Investment fund puts the red pencil on NVIDIA and Microsoft shareholdings – what’s behind it

• Investment fund throws all NVIDIA shares out of the portfolio
• Shareholding in Microsoft also significantly reduced
• Focus on growth concerns

The London investment firm Findlay Park surprisingly dumped all NVIDIA shares from the portfolio of the American Fund, its only fund, in the third quarter of 2024 and drastically reduced its stake in Microsoft. As “Bloomberg” reports, citing a letter from the investment firm to its clients, the fund sold 3,065,280 NVIDIA shares in the past quarter, which would previously have made up around five percent of the portfolio. During the same period, 540,100 Microsoft shares were sold. The stake in the Windows manufacturer, which, according to Bloomberg, was the fund’s largest position for much of the last ten years, was reduced by around 40 percent. The proportion of Microsoft shares in the American Fund fell from 4.8 percent in August to only around 3 percent at the end of the quarter on September 30th.

For these reasons, Findlay Park divested itself of NVIDIA and Microsoft shares

The fund management’s decision to divest from NVIDIA and Microsoft stocks is surprising, as both companies are seen as winners of the AI ​​revolution and have posted solid to very strong performance so far this year. The NVIDIA share has risen by an impressive 172.75 percent since the beginning of the year, having already gained strongly in 2023. The Microsoft shares have so far only achieved an increase of 17.89 percent in 2024, but – like NVIDIA – belong to the group of “Magnificent Seven” to which the US stock market owes a large part of its profits (as of closing prices on December 10, 2024).

Both companies have continued to benefit from the AI ​​hype in recent months. NVIDIA’s chip systems are used worldwide to train AI, which gave the group a 94 percent increase in sales in the most recent quarter, while profits more than doubled. Microsoft is active in the AI ​​sector, among other things, through its partnership with the ChatGPT maker OpenAI. It recently invested billions in expanding its AI infrastructure and integrated AI tools into more and more of its products. Here too, the investments were reflected in the most recent quarterly balance sheet with an increase in sales and profits.

Accessed AI stocks: UBS had these investments in its US portfolio in the third quarter of 2024

As part of the filing of Form 13F, the renowned Swiss bank UBS recently disclosed its investments in US stocks. It is noticeable that UBS continued to focus heavily on the AI ​​sector in the third quarter and made significant increases in shares in this area. To the ranking.

At Findlay Park, however, doubts appeared to arise as to whether the previous growth could continue. “The ‘Magnificent Seven’ have justified their outperformance to some extent by the growth they have delivered. But now expectations for earnings growth are quite subdued and valuations continue to price in that [bisherige] growth pattern would continue. “One of these two numbers is wrong,” Findlay Park CEO Simon Pryke told Bloomberg. Therefore, both stocks are currently unattractive for the investment firm.

Outperformance compared to competitors: investment funds with a profitable strategy so far

Findlay Park had $10.7 billion in assets under management in American Fund at the end of the third quarter. According to the company, the fund’s focus is on companies with a strong presence in the US domestic market and in the US supply chain. This and last year, the fund also had a lucky hand with its investments: According to “Bloomberg”, the American Fund performed better in 2023 and 2024 than 90 percent and 86 percent of its peer group, respectively.

However, with the decision to completely divest from NVIDIA shares and significantly reduce Microsoft’s share of the fund portfolio, Findlay Park is now acting differently than most analysts recommend. According to “TipRanks”, there are currently 37 buy recommendations for NVIDIA shares and three “hold” votes. However, none of the experts listed there recommend selling the paper. Instead, with an average price target of $176.14 for the NVIDIA share, the analysts still see around 30.41 percent room for improvement from the last closing price of $135.07 (as of: closing price on December 10, 2024). .

The experts recorded by “TipRanks” are similarly confident about Microsoft. There are 26 buy recommendations compared to three hold recommendations. There are also no sales recommendations. The average price target of $497.36 is around 12.19 percent above the last closing price of $443.33 (as of December 10, 2024).

NVIDIA and Microsoft: This analyst also doubts sustainable AI growth

But even if no expert is currently recommending the two stocks to sell, there are still skeptical voices among analysts who seem to agree with Findlay Park. One of them comes from Gil Luria, analyst at DA Davidson, who is also becoming more cautious about NVIDIA and Microsoft going forward. “While demand will continue to be strong in the near term, we believe that a decline in demand for NVIDIA computing power is inevitable as customers begin to scrutinize their return on investment (ROI) on AI computing,” Luria said quoted by “TipRanks”. He therefore currently rates NVIDIA shares as being correctly priced and sees no potential for further price increases.

There are also doubts at Microsoft as to whether growth can really justify the high expenditure. “While it is an impressive achievement to grow AI sales to $10 billion in such a short period of time, we do not believe investors have had the chance to fully understand the staggering levels of investment that have led to these sales,” he said DA Davidson analyst according to TipRanks. “We believe Microsoft will experience a loss in AI revenue this year on a total investment of $81 billion, resulting in a negative ROI. More importantly, at the current rate of investment, we expect ROI to remain subpar “even if AI sales reach $50 billion within five years at full margin,” Luria continued. He therefore also rates Microsoft shares neutrally and sees no more room for the price to rise.

Whether the skeptics like Findlay Park or DA Davidson analyst Gil Luria will ultimately be right, or whether Microsoft and NVIDIA will continue to surprise investors with disproportionate growth rates and strong price gains, will probably become clear in the next few months. However, given the positive price development this year, investors probably have no reason to complain at the moment.

Editorial team finanzen.net

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