Hedge Fund D. E. Shaw Restructures: Nvidia Stock Sale and Broadcom Purchase in Focus

Hedge funds and portfolio management firms that have invested over $100 million in the market are required to file a Form 13F with the U.S. Securities and Exchange Commission (SEC) quarterly. These filings provide valuable insights into the investment strategies of so-called 'smart investors.' A current trend that stands out is the sale of Nvidia shares by some of the most well-known billionaires on Wall Street. This includes D. E. Shaw, a hedge fund founded by computer scientist David Shaw, which focuses on quantitative trading strategies. Shaw himself is now more active in an advisory capacity rather than influencing the day-to-day trading activities. In the last quarter, D. E. Shaw drastically reduced its Nvidia holdings by selling 12.1 million shares, thereby reducing its position by about 51%. This might seem surprising given Nvidia’s market dominance in AI-driven graphics processing units (GPUs) and the upcoming launch of the Blackwell series. However, competition in the GPU space is intensifying, not least through companies like Advanced Micro Devices, Intel, as well as potentially Meta Platforms, Microsoft, Amazon, and Tesla. Additionally, many competitors are also major customers of Nvidia. Should these companies increasingly use their own chips, Nvidia’s pricing power, and thus revenue growth and profitability, could suffer. Interestingly, D. E. Shaw has decided to shift its focus from Nvidia to Broadcom. Broadcom is perceived as a subtly attractive choice in the chip sector, not least because of its diversified business structure. The acquisition of VMware last November significantly expands Broadcom’s offerings in infrastructure and software solutions. While the demand for IT hardware in data centers has not grown as exponentially as in the GPU market, Broadcom’s forward price-to-earnings ratio (P/E) of about 28 indicates that the market has yet to fully recognize the potential of infrastructure components in the AI sector. This could change, and Broadcom’s long-term growth trajectory might gain significant momentum. In contrast to Nvidia, investors see in Broadcom a unique combination of IT infrastructure solutions and VMware's software suite, which could foster new growth potentials in the digital sector. In light of this, D. E. Shaw’s shift from Nvidia to Broadcom seems to be a smart move at this time.