In mid-August, Wall Street received the most important data for the third quarter - but it's important to note that it's not the inflation report from the Bureau of Labor Statistics.
August 14th is the deadline for institutional investors and fund managers managing at least 0.1 billion dollars in assets to submit Form 13F to the U.S. Securities and Exchange Commission. Form 13F provides insider information on the stocks bought and sold by Wall Street's smartest and most successful fund managers in the most recent quarter (in this case, the quarter ending in late June).
Although Form 13F has its flaws - for example, they are usually submitted 45 days ago, which may result in outdated data for active funds - they are very valuable in helping investors identify which stocks, industries, sectors, and trends have caught the interest of top asset management companies on Wall Street.
Israel Englander, a billionaire fund manager at Millennium Management, is one of the famous fund managers closely watched by investors. According to Millennium's latest form 13f, Englander and his team manage nearly $216 billion in managed securities, which are spread across thousands of positions, including various put and call options.
But what caught the most attention in Englander's trading activity in the quarter ending in late June was how he dealt with artificial intelligence (AI) stocks. Englander shunned two highly popular AI stocks on Wall Street while significantly buying another AI company facing significant resistance and low prices.
Englander's Millennium fund divested stocks of Nvidia and Palantir.
Englander's Millennium Management reduced holdings of two ultra-popular AI stocks in the second quarter which were semiconductor giant Nvidia (NASDAQ: NVDA) and cloud data mining expert Palantir Technologies (NYSE: PLTR).
Since 2008, Millennium has been holding Nvidia stocks, making it undoubtedly a major beneficiary of the AI revolution. However, in the quarter ending in June, Englander's fund reduced its Nvidia stocks by 676,242 shares.
This is likely just a simple profit-taking and asset reallocation. As of the close on October 9, 2024, Nvidia has grown from a company with a market cap of $360 billion at the end of 2022 to an enterprise with a market cap of $3.25 trillion. Locking in profits after an almost parabolic rise seems like a wise move.
But there are other concerns that may compel Englander to reduce Millennium's stake in Nvidia. For example, despite Nvidia's AI graphics processing units (GPUs) being the undisputed preferred choice for AI-accelerated datacenter 'brains', external and internal competition is intensifying. In particular, Nvidia's four largest customers are internally developing AI GPUs for their datacenters based on net sales figures. This indicates that for AI hardware giants, the opportunity to win valuable datacenter real estate in the future will be very limited.
History has also been extremely unfriendly to companies leading the next major innovation. Over the past 30 years, investors have overestimated the utility and application of every game-changing technology, and artificial intelligence seems unlikely to be an exception to this unwritten rule.
In addition to selling Nvidia's stocks, Englander's fund also reduced its shareholding in Palantir Technologies by 7,074,815 shares. Since its IPO in 2020, Millennium has always held Palantir's stocks.
On one hand, Palantir is reaping astronomical profits riding an irreplaceable wave. The company's AI-driven Gotham platform collects data and aids federal agencies in mission planning, coupled with its enterprise-centric Foundry platform that has no competitors in scale. Wall Street typically rewards companies with sustainable moats with premium valuations.
However, at some point, even with a sustainable moat, lofty valuations become hard to swallow. As of October 9, Palantir was valued at 100 times future earnings per share (EPS) and 35 times forecasted revenue for the year, staggering figures. With a sales growth rate of approximately 20%, it is almost impossible to justify this valuation as reasonable.
Furthermore, the long-term potential of Palantir's Gotham division is naturally limited. This is a platform that Palantir leaders only allow the U.S. and its allies to access. This means future growth and profits will heavily rely on Foundry. While not a bad thing, Foundry is still in its early expansion stages, making Palantir's $96.6 billion market cap seem glaring.
Below are the historically lowest-priced AI stocks purchased by Israel Englander
Although Englander is busy selling two top artificial intelligence stocks on Wall Street, he is also keen to buy a jaw-droppingly low-priced AI stock, but in recent months, the outlook for this stock has become dim. This is Super Micro Computer (NASDAQ: SMCI), a specialist in customizable rack servers and storage solutions.
Following the 10-for-1 stock split completed by Super Micro two weeks ago, Englander's Millennium Management purchased 5,533,230 shares of stock in the second quarter, increasing its existing stake in the company by over 800% since the end of March.
Just as Nvidia has become the preferred provider of high-compute data center AI-GPUs, Super Micro Computer has been a top infrastructure player for enterprises seeking to build AI data centers. Super Micro integrates Nvidia's highly popular H100 GPU into its customizable rack servers, enhancing the attractiveness of its solutions.
As of June 30, the end of the 2024 fiscal year, the company's net sales increased by 110% to $14.94 billion. Super Micro's mid-range revenue forecast for the 2025 fiscal year is $28 billion. Despite an expected annualized revenue growth rate of 62% by the 2029 fiscal year, the company's current stock price is less than 11 times the EPS for the 2026 fiscal year.
Given its high growth forecasts, Super Micro Computer's stock is not trading at a higher premium, as headwinds grow stronger. For instance, it was a target of a short sell report by Hindenburg Research at the end of August. Hindenburg accused Super Micro of 'accounting manipulation'. Despite the company denying these accusations, it has also delayed the submission of its annual report and reportedly faces an early-stage investigation by the US Department of Justice.
There are concerns that the supply chain may hinder Super Micro Computer's ability to meet customer demand. The demand for Nvidia's H100 GPU is so high that Super Micro's rack servers could become the sacrificial lambs of supply congestion.
It can be said that despite being relatively cheap, for Englander and Millennium Management, investing in Super Micro Computer is a risky bet.
