Billionaires Sell Nvidia Shares, Buy AI Stocks Instead

Many investors see Nvidia (NASDAQ: NVDA) As the quintessential AI stock because its chips provide the computing power needed to train the most advanced AI systems, like OpenAI's ChatGPT and TeslaFully self-driving program.

However, some hedge fund billionaires sold Nvidia shares during the first quarter, while buying shares of Palantir Technologies (NYSE: PLTR) wow supercomputer (NASDAQ: SMCI)two strong AI stocks with year-to-date returns of 59% and 198%, respectively.

• Louis Bacon of Moore Capital Management sold 2,006 shares of Nvidia stock in the first quarter, reducing his stake by 19%. At the same time, Bacon began investing in a small stake in Super Micro Computer.

• Millennium Management’s Israel Englander sold 720,000 shares of Nvidia in the first quarter, reducing his stake by 35%. At the same time, Englander increased his stakes in Palantir and Super Micro Computer by 4% and 235%, respectively.

• Philippe Lafont of Quatio Management sold 2.9 million shares of Nvidia stock in the first quarter, reducing his stake by 68%. At the same time, Lafont increased his stake in Palantir by 40%.

The deals made by Israel Englander are particularly noteworthy because Millennium Management easily beat Standard & Poor's 500 Over the past three years, it has been the second-best performing hedge fund ever in terms of 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 enables government and commercial customers to integrate and develop data. artificial intelligence (Artificial Intelligence) and Machine learning (ML) models, and building applications that rely on those data sets and models to improve decision making. Palantir recently introduced the Artificial Intelligence Platform (AIP), a product that provides support for large language models and Generative Artificial Intelligence To its current program.

Some industry analysts have praised the company for its technological prowess. Forrester Research A report by Palantir ranked Foundry as the top AI/ML platform in July 2022. A report by Dresner Advisory Services ranked Palantir as the market leader in AI, ML, and data science in August 2023.

Other analysts, however, are skeptical. RBC Capital’s Rishi Galoria says conversations with industry watchers and company employees have led him to conclude that Palantir doesn’t offer “anything really special when it comes to generative AI.”

Palantir reported reasonably strong financial results for the first quarter, beating revenue estimates and meeting expectations for net profit. Its customer base grew 42% to 554, and the average existing customer spent 11% more. Revenue rose 21% to $634 million, the third consecutive acceleration, and non-GAAP earnings increased 60% to $0.08 per diluted share.

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Chief Financial Officer Dave Glazer said the commercial segment benefited from “unprecedented demand driven by momentum from AIP.” However, the stock fell 7% after the first-quarter report because management forecast full-year revenue growth of 20%, implying a slight slowdown in the coming quarters. Analysts had forecast full-year revenue growth of 22%.

Looking ahead, Wall Street expects Palantir’s adjusted earnings per share to grow 22% annually through 2026. That consensus estimate makes its current valuation of 97 times earnings look very expensive. Investors should be cautious with 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 Nvidia GPUs and Intel Corporation Central processing units (CPU).

It’s important to note that Supermicro is the leader in the AI ​​server market thanks to its manufacturing prowess and its organic approach to product development. For example, nearly half of its workforce is made up of engineers, and it handles most of its R&D in-house. “Our engineering proficiency, coupled with our in-house manufacturing capabilities, enables us to quickly prototype and launch products.”

Additionally, Supermicro’s modular product design reduces time to market and gives customers the flexibility to design custom solutions. It can “rapidly assemble a wide range of solutions by leveraging common building blocks across product lines.” In other words, Supermicro can quickly integrate the latest CPUs, GPUs, and memory into a pre-assembled server chassis, often beating competitors to market by two to six months.

In fact, Supermicro expects to be the first to market to deploy full rack arrays equipped with Nvidia Blackwell GPUs. That’s helpful because businesses are eager to buy AI hardware, so they’re turning to server makers that bring computing products to market the fastest. As a result, Supermicro’s share of the AI ​​server market is expected to reach 23% by the end of 2024, up from 10% at the start of the year.

Looking ahead, Wall Street expects Supermicro’s earnings per share to grow 48% annually over the next three years. That estimate makes its current valuation of 47 times earnings look very reasonable. In fact, that estimate gives a price-to-earnings ratio divided by expected earnings growth of roughly 1. In a similar vein, and using the same methodology, Palantir’s current price-to-earnings ratio is 4.4.

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Trevor Jennewein The Motley Fool has positions in Nvidia, Palantir Technologies, and Tesla. The Motley Fool has positions in and recommends Nvidia, Palantir Technologies, and Tesla. The Motley Fool has positions in and recommends Intel and recommends the following options: long $45 calls in January 2025 on Intel and short $35 calls in August 2024 on Intel. The Motley Fool has Disclosure Policy.

Billionaires Sell Nvidia Shares, Buy AI Stocks Instead Originally posted by The Motley Fool