In this article, we discuss the 5 tech stocks hedge funds prefer over Nvidia. If you want to read our detailed analysis of these stocks, go directly to the 10 Tech Stocks Hedge Funds Prefer Over Nvidia.
5. Netflix, Inc. (NASDAQ:NFLX)
Number of Hedge Fund Holders: 113
Netflix, Inc. (NASDAQ:NFLX) is ranked fifth on our list of 10 tech stocks hedge funds prefer over NVIDIA Corporation (NASDAQ:NVDA). The firm owns and operates an online streaming platform and is headquartered in California.
On September 27, investment advisory KeyBanc maintained an Overweight rating on Netflix, Inc. (NASDAQ:NFLX) stock with a price target of $645, noting that the firm was poised to increase its share of industry net advertisements again.
Out of the hedge funds being tracked by Insider Monkey, Chicago-based firm Citadel Investment Group is a leading shareholder in Netflix, Inc. (NASDAQ:NFLX) with 4.6 million shares worth more than $2.4 billion.
In its Q1 2021 investor letter, Polen Capital, an asset management firm, highlighted a few stocks and Netflix, Inc. (NASDAQ:NFLX) was one of them. Here is what the fund said:
“We purchased Netflix in March, initiating a 3% position in the Portfolio. We believe Netflix is a highly competitively advantaged company. It has recently met all our investment guardrails, and we anticipate it will remain sustainably above our guardrails over the next five years and beyond. We know Netflix for its ubiquitous streaming service and deep library of owned content. The company has made investments in this content (currently running at nearly $20 billion/year), generally keeping subscribers highly engaged and loyal to their service. The company has number one market share in 99% of markets globally, but it is our view that video streaming on-demand is still an underpenetrated space with many years of attractive growth likely ahead. The service is also relatively affordable at roughly $11/month on average globally.
We believe Netflix’s growth in content spend is beginning to moderate, which could allow margin expansion to continue for many years when paired with ongoing subscriber growth and price increases. While there is competition from the likes of Apple (Apple TV+), Amazon (Prime Video), Disney (Disney+ and Hulu), and others, we believe there can be a handful of winners in this industry. Already, we see many people subscribe to multiple streaming video services, with Netflix being their “anchor” service. That said, the barriers to entry are high, and we believe they are getting higher given the substantial amount of capital and size of the subscriber base required to maintain a competitive service for both viewers and content producers. Over the next five years, we expect Netflix’s earnings growth to be approximately 30% annualized and free cash flow to grow at an even higher rate.”
4. Uber Technologies, Inc. (NYSE:UBER)
Number of Hedge Fund Holders: 135
Uber Technologies, Inc. (NYSE:UBER) is a California-based company that develops and operates proprietary technology solutions. It is placed fourth on our list of 10 tech stocks hedge funds prefer over NVIDIA Corporation (NASDAQ:NVDA).
On September 22, investment advisory JPMorgan maintained an Overweight rating on Uber Technologies, Inc. (NYSE:UBER) stock with a price target of $72, underlining that new guidance numbers from the firm were chipping away at stocks drags.
Out of the hedge funds being tracked by Insider Monkey, California-based investment firm Altimeter Capital Management is a leading shareholder in Uber Technologies, Inc. (NYSE:UBER) with 24 million shares worth more than $1.2 billion.
RiverPark Advisors, LLC, in its Q4 2020 investor letter, mentioned Uber Technologies, Inc. (NYSE:UBER). Here is what the fund has to say in its letter:
“UBER was also a strong contributor, as shares rallied following the approval of California’s Proposition 22 by voters, allowing the company’s California-based drivers to remain independent contractors (rather than become more expensive employees). We believe this news is not just about the 10%-15% of Uber’s revenue tied to California, but the influence this will have on other states reassessing driver pay. UBER also reported strong third quarter results with Delivery Gross Bookings growing 135% year-over-year which nearly fully offset a reduction in Mobility Gross Bookings, which were down 50% year over year. Total Gross Bookings for the quarter were down only 10% year over year as compared with down 35% last quarter.
Despite the COVID disruption, UBER remains the undisputed global leader in ride sharing (44% of the Company’s third quarter revenue), with greater than 50% share in every major region in which it operates. The company is also a leader in food delivery (46% of revenue), where it is number one or two in the more than 25 countries in which it operates. We view UBER as more than just ride sharing and food delivery, but also as a global mobility platform with the ability to sell to its more than 100 million users (by comparison, Amazon Prime has 130+ million members) and penetrate new markets of on-demand services, such as grocery delivery, truck brokerage and worker staffing for shift work. At its current $96 billion market capitalization, UBER trades at only 6x next year’s revenue from its two core businesses. Additionally, the company has substantial, seemingly unrecognized, value in its several nascent development businesses and another $12 billion in equity stakes in synergistic businesses around the world.”
3. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 138
Apple Inc. (NASDAQ:AAPL) is a California-based technology company with a large stake in the consumer electronics business. It is ranked third on our list of 10 tech stocks hedge funds prefer over NVIDIA Corporation (NASDAQ:NVDA).
On September 27, investment advisory Credit Suisse kept a Neutral rating on Apple Inc. (NASDAQ:AAPL) stock with a price target of $150, noting that aggressive US carrier promotions remained a key swing factor for sales of the new iPhones amid long waiting times.
At the end of the second quarter of 2021, 138 hedge funds in the database of Insider Monkey held stakes worth $145 billion in Apple Inc. (NASDAQ:AAPL), up from 127 in the preceding quarter worth $131 billion.
In its Q1 2021 investor letter, Distillate Capital, an asset management firm, highlighted a few stocks and Apple Inc. (NASDAQ:AAPL) was one of them. Here is what the fund said:
“Apple is an even more notable situation and one that highlights our free cash valuation methodology and bears further discussion given its Q3 ‘20 sale from our strategy. For an extended period, Apple was extraordinarily inexpensive on a free cash flow basis and was the largest position in our strategy, exceeding 5% of the portfolio.”
2. Facebook, Inc. (NASDAQ:FB)
Number of Hedge Fund Holders: 266
Facebook, Inc. (NASDAQ:FB) is placed second on our list of 10 tech stocks hedge funds prefer over NVIDIA Corporation (NASDAQ:NVDA). The company operates as a technology firm and is headquartered in California.
On September 22, investment advisory Morgan Stanley reiterated an Overweight rating on Facebook, Inc. (NASDAQ:FB) stock with a price target of $400, noting that large advertisers were continuing to spend on the company.
At the end of the second quarter of 2021, 266 hedge funds in the database of Insider Monkey held stakes worth $42 billion in Facebook, Inc. (NASDAQ:FB), up from 257 in the preceding quarter worth $40 billion.
In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Facebook, Inc. (NASDAQ:FB) was one of them. Here is what the fund said:
“We continued to keep our learnings from 2020 in mind during the quarter as we sought to increase the up capture of the portfolio. We also made adjustments to the portfolio’s top 10 holdings to increase the participation of select stocks, including Facebook, while trimming our weighting to stable names, which now represent 47% of the portfolio. Our repositioning has been encouraging so far with the portfolio performing better on up days in the market while maintaining good down capture during more turbulent sessions.”
1. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 271
Amazon.com, Inc. (NASDAQ:AMZN) is ranked first on our list of 10 tech stocks hedge funds prefer over NVIDIA Corporation (NASDAQ:NVDA). The firm operates as a diversified technology company and is headquartered in Washington.
On September 27, investment advisory Morgan Stanley maintained an Overweight rating on Amazon.com, Inc. (NASDAQ:AMZN) stock but reduced the price target to $4,100 from $4,300, identifying wage pressures on the firm as one of the reasons behind the lower target.
Out of the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Amazon.com, Inc. (NASDAQ:AMZN) with 3.8 million shares worth more than $13 billion.
In its Q1 2021 investor letter, Hayden Capital, an asset management firm, highlighted a few stocks and Amazon.com, Inc. (NASDAQ:AMZN) was one of them. Here is what the fund said:
“Amazon (AMZN):We sold our last remaining stake in Amazon this quarter. Amazon was our longest-running investment holding, after having originally purchasing it at the inception of Hayden in 2014, at a price of ~$317.
I gave some details of how Amazon has progressed over these past 6.5 years in last year’s Q2 2020 letter, which partners can find here (LINK). The company has executed amazingly well over this tenure, with revenues up ~3.3x and since our initial purchase, and reported operating income up ~30x over that period.
Generally, I believe there are three reasons to sell an investment:1) we recognize our initial thesis is wrong (sell out as quick as possible), 2) we have a significantly higher returning opportunity to redeploy the capital into (sell-down to fund the new investment), or 3) the company is maturing and hitting the top part of it’s S-curve / business lifecycle, so the business has fewer places to reinvest its capital internally. As such, the future returns will likely be lower than the past. This investment thus becomes a “source of capital” in the future, as we fund earlier-stage investment opportunities.
In the case of Amazon, we decided to sell due to the third scenario. I’m sure Amazon will continue to generate value for shareholders and continue to keep pace with the broader technology sector. However, I’m just not confident it’s as attractive an investment as when we first invested.
With ~51% of US households having an Amazon Prime account (and with very low churn), each of these households continuing to increase their annual spend with Amazon, and few / no real competitors in sight, Amazon is a dominant force that will only continue to accrue value as consumers continue to move from offline to online purchases for their everyday needs. Likewise, the “cash-flow machine” of Amazon Web Services is in a similar position of strength, with AWS now having ~32% market share and continuing to grow at +30% y/y. Because of this, I think Amazon is probably one of the safest investments in the technology sector today.
So why did we decide to sell the investment then? Simply put, Amazon is …”read the entire letter here]
You can also take a peek at 10 Best Stocks to Buy According to George Soros and Billionaire Ray Dalio is Buying These 10 Stocks.
