Palantir and Nvidia have emerged as two of the hottest companies driving the AI movement.
So far in 2024, the S&P 500 index has risen an impressive 26%, while the tech-heavy Nasdaq Composite Index has soared about 28%. One of the biggest tailwinds driving these market gains is undoubtedly artificial intelligence (AI).
One of the hottest stocks in AI through 2024 is data analytics company Palantir Technologies. (PLTR -1.03%) and semiconductor leader Nvidia (NVDA 0.28%). Both companies have steadily risen to the top of the market this year. Palantir’s stock price soared 291%, while Nvidia’s stock was up about 179% (as of market close on November 29th).
With Palantir and Nvidia seemingly the two most dominant forces in the AI space, would you be surprised to learn that some of Wall Street’s brightest minds are currently buying just one of these stocks? ?
Below, I’ll outline the moves some of the most famous hedge funds have made and detail why I think these decisions make a lot of sense.
How is Wall Street investing in Palantir and Nvidia?
Everyday investors can get a glimpse into what stocks big institutional investors are buying and selling, thanks to an incredibly useful tool called Form 13F. Below, we’ve quantified the buying and selling of Palantir and Nvidia shares by two prominent hedge fund managers during the third quarter.
Ken Griffin (Citadel Advisors): In the quarter ending September, Ken Griffin’s Citadel Advisors sold 5,172,681 shares of Palantir stock, reducing the fund’s exposure by 91% in the process. At the same time, Griffin and his constituents increased Citadel’s Nvidia stake by 194%, adding more than 4.7 million shares. David Shaw (DE Shaw): Another hedge fund that reduced its stake in Palantir in the third quarter was DE Shaw, which sold 8.7 million shares of the software giant, reducing its position by 45%. Similar to Citadel, DE Shaw increased its exposure to Nvidia by more than 50%, purchasing nearly 6 million shares during the quarter.
Let’s dig into what may have influenced the decision to cut Palantir while adding Nvidia over the past few months.
Image source: Getty Images.
Why sell Palantir now?
In April 2023, Palantir released its fourth major software suite, Palantir Artificial Intelligence Platform (AIP). The advent of AIP has propelled Palantir to the forefront of the AI story, enabling the company to accelerate its revenue in both the commercial and public sectors while achieving significant margin expansion and consistent profitability. I did. While Palantir’s current growth rate and future prospects are impressive, there is one obvious reason to sell the stock now. It’s valuation.
PLTR PS Ratio Data by YCharts
As of this writing, Palantir has a price-to-sales (P/S) ratio of 61. As the chart above shows, the company experienced significant valuation expansion throughout 2024, emerging as one of the most expensive companies. Software as a Service (SaaS) stocks among peers.
To be clear, there are very good arguments to be made that Palantir stock is overbought. Considering how much momentum the stock has gained in such a short period of time, you can’t blame Citadel and the DE Shaw team for reducing their exposure.
The stock has seen historic gains, and now appears to be a logical opportunity to lock in profits.
Why buy Nvidia now?
Nvidia is currently one of the most important pillars supporting the entire AI ecosystem. The company’s chip set, known as a graphics processing unit (GPU), is perhaps the most coveted piece of infrastructure for generative AI development.
To my eyes, the two most obvious catalysts driving Nvidia’s bullish case over the next few years are increased investment in AI-related infrastructure and the upcoming launch of Blackwell, the company’s next-generation GPU architecture. It’s a combination of.
Similar to why I think investors are selling Palantir, valuation may be the main reason influencing the decision to acquire Nvidia.
NVDA PE Ratio Data by YCharts
Nvidia’s valuation itself isn’t cheap, but the company’s current price-to-earnings (P/E) and price-to-free cash flow (P/FCF) multiples are relatively in line with their 10-year averages. Given that Nvidia is a much larger company today than it was a decade ago, and is in a strong position to continue gaining market share over time as demand for AI infrastructure continues to soar, investors should One could argue that Nvidia is actually undervalued. Buy and hold for now.
conclusion
Now, while I understand the decision to sell Palantir and acquire NVIDIA, I don’t know what prompted the decisions of the portfolio managers mentioned in this article.
As I’ve written in many other articles, I think competition in the GPU space will eat into Nvidia’s growth sooner or later. So I don’t fully buy into the idea that Nvidia’s valuation is actually all that reasonable.
I own shares in both Palantir and Nvidia, but I have no intention of adding to either position at their respective prices.
Adam Spatacco holds positions at Nvidia and Palantir Technologies. The Motley Fool has positions in and recommends Datadog, MongoDB, Nvidia, Palantir Technologies, ServiceNow, and Snowflake. The Motley Fool has a disclosure policy.
