Best Trader Ever Says AI Will…

Stanley Druckenmiller is arguably the best trader in the world not because of the 30% returns he posted annualized on average over 30 years but because during that time frame he never had a losing year.

It would be nice to invest alongside him but those days are gone, because he now manages a Family Office only, called Duquesne Family Office. Still, he regularly appears on financial news networks and investor conferences to share his views on the macro environment, as well as individual stocks and bonds.

One stock in particular that jumped out at him before the rest of the world is Nvidia. He made so much money in that stock that he said he has now ‘decided to take a break’ from it. The inference being he had a white-knuckle ride holding on to his position during the way up.

But where does he think Nvidia will go from here?

Key Points

• Stanley Druckenmiller is considered one of the best traders in the world, not just for his 30% average annual returns over 30 years, but for never having a losing year during that time.
• Druckenmiller made a lot of money investing in Nvidia, but has now decided to “take a break” from the stock, suggesting the stock may have run up too far in the short-term, even though he still believes in the long-term potential of AI.
• Stan, along with Warren Buffett, have been reducing their positions in large tech stocks like Apple and Nvidia, citing concerns over fiscal stimulus, inflation, and higher taxes.

Is Nvidia Done?

Has Nvidia’s goose been cooked? The obvious conclusion from Stan Druckemiller’s decision to lighten his holdings in Nvidia is that the company’s massive run-up has captured the good news to come.

But Druckenmiller says that’s not the case at all. While he’s on a break from Nvidia and the pendulum may have swung too far short-term, he strongly believes the future for AI is underestimated in the long-term.

He draws the comparison between the internet launching, and the NASDAQ crashing 80% following its 2000 peak, and the future which led to massive change, such as the launch of social media as exemplified best by Meta, and so many other disruptive apps and enterprises, including how Uber disrupted transportation.

Similarly, he believes we simply cannot know the magnitude of the changes coming and what new applications will launch on the back of artificial intelligence.

Is It Time to Buy Now?

Sometimes connecting the breadcrumbs is the best way to get a pulse on the market. In the last week, Buffett’s stake in Apple was materially reduced by 13%. That’s not a small amount; it represents about $17 billion.

Another perspective is that represents almost 50% of the principal he originally invested in Apple. So he’s not quite at a risk-free trade but he’s getting close to it.

Now news has come out that Druckenmiller too has offloaded a large position. So what is it about these two billionaires that they see which tells them to be cautious?

Both cite massive fiscal stimulus as being reckless and believe that the future is likely to be marred by inflation and higher tax rates. At some point what the visionaries who have made billions and have an eagle-eye for spotting what’s coming next on the investment side extends to the rest of the market. And when it does, you can be confident that the market too will fall. That’s why both appear to be building cash positions.

Notably they are both optimistic long-term so their views seem to be short-to-medium term in length that the fundamentals need to catch up with price before getting aggressive in either Apple or Nvidia again.