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Druckenmiller Sells Nvidia Amid AI Hype, Others May Follow

AI stock surge prompts Druckenmiller and Gerstner to sell, citing overhype; Nvidia leads with others also vulnerable.

By Barry Stearns

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5/7, 14:42 EDT
Advanced Micro Devices, Inc.
Broadcom Inc.
Micron Technology, Inc.
NVIDIA Corporation
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Key Takeaway

  • Billionaire investors, including Stanley Druckenmiller, are selling off Nvidia shares, citing the AI sector as "overhyped."
  • Micron Technology's P/E ratio at 149 times shows a 700% premium to its 5-year average, highlighting market exuberance in AI stocks.
  • Despite short-term profit-taking, there's a long-term bullish outlook on AI, tempered by current macroeconomic concerns and Fed rate expectations.

AI Stocks Surge

Recent months have seen a significant surge in the stock prices of companies involved in artificial intelligence (AI), with Nvidia leading the pack. The chipmaker's stock has experienced a meteoric rise, prompting some billionaire investors to start cashing in on their investments. Stanley Druckenmiller, speaking on CNBC’s “Squawk Box,” mentioned trimming his Nvidia stake in late March, citing the stock as becoming "a little overhyped" in the short term. Similarly, Altimeter’s Brad Gerstner disclosed on CNBC’s “Halftime Report” that he reduced his stake in Nvidia and other technology stocks, reflecting a broader sentiment among investors that some AI stocks may have run too far too fast.

Market Adjustments

The AI market's rapid expansion has not only been beneficial for Nvidia but also for other companies in the sector. CNBC Pro's screening identified several AI-related companies whose stocks are trading at a significant premium compared to their average forward price-to-earnings (P/E) over the last five years. Among these, Micron Technology stands out with a P/E of 149 times, marking a more than 700% premium to its 5-year average. Other notable mentions include Arm Holdings, Broadcom, and Advanced Micro Devices, all of which have seen substantial price increases since October 2023.

Investor Caution

Despite the enthusiasm surrounding AI stocks, some investors express caution. Druckenmiller's decision to reduce his Nvidia position reflects a broader concern that the AI boom might be overextended in the short term. He remains bullish on AI's long-term potential but suggests that the current hype may not fully align with the sector's immediate financial realities. Gerstner also echoed this sentiment, noting the strong performance of tech stocks in early 2024 but deciding to trim positions due to a less favorable macroeconomic environment and the anticipation of no Federal Reserve rate cuts.

Street Views

  • Stanley Druckenmiller (Neutral on Nvidia):

    "We did cut that and a lot of other positions in late March... I just need a break. We’ve had a hell of a run. A lot of what we recognized has become recognized by the marketplace now."

  • Brad Gerstner, Altimeter (Neutral on technology stocks including Nvidia):

    "We did cut that and a lot of other positions in late March."