Palantir and Nvidia have emerged as two of the hottest names fueling the AI movement.
So far in 2024, the S&P 500 index has gained an impressive 26% while the tech-heavy Nasdaq Composite has soared roughly 28%. Without a doubt, one of the biggest tailwinds fueling these market returns is artificial intelligence (AI).
Among AI’s hottest stocks through 2024 are data analytics company Palantir Technologies (PLTR -1.03%) and semiconductor leader Nvidia (NVDA 0.28%). Both companies have handily topped the markets this year — with shares of Palantir rocketing by 291% while Nvidia has gained about 179% (as of market close Nov. 29).
With Palantir and Nvidia looking like two of the AI realm’s most dominant forces, would you be surprised to learn that some of Wall Street’s brightest minds are only buying one of these stocks right now?
Below, I’ll outline moves made by some of the most prestigious hedge funds and detail why I think these decisions could make a lot of sense.
How is Wall Street investing in Palantir and Nvidia?
Thanks to an incredibly helpful tool called the form 13F, everyday investors can get a glimpse into what stocks large institutional investors are buying and selling. Below, I’ve quantified the buys and sells between Palantir and Nvidia stock among two notable hedge fund managers during the third quarter:
- Ken Griffin (Citadel Advisors): In the September-ended quarter, Ken Griffin’s Citadel Advisors sold 5,172,681 shares of Palantir — reducing the fund’s exposure by 91% in the process. At the same time, Griffin and his constituents increased Citadel’s stake in Nvidia by 194% — adding over 4.7 million shares.
- David Shaw (D.E. Shaw): Another hedge fund that trimmed its stake in Palantir during the third quarter was D.E. Shaw, which sold 8.7 million shares of the software giant and reduced its position by 45%. Similar to Citadel, D.E. Shaw increased its exposure in Nvidia by more than 50%, buying nearly 6 million shares in the quarter.
Let’s dig into what may have influenced the decisions to trim Palantir while adding Nvidia over the last few months.
Image source: Getty Images.
Why sell Palantir right now?
In April 2023, Palantir launched its fourth major software suite — the Palantir Artificial Intelligence Platform (AIP). The advent of AIP has catapulted Palantir into the forefront of the AI narrative, helping the company accelerate revenue across both the commercial and public sectors, all while achieving notable margin expansion and consistent profitability. While Palantir’s current rate of growth and future outlook are impressive, there is one obvious reason to sell the stock right now: valuation.
PLTR PS Ratio data by YCharts
As of the time of this writing, Palantir is trading at a price-to-sales (P/S) ratio of 61. As the chart above illustrates, the company has experienced notable valuation expansion throughout 2024 and has emerged as one of the priciest software-as-a-service (SaaS) stocks among its peers.
To put it plainly, there is a really good argument to be made that Palantir stock is overbought. Given how much momentum shares have witnessed in such short order, I can’t blame the teams at Citadel and D.E. Shaw for reducing their exposure.
The stock has had a historic run, and now appears to be a logical opportunity to lock in some profits.
Why buy Nvidia right now?
Nvidia is one of the most important pillars supporting the entire AI ecosystem right now. The company’s chip sets, known as graphics processing units (GPUs), are perhaps the most coveted piece of infrastructure for generative AI development.
In my eyes, the two most obvious catalysts fueling Nvidia’s bull case thesis over the next few years are rising investment in AI-related infrastructure combined with the upcoming launch of the company’s next generation GPU architecture, Blackwell.
Similar to why I think investors are selling Palantir, the primary reason influencing the decisions to buy Nvidia could be valuation.
NVDA PE Ratio data by YCharts
While Nvidia’s valuation isn’t cheap per se, the company’s current price-to-earnings (P/E) and price-to-free-cash-flow (P/FCF) multiples are trading relatively in line with 10-year averages. Given Nvidia is a much larger entity today than it was a decade ago, coupled with its strong position to continue acquiring incremental market share as demand for AI infrastructure continues to soar, investors could argue that Nvidia is actually undervalued — making it a particularly compelling buy and hold at the moment.
The bottom line
While I understand the decision to sell Palantir and buy Nvidia right now, I can’t say for certain what drove the decisions of the portfolio managers that I mentioned in this piece.
As I’ve written in many other articles, I think competition in the GPU space is going to eat into Nvidia’s growth sooner rather than later. For that reason, I haven’t entirely bought into the notion that Nvidia’s valuation is actually all that reasonable.
While I own shares in both Palantir and Nvidia, I won’t be adding to either position at their respective prices.
Adam Spatacco has positions in Nvidia and Palantir Technologies. The Motley Fool has positions in and recommends Datadog, MongoDB, Nvidia, Palantir Technologies, ServiceNow, and Snowflake. The Motley Fool has a disclosure policy.
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