nvidia and now has a long position of over 8 million shares.
Now I will caution investors against blindly following the smart money. Citadel operates a “capsule store”; This means it allocates capital to small teams of portfolio managers who have broad autonomy to invest as long as they comply with Citadel’s specific guidelines. This means that although Griffin has extensive influence over the firm and likely determines who the firm hires, he does not make all of the firm’s investment decisions. Since hedge funds also tend to focus on 12-18 month time frames, they may be trying to trade stocks rather than thinking long term.
Nvidia has had an unstable year as it deals with the trade war between the United States and China, a key market where it has previously done business. Nvidia and CEO Jensen Huang had to work closely with the Trump administration after the administration told Nvidia it would require export licenses to sell certain chips in certain countries, such as China.
Nvidia’s shares have recovered over 90% in the last six months. While Nvidia’s relationship with the Trump administration and China is still fluid, Nvidia could generate billions of dollars in additional revenue in the current quarter if geopolitical tensions ease and the Chinese market opens up.
But the big question investors are grappling with is about AI demand and spending and whether the industry needs a breather. Nvidia alone has a ton of investment in other AI stocks, especially many of its customers, and the company recently announced a $100 billion investment in OpenAI. Bears find this quite strange and argue that Nvidia is giving away money to support an industry, while bulls say people underestimate how much demand there will be for AI.
Frankly, if you believe in AI and continued AI infrastructure spending, the decision to invest in Nvidia is an easy one. Currently trading at 41 times forward earnings, the stock looks more expensive, especially with a market cap near $4.7 trillion. But it’s hard to say what will unwind AI thematic trading in the near term. Considering that Citadel purchased the shares months ago, the fund appears to have performed well in terms of investment.
I think Nvidia will stay relevant for decades to come, and AI is here to stay, but the exact path can be difficult to predict, so I recommend bullish investors use dollar-cost averaging when buying stocks.
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Bram Berkowitz It has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a feature disclosure policy.
