Billionaires are selling Nvidia shares and buying 2 great growth companies that have little to do with artificial intelligence

Artificial intelligence (AI) has probably been the hottest investment topic for the last two years, and Nvidia was one of the hottest stocks on Wall Street. But there are also other valuable trends. The hedge fund managers listed below sold Nvidia shares in the second quarter, buying shares of e-commerce companies Shopify (NYSE: SHOP) Or MercadoLibre (NASDAQ: MELI).

• Ken Griffin of Citadel Advisors sold 9.2 million shares of Nvidia, reducing his holdings by 79%. He also bought 17,644 shares of Shopify, adding 1% to his position.

• Philippe Laffont of Coatue Management sold 96,963 shares of Nvidia in the second quarter, reducing his stake by 1%. He also bought 66,659 shares of Shopify, increasing his position by 2%.

• Steven Cohen of Point72 Asset Management sold 409,042 shares of Nvidia, reducing his stake by 16%. He also purchased 45,958 shares of MercadoLibre, starting a new position.

• Stanley Druckenmiller of Duquesne Family Office sold 1.5 million shares of Nvidia, reducing his holdings by 88%. He also bought 36,493 shares of MercadoLibre, opening a new position.

All four billionaire fund managers still have dealings with Nvidia, so it would be wrong to assume they have lost confidence in the chipmaker. Instead, the lesson is that it’s about portfolio diversification, and e-commerce is a worthwhile investment topic. Here’s what investors need to know about Shopify and MercadoLibre.

1. Shopify

Shopify provides a turnkey solution for commerce. The platform enables sellers to manage their business across physical and digital channels, including online marketplaces, social media networks and custom websites. Shopify also provides related marketing, payments, and logistics solutions, as well as more sophisticated tools for data analytics, event management, and business-to-business (B2B) commerce.

Shopify has a strong competitive position. Analysts recognized its leadership in the e-commerce and omnichannel commerce software market. Shopify merchants account for 10% of e-commerce retail sales in the US and 6% of e-commerce retail sales in Western Europe. Additionally, Forrester Research and International Data Corp (IDC) recently recognized the company as a leader in B2B commerce solutions.

Shopify reported solid second-quarter financial results, beating both high- and low-end estimates. Revenue grew 21% to $2 billion driven by strong growth in subscription software and commerce services. That said, revenue was up 25% after accounting for the sale of its logistics business last year. Meanwhile, non-GAAP net income increased 85% to $0.26 per diluted share.

The story continues

Importantly, management noted strong momentum in offline retail, B2B trade and international sales, three areas where the company has prioritized investment. This bodes well for shareholders. Shopify values ​​its addressable market at $849 billion, with more than half of that amount coming from offline retail and B2B e-commerce.

Going forward, Wall Street expects Shopify’s adjusted earnings to grow 26% annually through 2027, which makes the current valuation of 77 times adjusted earnings look expensive. However, Shopify is an excellent company with a long growth path, so patient investors looking to own the stock can buy a very small position today, provided they are comfortable with the idea of ​​exiting. If a stock falls 10% to 20%, investors should use the drawdown to buy a larger position.

2. MercadoLibre

MercadoLibre operates the largest online platform in Latin America in terms of visitors and revenue, and the company continues to increase market share. It will account for 29% of e-commerce retail sales in the region in 2024, up from 28.3% in 2023, according to eMarketer.

One of the reasons why MercadoLibre is gaining more and more share is its ecosystem of adjacent solutions. It offers logistical support and advertising software, as well as payment processing and lending services, making its marketplace more convenient for sellers. In fact, it has “the fastest and most extensive delivery network in the region.” The company is also the third largest digital advertiser and one of the largest fintech platforms in Latin America.

MercadoLibre reported very good financial results for the second quarter. Revenue increased 41% to $5 billion on sequential acceleration in sales growth across its commerce and fintech segments. Meanwhile, GAAP earnings increased 103% to $10.48 per diluted share and net profit margin increased 3 percentage points to 10.5%, the highest level in eight years.

Importantly, sales in the trade segment increased sequentially for five quarters in a row, thanks in part to the strength of advertising and the popularity of the MELI+ loyalty program. Investors have reason to believe that the momentum will continue. According to eMarketer, retail advertising spending in Latin America is projected to grow 33% annually through 2028. MercadoLibre is the largest retail media company in the region.

Looking ahead, Wall Street expects MercadoLibre’s earnings to grow 45% annually through 2025. This consensus estimate makes the current valuation of 74 times earnings seem reasonable. Patient investors should feel comfortable buying a small position in these growth stocks today.

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Trevor Jennewine holds positions at MercadoLibre, Nvidia, and Shopify. The Motley Fool covers and recommends MercadoLibre, Nvidia, and Shopify. The Motley Fool has a disclosure policy.

Billionaires are selling Nvidia shares and buying 2 great growth stocks that have little to do with artificial intelligence – Originally published on The Motley Fool