Nvidia Stock vs. Apple Stock: Billionaires Buy One and Sell the Other Ahead of 2025

Nvidia (NASDAQ: NVDA) and Apple (NASDAQ: AAPL) are very popular stocks among individual and institutional investors, but two highly successful hedge fund managers aggressively bought one and sold the other in the third quarter:

• Ken Griffin of Citadel Advisors purchased 4.7 million shares of Nvidia, nearly tripling his stake. It is now his third-largest position excluding options. He also sold 4.9 million shares of Apple, reducing his stake by 90%. It had been his fourth-largest position excluding options.
• Steven Cohen of Point72 Asset Management bought 1.5 million shares of Nvidia, increasing his stake by 75%. It is now his largest position excluding options. Meanwhile, he sold 1.5 million shares of Apple, completely exiting the position.

Importantly, Griffin and Cohen rank among the most successful hedge fund managers in history, which makes them good sources of inspiration. But investors should never buy or sell a stock without doing some research.

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Nvidia: The stock certain hedge fund managers bought in the third quarter

Nvidia is an accelerated computing company best known for its graphics processing units (GPUs). It has 98% market share in data center GPUs in terms of revenue and shipments. Those chips are widely used to speed up computationally complex workloads, which includes training large language models and running artificial intelligence (AI) applications. Indeed, Nvidia GPUs are the gold standard in AI computing.

However, the company is truly formidable because it builds entire data centers. It complements its GPUs with CPUs, interconnects, and networking gear. Nvidia has also created a robust ecosystem of development tools that help programmers write GPU-accelerated applications. That vertical integration has made the company "the world's de facto enabler of AI," according to Susquehanna analyst Chris Rolland.

Investors often assume Nvidia is overvalued because the stock has advanced 800% in the last two years, a period defined by immense demand for AI accelerators. But shares currently trade at 52 times earnings, a discount to the multiple of 62 times earnings in January 2023. Moreover, the current price is very reasonable, given that Wall Street thinks Nvidia's earnings will grow at 38% annually over the next three years.

Long-term investors should feel comfortable buying this stock today. The odds of another 800% return in the next 24 months are very slim, perhaps nonexistent, but Nvidia could still generate better returns than the S&P 500 (SNPINDEX: ^GSPC) over the next five years. Personally, I would start with a small position today and buy more shares when the price dips.

Apple: The stock certain hedge fund managers sold in the third quarter

Apple has built brand authority and pricing power through design expertise that spans hardware and software. Its ecosystem of premium consumer electronics devices provides a differentiated user experience, and the company has achieved a strong presence in several verticals. Most importantly, Apple is the market leader in smartphone sales and consistently ranks second in terms of shipments.

Apple also has a services business that lets it more effectively monetize its large installed base, including the App Store, AppleCare, Apple Pay, iCloud storage, and subscription products. The company has a strong presence in several of those markets, but that business segment is also a major source of regulatory risk. For instance, European legislation has forced Apple to let third-party app stores on its devices.

Additionally, a federal judge recently ruled that Alphabet had illegally suppressed internet search competition by paying phone manufacturers for default search engine placement. Indeed, The Wall Street Journal reports that Alphabet paid Apple $20 billion in 2022, but that revenue (which falls under the services segment) could disappear when the case is finally resolved.

Valuation is also a concern. Apple stock has nearly doubled in the last two years, but that was driven entirely by multiple expansion rather than earnings growth. Indeed, the stock currently trades at 42 times earnings, which is double its valuation of 21 times earnings in early 2023. That multiple is hard to justify when the company's earnings are expected to increase at 10% annually over the next three years.

Personally, I see Apple stock as overvalued. The company has yet to demonstrate it can monetize artificial intelligence, and its last major innovation that gained traction was AirPods in 2016. Prospective investors should look elsewhere, and current shareholders should consider trimming their positions.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Apple, and Nvidia. The Motley Fool has a disclosure policy.