We recently compiled a list of the 10 Best Stocks to Buy According to Billionaire D.E. Shaw. In this article, we are going to take a look at where NVIDIA Corporation (NASDAQ:NVDA) stands against the other stocks.
Equity market pricing is never perfect due to supply and demand imbalances, emotional reactions, and errors. Billionaire investor David Elliot Shaw excels at detecting and exploiting these inefficiencies to generate shareholder value. Unlike most hedge fund managers who rely on intuition, Shaw uses sophisticated mathematical models and algorithms for investment decisions. Over the years, he has developed software and hardware to gain an edge in investment opportunities.
Born in 1951, David E. Shaw became a successful billionaire scientist and hedge fund manager. After earning a PhD from Stanford in 1980, he founded D.E. Shaw & Co. in 1988 with six employees and $28 million in capital. The hedge fund has averaged a 12.5% return since inception, with only one down year. Shaw’s firm uses powerful computers and advanced algorithms for quick market responses and risk management, returning over $51 billion to investors. Likewise, it generated a net return of 11.88% between 2001 and 2011. While Shaw’s firm was down by 9% at the height of the financial crisis in 2008, it bounced back to profitability with a 21% return in 2009.
READ ALSO: 10 Best Stocks to Buy According to Billionaire David Einhorn and Billionaire Paul Singer’s Top 12 Long-Term Stock Picks.
D.E. Shaw is expanding and launching new funds. In 2023, they raised money for D.E. Shaw Alkali Fund VI, the newest in their Alkali group. By November 2024, they had secured $1 billion for this fund, focusing on corporate debt, structured credit, and synthetic securitizations.
Last year, the firm also raised $1.1 billion for two new private investment vehicles: D.E. Shaw Voltaic Fund and D.E. Shaw Diopter Fund. In June 2024, D.E. Shaw announced it was raising its second fund in 16 months to target bank capital deals. They filed a private placement notice for D.E. Shaw Diopter Fund II, but the amount wasn’t disclosed.
Bloomberg reported that D.E. Shaw’s largest hedge fund, the D.E. Shaw Composite Fund, gained 9.6% in 2023, outperforming the HFR Global Hedge Fund Index, which was up about 2.5% through December 15. Reuters added that D.E. Shaw’s macro-oriented fund, the Oculus Fund, gained 7.8% in 2023, beating its macroeconomic peers. According to Bloomberg, the Oculus Fund has never had a negative year since it started.
Diversification is another vital arsenal that D.E. Shaw & Co. relies on to spread risk and reduce market volatility. The firm is highly diversified with a portfolio value of about $116.49 billion. While technology stocks account for the most significant share in the equity market at 24.6%, the hedge fund also has stakes in Services at 17.5% and the financial sector at 7.7%. In addition to diversifying holdings, Shaw relies on a multi-strategy approach to squeeze optimum value in the market.
Billionaire D.E. Shaw suggests investing in resilient companies, even as the US Federal Reserve signals fewer interest rate cuts in 2025. Despite three cuts reducing the benchmark rate to 4.25%-4.5%, economic slowdown concerns persist, especially in the labor market. Job growth is mainly in government and health care, while growth in manufacturing, business, and professional services has stagnated.
Our Methodology
To make the list of best stocks to buy according to billionaire D.E. Shaw, we scanned D.E. Shaw & Co investment portfolio. We then settled on the hedge fund’s largest holdings analyzing why they stand out and the number of hedge funds that hold stakes in them. Finally, we ranked the stocks in ascending order based on D.E. Shaw & Co stake value.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close-up of a colorful high-end graphics card being plugged in to a gaming computer.
NVIDIA Corporation (NASDAQ:NVDA)
D.E. Shaw & Co’s Stake Value: $2.09 Billion
Number of Hedge Fund Holders: 193
NVIDIA Corporation (NASDAQ:NVDA) is one of the best stocks to buy, according to billionaire D.E. Shaw, as a leading supplier of much sought-after graphics processing units. The company has affirmed its status as the most valuable company owing to strong demand for its GPUs used in powering and developing AI infrastructure.
NVIDIA Corporation (NASDAQ:NVDA) is up by more than 189% for the year. The rally comes on the company affirming its status as the leader of the artificial intelligence revolution. Likewise, it has delivered blockbuster financial results that affirm underlying growth. It logged a 94% increase in revenue in Q3 on November 21, 2024, to $35.1 billion. Likewise, its net income doubled to $20 billion. The robust growth comes from competitors struggling to catch up to the company’s graphics processing units (GPUs), which have been used in data centres for years.
It is estimated that between 70% and 95% of AI data centres use NVIDIA Corporation’s (NASDAQ:NVDA) GPUs. Well-funded AI start-ups like OpenAI and xAI, as well as large hyperscale companies with massive data centres like Microsoft, Alphabet, Amazon, and Meta Platforms, are driving the demand for Nvidia’s GPUs. There is currently “insane” demand for Nvidia’s newest-generation Blackwell GPUs as a result of these companies competing to develop the best and most potent AI models.
By introducing new AI hardware, such as the Blackwell chips, management is making a concerted effort to strengthen its lead. Growth is expected to continue, as the majority of NVIDIA Corporation’s (NASDAQ:NVDA) biggest clients have stated that they intend to increase their expenditures on data center expansion in order to support their AI aspirations.
Ithaka Group’s Ithaka US Growth Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2024 investor letter:
“NVIDIA Corporation (NASDAQ:NVDA) is the market leader in visual computing through the production of high-performance graphics processing units (GPUs). The company targets four large and growing markets: Gaming, Professional Visualization, Data Center, and Automotive. NVIDIA’s products have the potential to lead and disrupt some of the most exciting areas of computing, including: data center acceleration, artifi cial intelligence (AI), machine learning, and autonomous driving. The reason for the stock’s appreciation in the quarter was twofold: First, the stock benefi ted from tremendous excitement surrounding the further development of generative AI and the likelihood this would necessitate the purchase of a large number of Nvidia’s products far into the future; Second, Nvidia posted another strong beat[1]and-raise quarter, where the company upped its F2Q25 revenue guidance above Street estimates, showcasing its dominant position in the buildout of today’s accelerated computing infrastructure.”
Overall NVDA ranks 1st on our list of the best stocks to buy according to Billionaire D. E. Shaw. While we acknowledge the potential of NVDA as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.