My investor friends are all liquidating NVIDIA

A few days ago, a friend who is an investor shared about a dinner he organized during the WAIC, expressing three things: the high attendance rate at this WAIC, the heat in Shanghai, and most of the colleagues at the dinner table have cleared out their shares of NVIDIA.

It's a given that WAIC and Shanghai are both hot. The third point really piqued my curiosity. After all, just a few days after reaching a new high of $140 per share, Nasdaq and the S&P 500 have just hit new highs again. Could it be that NVIDIA, which is seen as a star in the eyes of investors, is not worthy of a $3 trillion market value?

Strictly speaking, it's not news for investors to prepare to sell NVIDIA shares, as buying and selling go hand in hand. Back in March this year, when OpenAI launched Sora, reigniting the artificial intelligence frenzy in the capital market, I once discussed with a few friends "NVIDIA nowadays easily reminds people of the early days of Cisco." Both are seen by the market as the infrastructure of the next technological era, and both have experienced crazy stock price surges.

The lesson Cisco taught us is that the cycle of capital markets and industry maturity are not always aligned. The heat of the capital market often precedes industry maturity by many years. A key example is Cisco, which, despite being a famous case during the Internet bubble era, saw its valuation drop from a peak P/E ratio of 200 to the current 10, but in reality, Cisco's revenue and profit have been growing every year—meaning that after industry maturity, the capital market values a technology company that can sustain annual growth of 10 to 20 at around 10 times P/E. Currently, NVIDIA seems to be following a similar trend, with a dynamic P/E ratio exceeding 30 and a trailing P/E ratio exceeding 75.

In this context, investors find it hard to ignore the "bubble" element in NVIDIA's stock price. In addition, NVIDIA's executives and employees have also been cashing out.

According to documents disclosed by the U.S. Securities and Exchange Commission, Jensen Huang engaged in continuous stock sales from June 13 to 21, and from June 28 to July 2. The average stock sale price of the first transaction was $131.44, and the second transaction ranged from $118.98 to $127.66, with the total cashed out amount exceeding $200 million.

At the same time, the documents show that NVIDIA's CFO Colette Kress and Executive Vice President Deborah Shoquist also sold shares. Media reports indicate that since NVIDIA announced its Q1 performance on May 22, more than one-third of the company's internal employees have cashed out.

As you can see, even NVIDIA insiders have started cashing out. Investors considering turning paper profits into real profits at the current high point do not need too many complicated reasons. Of course, even someone as strong as Jack Ma has sold Tencent shares several times at low points. Therefore, strictly speaking, in a transparent open market, there is not a direct correlation between executive sales and the future direction of stock prices Moreover, be vigilant about the bubble in NVIDIA's stock price, executives cashing out their stocks, and external investors choosing to collectively sell off. These are clearly three different things with fundamentally different signals behind them. So after seeing that post on Moments, I tried to search along the relevant information, attempting to understand whether external investors are really collectively selling off, why everyone is choosing to act together, and who is still buying NVIDIA.

1. Everyone is Selling Mag7

First of all, it is clear that a considerable number of investors have recently sold their NVIDIA stocks.

According to the regulations of the U.S. Securities and Exchange Commission (SEC), institutional investors with assets under management (AUM) of at least $100 million must submit a 13F filing within 45 days after the end of each financial reporting quarter to allow investors to keep track of market changes at any time.

By searching according to this rule, in the Q1 quarter of the 2024 fiscal year, at least 8 large investors chose to sell NVIDIA stocks, including prominent players such as Philippe Laffont, founder of Coatue Management, Ken Griffin, head of Citadel Capital, Israel Englander of Millennium Management, and Steven Cohen of Point72.

However, it is also important to note that investors are not targeting NVIDIA specifically. Significant sell-off events have occurred for the Mag7 stocks, including NVIDIA.

SEC filings show that Bezos has cashed out his stocks multiple times this year, with the most recent one occurring from July 5th to July 8th, where he sold a total of 4.314109 million shares of Amazon stock, totaling $863.5 million. The largest sell-off took place in February this year, when Bezos sold over 50 million shares of Amazon stock in 9 trading days, cashing out over $8 billion.

Mark Zuckerberg made similar choices. According to SEC regulatory filings, Zuckerberg sold almost every day from November 1, 2023, to the end of the year, with a total of 1.28 million shares traded, equivalent to $428 million in cash.

On the external investor side, hedge funds represented by Goldman Sachs have gradually reduced their holdings of Mag7 in their portfolios starting from the fourth quarter of 2023, with the position controlled below 15% by the first quarter of 2024. Correspondingly, long positions have shifted 25% of their positions to the more SME-oriented Russell 3000 index.

Ron Temple, Chief Market Strategist at renowned investment bank Lazard, advised investors in a media interview: "I don't think anyone can be smart enough to accurately predict when Mag7 stocks will peak... But my view is that with some market tools already malfunctioning, the price-driving ability of artificial intelligence stocks has little room left. **"

Louis Navellier, founder of Navellier & Associates, also made the same judgment. In a market report in February of this year, he wrote: "The dominance of Mag7 in the stock market is changing, and funds are flowing accordingly to those small and medium-sized companies with better sales, soaring profits, and vigorous growth."

2. Everyone is bearish on Mag7?

So why is the capital market making such a collective choice? The excessively high concentration and unhealthy asset distribution in the current stock market may be the most direct reasons.

For example, J.P. Morgan's quantitative trading team explicitly mentioned in a U.S. stock market strategy report at the beginning of this year: Compared to 2023, the concentration of U.S. stocks will further increase in 2024, and the market structure is becoming increasingly unhealthy.

Specifically, the weight of the top 10 stocks in terms of market capitalization in the S&P 500 has risen to 33.1%, while the weight of the next 40 stocks has dropped to 35.8%. This data has reached the highest level since the 1960s, far exceeding the level during the dot-com bubble of the millennium.

In addition, in terms of price-earnings ratio and market value-weighted index, these top 10 stocks have a very obvious gap compared to other stocks in the market, a situation that has only occurred during the dot-com bubble period in the past 30 years.

Furthermore, in terms of fund distribution, the stock market during the dot-com bubble period was even more "balanced" than the current stock market. Therefore, since the first quarter of 2023, although there are still active investors choosing to continue to increase their holdings in Mag7, the intensity of these increases has shown a clear slowdown.

Most investors have begun to categorize Mag7 stocks into different tiers, with only Meta and Alphabet being widely viewed positively, while other stocks are rated as underweight—this coincides with the market recommendations of the two top analysts mentioned earlier.

Some also believe that the large-scale selling of Mag7 stocks by the big players may be aimed at boosting market activity to reduce the potential impact of an inactive IPO market.

One example is that Bezos did not sell any Amazon stock between 2022 and 2023, and the last time Zuckerberg reduced his holdings dates back to November 2021. During the same period, J.P. Morgan's CEO Jamie Dimon and Leon Black, co-founder of Apollo Global Management, also chose to reduce their holdings, with transaction sizes reaching $150 million and $172.8 million respectively.

Considering that the monthly IPO size in the U.S. stock market in 2024 has dropped to around $8 billion, less than half of the liquidity injection era in 2021, many believe that the big players choosing to reduce their holdings at the same time is not a coincidence, but more like pushing for "market liquidity" and "increasing portfolio diversity" at the same time However, many people have strongly refuted this view, arguing that there is enough data to show that it is now very difficult for the average person to get rich in the current stock market.

Analyst Lyn Alden found through calculations that 20 years ago, the structure of the entire U.S. capital market was such that the wealthiest 10% held 77% of company stocks and fund shares, the middle class held 12%, and the remaining 50% of the grassroots held 1%—while today, the richest 10% have taken 92.5% of the market share.

A report released by Campden Wealth at the end of last year has been repeatedly mentioned. They conducted a survey of 330 family offices across North America last year and found that the proportion flowing into the stock market and private capital markets was 28.5% and 29.2%, respectively—this is the first time since their research that the latter has exceeded the former.

In other words, a considerable number of people believe that the big shots selling Mag7 stocks are like quack doctors performing bridge surgery—up to no good—either accurately escaping the peak or preparing in advance for the future stock price collapse.

3. Everyone Bets on Mag7

Of course, I have also seen a considerable number of practitioners supporting Mag7. For example, Shane Oliver, the head of investment strategy at the well-known investment bank AMP Capital, believes that while there may be a bubble, it is completely different from the dot-com bubble era, with a 32 s PE ratio being fundamentally different from a 100x PE ratio.

He made a tough statement, "A bubble is just an excuse you use to explain why you missed the bull market."

So I think it is necessary to take a look at who is buying NVIDIA through 13F filings, as a final surprise:

In the second quarter of 2024, over 100 institutional investors increased their holdings in NVIDIA, with the largest increase coming from Svenska Handelsbanken (PUBL), who raised their NVIDIA holdings to 11.13% of their portfolio, surpassing Microsoft and slightly below Broadcom, Applied Materials, and Walmart.

It is worth noting that Svenska Handelsbanken (PUBL) began investing in NVIDIA in the fourth quarter of 2023 and was the only major foreign buyer in that quarter.

Other institutional investors who bought NVIDIA shares for the first time in that quarter were mostly from the United States, such as Renaissance Investment Group, Thurston, Springer, Miller, Herd & Titak, Lynx Investment Advisory, etc., and their portfolios also frequently included Microsoft, Broadcom, and Apple.

Author: Pu Fan, Source: Touzhong Net, Original Title: "My Investor Friends Are All Clearing NVIDIA"