Many investors see Nvidia (NASDAQ: NVDA) as the core artificial intelligence (AI) stock because its chips provide the computing horsepower needed to train the most advanced AI systems, such as ChatGPT and OpenAI, and Teslacomplete self-driving software.
However, several 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 overweight AI stocks with year-to-date returns of 59% and 198% respectively.
-
Moore Capital Management’s Louis Bacon sold 2,006 shares of Nvidia stock in the first quarter, reducing his holdings by 19%. Meanwhile, Bacon began a small position in Super Micro Computer.
-
Israel Englander of Millennium Management sold 720,000 shares of Nvidia in the first quarter, reducing his stake by 35%. Meanwhile, Englander increased its positions in Palantir and Super Micro Computer by 4% and 235%, respectively.
-
Philippe Laffont of Coatue Management sold 2.9 million Nvidia shares in the first quarter, reducing his stake by 68%. Laffont, meanwhile, increased his position in Palantir by 40%.
The trades made by Israel Englander are especially important because Millennium Management beat them S&P 500 over the past three years, and ranks as the second-best performing hedge fund of all time, as measured by net gains since inception. Here’s what investors need to know about Palantir and Supermicro.
1. Palantir Technologies
Palantir specializes in data analytics. Its software allows government and commercial customers to integrate data, develop artificial intelligence (AI) and machine learning (ML) models, and build applications that rely on those 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 in its existing software.
Some industry analysts have praised the company for its technological capabilities. Forrester Research ranked Palantir Foundry as the best AI/ML platform in a report published in July 2022. And Dresner Advisory Services ranked Palantir as a market leader in AI/ML and data science in a report published in August 2023 .
However, other analysts are skeptical. Rishi Jaluria of RBC Capital says that conversations with industry observers and company employees have led to the conclusion that Palantir offers “nothing really differentiated when it comes to generative AI.”
Palantir reported solid financial results in the first quarter, beating estimates on the top line and meeting expectations on the bottom line. Its customer base grew by 42% to 554, and the average existing customer spent 11% more. On the other hand, revenue rose 21% to $634 million, the third consecutive acceleration, and non-GAAP earnings rose 60% to $0.08 per diluted share.
CFO Dave Glazer said the commercial segment benefited from “unprecedented demand driven by AIP momentum.” However, the stock still slipped 7% after the first-quarter report because management guided for full-year revenue growth of 20%, implying a slight slowdown in the coming quarters. Analysts predicted full-year revenue growth of 22%.
Going forward, Wall Street expects Palantir to grow adjusted earnings per share by 22% annually through 2026. That consensus estimate makes the current valuation of 97 times earnings look too expensive. Investors should be careful with this stock. Personally, I plan to avoid Palantir until earnings growth accelerates or valuation improves.
2. Super Micro Computer
Super Micro Computer designs high-performance computing platforms for enterprise data centers and the cloud. Its portfolio includes servers and storage systems, ranging from individual devices to complete solutions. Its products can be optimized for use cases such as artificial intelligence and 5G infrastructure, and they contain chips such as Nvidia graphics processing units (GPUs) and Intel central processing units (CPUs).
Importantly, Supermicro is the market leader in AI servers due to its manufacturing capabilities and its building block approach to product development. To elaborate, nearly half of its workforce are engineers, and it does most of its research and development in-house. “Our engineering capability, coupled with our in-house manufacturing capability, enables rapid prototyping and product rollout.”
Additionally, Supermicro’s modular product design reduces time to market and offers customers the flexibility to design custom solutions. It can “quickly assemble a broad portfolio of solutions by leveraging common building blocks across product lines.” In other words, Supermicro can rapidly integrate the latest CPUs, GPUs and memory into pre-assembled server chassis, often beating competitors to market by two to six months.
Indeed, Supermicro “expects to be the first to market to deploy full-stack arrays with Nvidia Blackwell GPUs.” This is beneficial because businesses are eager to buy artificial hardware, so they are turning to the server maker that brings computer products to market at the fastest clip. 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 the current valuation of 47 times earnings look very reasonable. Indeed, it yields a PEG ratio — the ratio of price to earnings divided by projected earnings growth — of roughly 1. For context, using the same methodology, Palantir currently has a PEG ratio of 4.4.
Should you invest $1,000 in Palantir Technologies right now?
Before you buy stock in Palantir Technologies, consider this:
of Motley Fool Stock Advisor the team of analysts just identified what they believe they are Top 10 Stocks for investors to buy now… and Palantir Technologies was not one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia I made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $771,034!*
Stock advisor provides investors with an easy-to-follow plan for success, including instructions for building a portfolio, regular updates from analysts, and two new stock picks each month. of Stock advisor the service has more than quadrupled return of the S&P 500 since 2002*.
See 10 shares »
*The stock advisor returns as of July 2, 2024
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 Shares and Buying 2 Overhyped Artificial Intelligence (AI) Stocks Instead was originally published by The Motley Fool