With the S&P 500 and Nasdaq in correction territory, you may not be feeling very optimistic about investing. But now is actually an excellent time to buy stocks because many of yesterday’s highfliers are today’s dirt cheap deals. So, a time of market decline represents the perfect moment to get in on a quality company at a discount, with the next step being to hang on for the long term to benefit.
And today, one billionaire investor in particular may be taking advantage of this market moment. Billionaire Stanley Druckenmiller has a long track record of success, delivering an average annual return of 30% over 30 years at Duquesne Capital Management without any money-losing years. He now manages $3.7 billion as head of the Duquesne family office.
But last fall, Druckenmiller said he was disappointed with one of his latest investing moves. He sold an artificial intelligence (AI) stock that’s soared more than 1,900% over the past five years — and he expressed interest in getting back in on the growth story at the right valuation. Druckenmiller has likely noticed the significant drop in this player’s price in recent weeks. In my opinion, he might be buying this stock for a bargain during the Nasdaq correction.
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Druckenmiller’s “big mistake”
Druckenmiller holds a number of tech stocks in his portfolio and has spoken favorably of AI, saying he’s a long-term believer in the technology. So, he clearly aims to be involved in this high-growth story. Yet, last year, Druckenmiller reduced his holding of AI giant Nvidia (NVDA 5.27%) and finally closed out the position in the third quarter. The investor originally bought his Nvidia stake in the fourth quarter of 2022, and it rose about 700% during its time in his portfolio. The reason for Druckenmiller’s actions? He thought its valuation had gotten too rich.
Last year, Nvidia traded for as much as 50 times forward earnings estimates. But even with Nvidia trading at that level, Druckenmiller still considered his move “a big mistake,” as he said in a Bloomberg interview, adding that he would consider buying the stock again at the right valuation.
Since Nvidia stock has fallen 10% in a month, leaving the shares trading at 26 times forward earnings estimates, I believe that moment may be now. I wouldn’t be surprised if Druckenmiller took this opportunity to return to Nvidia, aiming to benefit from the next wave of growth ahead.
A $1 trillion opportunity
It’s important to remember that even though Nvidia’s revenue has soared in the double and triple digits quarter after quarter, the company is still in the early chapters of the AI story. Nvidia chief Jensen Huang has said that $1 trillion of outdated computers need to be updated to accommodate accelerated computing, leaving a lot of room for growth ahead.
This buildout is still unfolding, with OpenAI even announcing a project to invest $500 billion over the coming four years to continue adding to AI infrastructure in the U.S. — and Nvidia’s been named a key partner. The AI market is also moving into the next phase: the application of AI to real-world situations through tools such as AI agents. This is software that can reason through problems and apply solutions.
Why Nvidia may excel over time
With its dominance in the AI chip market, full portfolio of AI products and services, and focus on innovation, Nvidia is well positioned to benefit through these stages of AI growth. The company’s ability to generate high profits on sales — with gross margin consistently surpassing 70% — shows it can deliver both growth and profitability.
Today’s economic and political headwinds may weigh on Nvidia in the near term, but the good news is that they don’t change the company’s long-term prospects. Certain savvy investors may recognize this, and one of them may be Druckenmiller.
Of course, we can’t be certain that the billionaire is buying Nvidia shares right now. Even though he clearly likes the company, any shifts in the economy or the AI landscape could have changed the investor’s mind. And we don’t know exactly what level he considers reasonable for Nvidia right now.
But considering the billionaire’s comments last year, an Nvidia purchase at the moment is a reasonable possibility. Whether Druckenmiller has made the move or not, at today’s levels, Nvidia still looks like a bargain for investors aiming to get in on a current and future AI winner.
Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
