Ken Griffin’s Citadel has been reducing its holdings in the semiconductor giant, Nvidia. Recently, Nvidia has gained prominence on Wall Street due to its significant market share in the artificial intelligence (AI) chip supply, holding roughly 90% of this lucrative market. This dominance has led to a dramatic increase in its earnings and stock price, which has surged more than 1,000% since late 2022.
The semiconductor leader is favored not only by retail investors but also by funds across Wall Street, which raises questions about why Ken Griffin and his firm, Citadel, are selling a substantial portion of their stake.
Citadel Securities, a well-known hedge fund on Wall Street, has experienced remarkable financial performance this year. The firm’s net trading revenue for the first two quarters of 2024 increased by 81% year over year, reaching nearly $5 billion. A significant portion of this revenue, approximately $993 million, came from selling nearly 9.3 million shares of Nvidia, accounting for about 80% of Citadel’s holdings. This sale was executed at an average price of $107 per share.
Despite having to report such sales to the Securities and Exchange Commission (SEC) quarterly, there is limited information on Griffin’s strategic thinking behind the move. The disposal of a substantial part of the stake may appear concerning, but it is likely a tactical repositioning, potentially driven by satisfaction with the return on investment as Nvidia traded near all-time highs.
Nvidia is still positioned for future growth as companies in Silicon Valley continue to channel billions of dollars into its business. Alphabet’s CEO, Sundar Pichai, emphasized the importance of investment, with Alphabet planning to increase its capital expenditures to $50 billion this year, up from $31 billion the previous year. The upcoming release of Blackwell, Nvidia’s new superchip, is expected to drive sales even higher, with reports indicating Blackwell is sold out for 12 months post-launch. Additionally, Elon Musk recently acquired 100,000 Hopper chips and plans to purchase another 50,000 for constructing a potent AI computer, signaling ongoing strong demand for Nvidia’s products.
However, caution is advised concerning Nvidia’s valuation, with its current price-to-earnings ratio (P/E) at 66 and a forward P/E of 36. Although a premium exists, this valuation remains justifiable given Nvidia’s growth prospects. Historically, the market has valued the chip maker similarly, even before the AI boom, suggesting that Nvidia can sustain this premium and meet expectations.
In related disclosures, Suzanne Frey, an executive at Alphabet, is on The Motley Fool’s board of directors. Johnny Rice does not hold positions in the mentioned stocks, while The Motley Fool holds and recommends positions in both Alphabet and Nvidia, according to their disclosure policy.
