It’s been a tough sled for the investment community in 2022. At their respective worst, the timeless Dow Jones Industrial Averagereference S&P500and focused on growth Nasdaq Compound lose up to 19%, 24% and 34% of their value. Although all three indexes have rebounded from their June 2022 lows, the Nasdaq remains firmly in a bear market.
Yet despite this heightened volatility, billionaire investors held firm. Instead of heading for the sidelines, Form 13F filings with the Securities and Exchange Commission (SEC) show that most billionaire fund managers were active buyers in the first half of the year.
What’s particularly interesting is that some billionaires have piled into some of the most battered growth stocks on Wall Street. The next three supercharged growth stocks fell 94%, but billionaires can’t help but buy into them.
Nvidia: down 62% from its all-time high
The first fast-growing stock that has been completely beaten in recent times is the specialist in graphics cards and network solutions Nvidia (NVDA -5.28%)which has seen its shares fall 62% since November.
But that steep drop didn’t stop billionaires John Overdeck and David Siegel of Two Sigma Investments from gobbling up Nvidia stock. During the second quarter, Two Sigma purchased nearly 1.27 million shares.
The impetus behind the aggressive buying of Nvidia stock by Overdeck and Siegel is likely related to the expectation that Nvidia will expand its data center operations segment. Although most investors know Nvidia for its graphics processing units, which are used in PC gaming and cryptocurrency mining, data centers represent the company’s most intriguing long-term opportunity. . With businesses moving their data to the cloud at an accelerated rate since the onset of the COVID-19 pandemic, demand for everything from storage to data centers will only grow.
Nvidia also has the opportunity to be a key player in the development of the metaverse. The Metaverse is the next iteration of the Internet, designed to allow connected users to interact with each other and their surroundings in a virtual 3D world. Although the Metaverse is years away from being a serious revenue engine, many analysts see it as a multi-trillion dollar opportunity.
However, weakening economic growth prospects and geopolitical issues are currently serious headwinds for Nvidia.
Last month, an Nvidia filing with the SEC notes that the US government is restricting sales of GPUs sold to China. With reduced or minimal sales to the world’s second-largest economy, Nvidia could lose $1.6 billion (or more) in annual revenue. It’s not a number that can be easily swept under the rug or replaced overnight.
Okta: down 80% from its all-time high
A second supercharged growth stock crushed since February 2021 is the cybersecurity company Okta (OKTA -3.00%). As of the close of September 20, 2022, Okta shares were 80% below the company’s all-time intraday high.
However, Okta’s share price decline was not enough to scare off billionaire Ken Griffin of Citadel Advisors or Jim Simons of Renaissance Technologies. Citadel and Renaissance respectively purchased approximately 1.6 million shares and 618,300 shares of Okta during the second quarter.
The defensive nature of the cybersecurity industry is what makes it such a smart place to put your money to work. No matter how the US economy and stock market performs, threats from hackers and bots to steal critical data are a constant. This makes enterprise and end-user level cybersecurity solutions a must in any business environment.
Okta’s specialty is identity verification. This is a company that has built its infrastructure in the cloud to verify user identities and monitor access. Okta specifically relies on artificial intelligence (AI), which enables its platform to become more effective at recognizing and responding to threats over time.
Another key aspect of Okta’s growth story is its $6.5 billion equity acquisition of Auth0, which was completed in May 2021. independently under the Okta umbrella, this acquisition broadens Okta’s appeal to businesses and expands the company. sales channels in international markets. Okta previously said its addressable identity security market totals $80 billion.
But it’s obviously not all peaches and cream that Okta shares are down 80%. While the acquisition of Auth0 is seen as a long-term driver for the company’s revenue and bottom line, integration costs have widened its short-term losses at a time when many other cybersecurity actions have been profitable.
The other issue for Okta is the sheer amount of stock-based compensation (SBC) it distributes. Unless the SBC is significantly reduced over the next few quarters, recurring profitability could still be years away.
Upstart Holdings: down 94% from its all-time high
But the disaster of the day the award goes to the cloud-based lending platform Assets received (UPST -6.82%)whose shares have fallen 94% since hitting a record high of over $401 less than a year ago.
Despite Upstart’s poor performance over the past year, billionaire Philippe Laffont of Coatue Management sees better days ahead. During the second quarter, Laffont’s fund purchased more than 2.36 million shares of Upstart, giving him a nearly 2.8% stake in the company.
Why Upstart? The simple answer is that the company’s AI-powered lending platform provides competitive advantages. Nearly three quarters of all loan approvals on Upstart’s platform are automated. This means time and money saved for loan seekers and the nearly six dozen financial institutions Upstart has partnered with.
However, the most intriguing differentiator is that Upstart’s platform opens up opportunities for people who would not be approved with the traditional verification process. Even though the average credit score for Upstart approvals is lower than the traditional verification process, the delinquency rates between Upstart and the decades-old process are similar. The bottom line is that banks and credit unions can leverage Upstart’s AI-powered platform to expand their loan portfolios without adding credit risk.
Also keep in mind that Upstart is only scratching the surface when it comes to its addressable market. After years of focusing on personal loans, he started to branch out into car loans and small business loans. Together, the latter two offer an addressable market 10 times larger than personal loans.
But before Upstart has a chance to enrich Laffont, it will have to prove to Wall Street that it can withstand a higher interest rate environment and a possible economic downturn. If delinquency rates rise significantly and demand for auto loans slows, things could get tricky for Upstart.