Billionaires Sell Nvidia Stock, Buy Two Supercharged Artificial Intelligence (AI) Stocks Instead

Many investors see Nvidia (NASDAQ: NVDA) as the essential artificial intelligence (AI) stocks, because its chips provide the computing power needed to train the most advanced AI systems, such as OpenAI’s ChatGPT and Tesla‘s complete self-driving software.

However, some hedge fund billionaires sold shares of Nvidia in the first quarter while buying shares of other hedge funds. Palantir Technologies (NYSE: PLTR) and/or Supermicrocomputer (NASDAQ: SMCI)two AI stocks with strong returns of 59% and 198% respectively this year.

  • Moore Capital Management’s Louis Bacon sold 2,006 shares of Nvidia stock in the first quarter, reducing his stake by 19%. Meanwhile, Bacon started a small position in Super Micro Computer.

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

  • Coatue Management’s Philippe Laffont sold 2.9 million shares of Nvidia stock in the first quarter, reducing his stake by 68%. Meanwhile, Laffont increased his position in Palantir by 40%.

The transactions Israel Englander has made are particularly notable because Millennium Management S&P 500 over the past three years, and it ranks as the second best-performing hedge fund of all time, based on 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 data, develop artificial intelligence (AI) and machine learning (ML) models, and build applications that leverage those data sets and models to improve decision-making. Palantir recently introduced its Artificial Intelligence Platform (AIP), a product that supports large language models and generative AI to the existing software.

Some industry analysts have praised the company for its technological prowess. Forrester Research Palantir named Foundry 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. RBC Capital’s Rishi Jaluria says conversations with industry observers and company employees have led to the conclusion that Palantir “doesn’t offer anything really differentiating when it comes to generative AI.”

Palantir reported fairly strong financial results in the first quarter, beating estimates on the top line and meeting expectations on the bottom line. Customer base rose 42% to 554, and the average existing customer spent 11% more. Revenue, in turn, 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 momentum from AIP.” However, the stock still fell 7% after the first-quarter report as management forecast full-year revenue growth of 20%, implying a slight slowdown in the coming quarters. Analysts had expected full-year revenue growth of 22%.

Wall Street expects Palantir to grow adjusted earnings per share by 22% per year through 2026. That consensus estimate makes the current valuation of 97x earnings look very expensive. Investors should be cautious about the stock. Personally, I plan to avoid Palantir until earnings growth accelerates or the valuation improves.

2. Supermicrocomputer

Super Micro Computer designs high-performance computing platforms for enterprise and cloud data centers. The portfolio includes servers and storage systems ranging from individual appliances to full rack solutions. The products can be optimized for use cases such as artificial intelligence and 5G infrastructure, and they include chips such as Nvidia graphics processing units (GPUs) and Intel central processing units (CPUs).

Importantly, Supermicro is a leader in AI servers thanks to its manufacturing capabilities and building-block approach to product development. To put it briefly, nearly half of its workforce is made up of engineers, and the company does most of its research and development in-house. “Our engineering prowess, combined with our in-house manufacturing capabilities, enables rapid prototyping and product rollout.”

Additionally, Supermicro’s modular product design shortens time to market and gives customers 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 outpacing competitors by two to six months.

Supermicro “indeed, we expect to be first to market with full-rack cluster deployments of Nvidia Blackwell GPUs.” That’s advantageous because companies are eager to buy AI hardware, so they’re turning to the server maker that gets computing products to market the fastest. As a result, Supermicro’s AI server market share is expected to reach 23% by the end of 2024, up from 10% at the start of the year.

Wall Street expects Supermicro to grow earnings per share by 48% per year over the next three years. That consensus estimate makes the current valuation of 47x earnings seem very reasonable. Indeed, it gives a PEG ratio (the price-to-earnings ratio divided by forecast earnings growth rate) of about 1. For comparison, 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 Jan 2025 $45 calls on Intel and short Aug 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.

Billionaires are selling Nvidia shares and buying two supercharged Artificial Intelligence (AI) stocks instead was originally published by The Motley Fool

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