Is Highflyer Nvidia Losing Its Luster?

Hedge funds are selling out — and some are even considering shorting the stock.


Illustration by II

Nvidia, the chipmaker that is the backbone of the AI craze, is officially no longer a hedge fund darling. And with analysts and others now starting to question the company’s future prospects, some managers are thinking of shorting the stock.

As Nvidia’s shares skyrocketed over the past year, the company became one of the top holdings of hedge funds and is now the third most valuable U.S. company by market capitalization. That led several hedge funds to take the opportunity to sell, or vastly trim, their stakes late last year at a profit.

Several funds sold their entire stake during the fourth quarter of 2023, according to the recent 13F disclosures of hedge funds’ publicly-traded equities portfolios that are filed quarterly with the Securities and Exchange Commission.

The sellers include D1 Capital, Discovery Capital, Suvretta Capital, Pointstate Capital, Soros Capital, Engine No. 1, Aristides Capital, and Oasis Management.

Both D1 Capital and Suvretta had jumped into the stock during the second quarter of 2023 and added to their positions during the third quarter, Institutional Investor previously reported.

Other hedge funds with big stakes that reduced them substantially during the fourth quarter included Millennium Management (selling 45 percent of its holdings), Marshall Wace (71 percent), Point72 Asset Management (66 percent), Moore Capital (98 percent), Balyasny Asset Management (92 percent), Whale Rock (35 percent), Duquesne Family Office (29 percent), and Tiger Global (13 percent).

Even Coatue Management, which has one of the biggest hedge fund stakes in Nvidia, valued around $2 billion, sold about 5 percent during the quarter. Nvidia is still Coatue’s biggest publicly traded stock position.

Lone Pine Capital, Third Point, and Viking Global Investors were already long gone — they sold out of the stock during the third quarter, as II previously reported.

Nvidia has been on a tear over the past year, its stock gaining more than 220 percent. But recently analysts and investors have grown somewhat skeptical about its prospects, in part due to its strategy of investing in startups that will buy its chips.

Short seller Nate Koppikar of Orso Partners has criticized this “round-trip” strategy as something that will end in tears.

Barclays fixed income analyst Sandeep Gupta is another who is questioning Nvidia’s future prospects. According to a recent report in the Financial Times, Gupta believes that “competition for generative AI hardware is catching up… there’s a shakeout due soon, and Nvidia’s estimated 98 percent market share of data center GPUs (or graphics processing units—the chips Nvidia sells) probably won’t last.”

Gupta also noted that Nvidia’s venture capital arm made 33 investments between January and October 2023, with 11 of those in its last fiscal third quarter, according to Crunchbase data cited by the FT. In its latest 13F filing, Nvidia also reported making its first investments in five publicly-traded companies, including SoundHound AI, which has been a popular short.

Yet even a bullish UBS analyst has suggested that Nvidia’s supply of chips may be greater than the demand for them. “That’s bad, if true,” short seller Jim Chanos tweeted recently.

Ali Ghodsi, CEO of Databricks, a $43 billion valuation developer of software that helps companies use AI, is predicting that the prices for the chips Nvidia sells will “plummet,” according to a report in The Information, which covers venture capital and the tech industry.

Short sellers have been reluctant to short the highflier but are warming up to the idea. Says Koppikar: “Nvidia will be a generationally good short. It’s not like Tesla. The demand cycle is fast and furious.”

“It will soon be time to start getting involved,” he added.