Over the last two years, there’s not been a hotter trend on Wall Street than the rise of artificial intelligence (AI). In Sizing the Prize, the analysts at PwC predict AI will lift worldwide gross domestic product by $15.7 trillion come 2030.
The overwhelming potential for artificial intelligence to infiltrate almost every sector and industry of the global economy isn’t lost on Wall Street analysts or its top money managers. Thanks to quarterly filed Form 13Fs, investors have the ability to track the buying and selling activity of Wall Street’s most-prominent money managers.
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Although Berkshire Hathaway‘s Warren Buffett is the most-followed of all billionaire investors, there are plenty of other billionaire asset managers known for making waves on Wall Street. Susquehanna International’s Jeff Yass is the perfect example. Yass made a name for himself as a highly successful options trader in the 1980s, which is a strategy employed by Susquehanna today through its market-making operations.
Admittedly, 13Fs don’t tell the complete story about billionaire money managers. For instance, Susquehanna’s 13F won’t show short positions or options where the firm has a short position. Nevertheless, these filings can still be useful in deciphering which stocks, industries, sectors, and trends are piquing the interest of Wall Street’s big-money investors.
Susquehanna’s 13F shows that Yass and his team have been decisive sellers of Palantir Technologies‘ (NYSE: PLTR) shares since 2024 began, and have been piling into another AI stock that’s consistently been in the headlines of late (albeit for all the wrong reasons).
With the exception of AI-graphics processing unit (GPU) company Nvidia, there’s probably not a hotter AI stock on the planet than Palantir. Shares of the company have soared 546% over the trailing-two-year period, as of the closing bell on Nov. 5.
Despite this outperformance, Susquehanna’s 13Fs show that 1,539,566 shares of Palantir stock have been sold in the first-half of 2024, representing a 61% reduction. To reiterate, Yass and his team rely on put and call options, as well as potential short options which aren’t listed in a 13F, to hedge their common-stock positions.
The logical reason for investors to head for the exit with Palantir is its valuation. Even with the company comfortably cruising past Wall Street’s third-quarter sales and profit forecast, and lifting its guidance in both arenas for the remainder of the current year, its shares are valued at 39 times full-year revenue and roughly 116 times forecast earnings. These are nosebleed levels for a tech stock whose growth rate has slowed considerably in recent years.
There’s also plenty of incentive to simply ring the register and lock in gains with the broader market hitting one of its priciest valuations on record. The S&P 500‘s Shiller price-to-earnings (P/E) ratio, which is also known as the cyclically adjusted P/E ratio, or CAPE ratio, closed at 36.83 on Nov. 5, which is more than double its 153-year average of 17.17. Historically, an S&P 500 Shiller P/E north of 30 has, eventually (key word!), boded poorly for growth stocks trading at sky-high valuation multiples.
On the other hand, Wall Street has demonstrated a willingness to pay a premium for businesses that have sustained moats and are irreplaceable. Palantir certainly fits this definition. Its AI-driven Gotham platform plays a critical role in mission planning and execution for federal governments. Meanwhile, its Foundry platform relies on AI and machine learning to help businesses make sense of their data in order to streamline their operations. No company offers what Palantir can at scale.
For the moment, Palantir’s strong ties to the U.S. government have fueled its growth and profitability. The contracts it signs with the U.S. government typically last for four or five years, which leads to highly predictable operating cash flow for an already cash-rich company.
But as I’ve pointed out in the past, Gotham’s runway is somewhat limited. While the U.S. government has had an insatiable appetite for Palantir’s solutions, Palantir won’t allow non-allies of the U.S. to use its Gotham platform. This means Foundry will be its key growth driver in the years to come.
Although Palantir’s stock absolutely deserves a premium, I’d suggest there are simply too many question marks about its valuation and future growth prospects to support its nosebleed multiple.
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On the other end of the spectrum, Yass’s Susquehanna International has been a decisive buyer of what’s become a headline-grabbing AI stock. I’m talking about customizable rack server and storage solutions specialist Super Micro Computer(NASDAQ: SMCI).
With the understanding that Susquehanna is hedging this position with put and call options, and may have short options that aren’t listed via its 13F, Yass and his team increased their stake in Super Micro by 7,702,320 shares through the first six months of 2024, or 927% from where things stood on Dec. 31, 2023. Note, this figure has been adjusted to account for Super Micro Computer’s first-ever forward stock split (10-for-1), which occurred after the close of trading on Sept. 30.
Super Micro bulls have been infatuated with the company’s ideal positioning amid the AI revolution. Businesses that want to claim early mover advantages in their respective industries need to invest aggressively in data center infrastructure. In fiscal 2024 (ended June 30, 2024), Super Micro reported $14.94 billion in net sales, which represents a 110% increase from what it delivered in the prior year.
The other key selling point for Super Micro Computer has been its usage of Nvidia’s ultra-popular H100 GPU in its rack servers. Businesses want to deploy the top AI solutions in their data center, and Super Micro has obliged by incorporating GPUs with superior computing potential.
Unfortunately, the buzz surrounding this company hasn’t been good of late, as the nearly 80% retracement in Super Micro’s shares from their year-to-date high would suggest.
Trouble began in late August, when noted short seller Hindenburg Research released a report accusing Super Micro Computer of “accounting manipulation.” While the company denied these claims, it has since delayed the filing of its annual report and, according to The Wall Street Journal, is facing an early stage probe of its accounting practices from the U.S. Justice Department.
Things spiraled further over the last week. Accounting firm Ernst & Young, which had previously raised concerns about Super Micro’s internal controls, resigned. Meanwhile, Super Micro’s preliminary first-quarter operating results missed the company’s prior guidance, and it offered no timeline for the filing of its annual report, which was due on Aug. 29.
To be crystal clear, I’m not passing judgment on the company’s accounting practices. That’s up to regulators and accounting firms to decide. But at the very least, avoiding Super Micro Computer’s stock seems the prudent course of action until its accounting practices are given a clean bill of health and the company’s annual report is filed.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.
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