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Billionaires Are Selling Nvidia Stock and Buying 2 Supercharged AI Stocks
Many investors see Nvidia (NASDAQ: NVDA) as the quintessential artificial intelligence (AI) stock because its chips provide the computing power needed to train the most advanced AI systems, such as OpenAI’s ChatGPT and Teslacomplete autonomous driving software.
However, some hedge fund billionaires sold Nvidia shares during the first quarter while buying shares of Palantir Technologies (NYSE: PLTR) and/or Super Micro Computer (NASDAQ: SMCI), two turbocharged AI stocks with year-to-date returns of 59% and 198%, respectively.
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Moore Capital Management’s Louis Bacon sold 2,006 shares of Nvidia in the first quarter, reducing his holding by 19%. Meanwhile, Bacon started a small position in Super Micro Computer.
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Millennium Management’s Israel Englander sold 720,000 shares of Nvidia in the first quarter, reducing his holdings by 35%. Meanwhile, Englander increased his positions in Palantir and Super Micro Computer by 4% and 235%, respectively.
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Coatue Management’s Philippe Laffont sold 2.9 million Nvidia shares in the first quarter, reducing his stake by 68%. Meanwhile, Laffont increased his position in Palantir by 40%.
The trades made by Israel Englander are especially noteworthy because Millennium Management won easily S&P 500 Index over the past three years, and ranks as the second-best performing hedge fund of all time, measured by net gains since inception. Here’s what investors should know about Palantir and Supermicro.
1. Palantir Technologies
Palantir specializes in data analytics. Its software enables government and commercial customers to integrate data, develop artificial intelligence (IA) and machine learning (ML) models and build applications that leverage these datasets and models to improve decision making. Palantir recently introduced its Artificial Intelligence Platform (AIP), a product that brings support for large language models and generative AI to its existing software.
Some industry analysts have praised the company for its technological prowess. Forrester Research Palantir Foundry was named the best AI/ML platform in a report published in July 2022. And Dresner Advisory Services named Palantir a leader in the AI/ML and data science market in a report published in August 2023.
Other analysts, however, are skeptical. Rishi Jaluria of RBC Capital says conversations with industry observers and company employees have led to the conclusion that Palantir offers “nothing truly differentiated when it comes to generative AI.”
Palantir reported reasonably strong first-quarter financial results, beating estimates on the top line and meeting expectations on the bottom line. Its customer count increased 42% to 554, and the average existing customer spent 11% more. Meanwhile, revenue increased 21% to $634 million, the third consecutive sequential acceleration, and non-GAAP earnings increased 60% to $0.08 per diluted share.
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CFO Dave Glazer said the commercial segment benefited from “unprecedented demand driven by AIP’s momentum.” However, the stock still fell 7% after the first-quarter report because management guided for 20% annual revenue growth, implying a slight slowdown in future quarters. Analysts had anticipated 22% annual revenue growth.
Going forward, Wall Street expects Palantir to grow adjusted earnings per share by 22% annually through 2026. This consensus estimate makes its current valuation of 97 times earnings look very expensive. Investors should be cautious about this stock. Personally, I plan to avoid Palantir until earnings growth accelerates or the valuation improves.
2. Super Micro Computer
Super Micro Computer designs high-performance computing platforms for enterprise and cloud data centers. Its portfolio includes servers and storage systems ranging from single devices to full-rack solutions. Its products can be optimized for use cases such as artificial intelligence and 5G infrastructure, and feature chips such as graphics processing units (GPUs) from Nvidia and Intel central processing units (CPUs).
Importantly, Supermicro is a market leader in AI servers due to its manufacturing prowess and its building block approach to product development. To elaborate, nearly half of its workforce are engineers, and it handles most of its research and development in-house. “Our engineering prowess, coupled with our in-house manufacturing capabilities, enables rapid prototyping and product launches.”
Additionally, Supermicro’s modular product design reduces time to market and provides customers with flexibility in designing customized solutions. It can “rapidly assemble a broad portfolio of solutions by leveraging common building blocks across product lines.” In other words, Supermicro can quickly integrate the latest CPUs, GPUs, and memory into pre-assembled server chassis, often beating competitors to market by two to six months.
In fact, Supermicro “anticipates being the first to commercialize deployment of full rack clusters with Nvidia Blackwell GPUs.” This is advantageous because enterprises are eager to buy AI hardware, so they are turning to the server maker that brings computing products to market at the fastest pace. As a result, Supermicro’s AI server market share is expected to reach 23% by the end of 2024, up from 10% at the beginning of the year.
Going forward, Wall Street expects Supermicro to grow earnings per share by 48% annually over the next three years. This consensus estimate makes its current valuation of 47 times earnings seem very reasonable. In fact, it gives it a PEG ratio—the price-to-earnings ratio divided by expected earnings growth—of about 1. For context, using the same methodology, Palantir currently has a PEG ratio of 4.4.
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Trevor Jennewine has positions in Nvidia, Palantir Technologies, and Tesla. The Motley Fool has positions in and recommends Nvidia, Palantir Technologies, and Tesla. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.
Billionaires Are Selling Nvidia Stock and Buying 2 Supercharged AI Stocks was originally published by The Motley Fool