Two of Wall Street’s highest-flying artificial intelligence (AI) stocks were sent to the chopping block in the June-ended quarter, with Englander favoring shares of a polarizing AI company instead.
In mid-August, Wall Street received its most important data dump of the third quarter — and I’m not talking about an inflation report from the Bureau of Labor Statistics.
August 14 marked the deadline for institutional investors and money managers with at least $100 million in assets under management to file Form 13F with the Securities and Exchange Commission. A 13F offers an under-the-hood look at which stocks Wall Street’s smartest and most-successful money managers purchased and sold in the latest quarter (in this instance, the June-ended quarter).
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Although 13Fs have their flaws — e.g., they’re usually 45 days old when filed, which can lead to stale data for active funds — they’re invaluable when it comes to helping investors figure out which stocks, industries, sectors, and trends are piquing the interest of Wall Street’s top asset managers.
Billionaire Israel Englander of Millennium Management is one of the prominent money managers that investors tend to pay very close attention to. Based on Millennium’s latest 13F, Englander and his team are overseeing close to $216 billion in managed securities, which is spread out across thousands of positions, including various put and call options.
But what stands out most about Englander’s trading activity during the June-ended quarter is how he approached artificial intelligence (AI) stocks. Englander showed shares of two of Wall Street’s favorite high-flying AI stocks to the door, while absolutely piling into another historically cheap AI company that’s encountering some serious headwinds.
Englander’s Millennium sends shares of Nvidia and Palantir to the chopping block
The two ultra-popular artificial intelligence stocks in question that Englander’s Millennium Management pared down during the second quarter are semiconductor colossus Nvidia (NVDA -0.01%) and cloud-based data-mining specialist Palantir Technologies (PLTR -0.02%).
Millennium has held shares of Nvidia since 2008, so it’s certainly been a prime beneficiary of the AI revolution. But during the June-ended quarter, Englander’s fund reduced its position in Nvidia by 676,242 shares.
It’s certainly possible that this represents nothing more than simple profit-taking and asset reallocation. Nvidia has grown from a $360 billion company to end 2022 into a $3.25 trillion business, as of the closing bell on Oct. 9, 2024. Locking in gains following a nearly parabolic move higher would seem to be a prudent move.
But there are other concerns that may be compelling Englander to reduce Millennium’s stake in Nvidia. For instance, even though Nvidia’s AI-graphics processing units (GPUs) are the undisputed top choice as the “brains” of AI-accelerated data centers, external and internal competition are picking up. In particular, Nvidia’s four-largest customers by net sales are internally developing AI-GPUs for use in their data centers. This suggests future opportunities to win valuable data center real estate will be limited for the AI hardware kingpin.
History has also been incredibly unkind to leading businesses of next-big-thing innovations. Investors have overestimated the utility and uptake of every game-changing technology for the last 30 years, and AI seems unlikely to be the exception to this unwritten rule.
In addition to selling shares of Nvidia, Englander’s fund slashed its stake in Palantir Technologies by 7,074,815 shares. Millennium has been a continuous holder of Palantir’s stock since its initial public offering in 2020.
On one hand, Palantir is riding the wave of irreplaceability to astronomical gains. The company’s AI-driven Gotham platform, which collects data and helps with mission planning for federal governments, coupled with its enterprise-focused Foundry platform, have no competitors at scale. Wall Street often rewards companies that have sustainable moats with premium valuations.
But at some point, a nosebleed valuation, even with a sustainable moat, can become a tough pill to swallow. As of Oct. 9, Palantir is valued at 100 times forward-year earnings per share (EPS) and a jaw-dropping 35 times forecast revenue for the current year. It’s almost impossible to justify this valuation given annual sales growth of around 20%.
Furthermore, the long-term potential of Palantir’s Gotham segment is naturally limited. This is a platform that Palantir’s leaders will only allow the U.S. and its allies to access. This means future growth and profits will be heavily reliant on Foundry. Though this isn’t a bad thing, Foundry is still in its very early stages of expansion, which makes Palantir’s $96.6 billion market cap an eyesore.
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Here’s the historically inexpensive AI stock Israel Englander can’t stop buying
While Englander was a busy seller of two of Wall Street’s top artificial intelligence stocks, he was also an avid buyer of a jaw-droppingly cheap AI stock whose path forward has become clouded in recent months. I’m talking about customizable rack server and storage solutions specialist Super Micro Computer (SMCI 2.86%).
When adjusted for the 10-for-1 stock split Super Micro completed two weeks ago, Englander’s Millennium Management purchased 5,533,230 shares during the second quarter, which increased the fund’s existing stake in the company by more than 800% since the end of March.
Just as Nvidia has become the go-to provider of AI-GPUs for high-compute data centers, Super Micro Computer has been a top infrastructure player for businesses looking to build out their AI data centers. Super Micro incorporates Nvidia’s ultra-popular H100 GPU into its customizable rack servers, which is enhancing the desirability of its solutions.
In fiscal 2024, which ended on June 30, the company delivered net sales growth of 110% to $14.94 billion. For fiscal 2025, the midpoint of Super Micro’s revenue forecast calls for $28 billion. Despite a forecast annualized earnings growth rate of 62% through fiscal 2029, shares of the company are currently trading at less than 11 times EPS for fiscal 2026.
The reason Super Micro Computer’s stock isn’t trading at a more aggressive premium given its lofty growth projections is because of mounting headwinds. For example, it was the target of a short-seller report from Hindenburg Research in late August. Hindenburg has alleged “accounting manipulation” at Super Micro. Although the company has denied these allegations, it’s also delayed the filing of its annual report and is reportedly facing an early stage probe from the U.S. Justice Department.
There’s also concern that supply chains may hamper Super Micro Computer’s ability to meet its clients’ needs. Nvidia’s H100 GPUs are in such high demand that Super Micro’s rack servers may fall victim to supply backlogs.
Suffice it to say that, despite its relative cheapness, Super Micro Computer is a risky wager for Englander and Millennium Management.
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