Billionaire Israel Englander is the CEO of Millennium Management, the second most profitable hedge fund in history in terms of net income since its founding, according to LCH Investments. As such, Mr. Englander has been a good source of inspiration for retail investors, and he made some interesting trades in the third quarter.
Mr. Englander sold 1.6 million shares of NVIDIA stock (NVDA 1.18%)reduced his position by 13%. Nvidia stock has returned 705% over the past two years. Englishman bought 213,096 shares of AppLovin (app 7.62%)his stake increased by 43%. AppLovin stock has returned 2,260% over the past two years.
What makes these trades interesting is that Wall Street analysts generally see significant upside to Nvidia, but downside to AppLovin. This is explained in more detail below.
Among the 67 analysts who follow Nvidia, the median price target is $175 per share. This represents a 26% upside from the current share price of $138. Among the 30 analysts who follow AppLovin, the median price target is $303 per share. This represents a 10% decline from the current share price of $336.
One explanation for Mr. Englander’s trades is that he knows something that most Wall Street analysts have missed. Alternatively, the above transaction took place in Q3, but we are now two months into Q4, so Englander could be buying Nvidia and selling AppLovin. there is.
Here’s what investors need to know.
Nvidia: Popular AI stock Englander sold in Q3
Launched in late 2022, ChatGPT sparked an artificial intelligence (AI) boom, and Nvidia was one of the biggest winners. The company’s graphics processing units (GPUs) are the gold standard for accelerating data center workloads such as AI. And its advantage is rooted not only in superior performance, but also in a more robust ecosystem of software development tools.
Nvidia also outperformed Beat and Raise in Q3 FY25. Revenues increased 94% to $35 billion, and non-GAAP earnings increased 103% to $0.81 per diluted share. Analysts had expected growth of 84% and 88%, respectively. Additionally, NVIDIA expects fourth-quarter revenue to increase 70%, beating the 68% growth that Wall Street is expecting.
Looking to the future, CEO Jensen Huang sees a $1 trillion opportunity by 2030 as data centers transition from general-purpose computing to accelerated computing. But Huang also sees further opportunities as some companies evolve into AI factories, a term that refers to large-scale computing environments built specifically for AI. For context, spending across AI hardware, software, and services is expected to grow by 36% annually through 2030.
Against this backdrop, Wall Street expects Nvidia’s revenue to grow 38% annually over the next three years. Therefore, the current valuation of 54.4x P/E looks very reasonable. That begs the question. Why did Israel Englander sell his stock in the third quarter? We can only speculate about his reasoning, but one possibility is that Nvidia stock didn’t look very attractive at the time. is.
Specifically, in the third quarter, Wall Street’s three-year earnings forecast called for 35% annual growth, and the stock was trading at 60 times its average price-to-earnings ratio. In other words, analysts expect earnings growth to slow, and the stock is trading at a higher earnings multiple. Since both numbers have improved, Englander may buy Nvidia stock this quarter.
AppLovin: Little-known AI stocks that Englander bought in Q3
AppLovin provides ad tech software that enables mobile app developers to market and monetize their applications. The company also offers software tools that serve the same purpose for connected TV (CTV) publishers. Additionally, AppLovin recently debuted an e-commerce marketing product that allows brands to reach consumers through mobile advertising.
AppLovin stands out with Axon, a collection of predictive machine learning algorithms that targets ad content with high precision. Last year, the company introduced a more sophisticated model called Axon 2.0, and its improved recommendation capabilities have increased ad spending on the platform.
As a result, AppLovin reported strong financial results in the third quarter, exceeding expectations for revenue and bottom line. Revenue increased 39% to $1.2 billion, and GAAP net income more than quadrupled to $1.25 per diluted share. Management attributed the strong quarter to enhancements to the Axon model.
Importantly, AppLovin introduced a pilot for a new e-commerce advertising product earlier this year. CEO Adam Foroughi called it the company’s best and fastest-growing product in its history during its third-quarter earnings call. He expects overall revenue for the core mobile gaming business to grow 20% to 30% annually, and said the e-commerce advertising product will add to that forecast.
Wall Street expects AppLovin’s revenue to grow 25% annually over the next three years. As a result, its current valuation of 102 times looks expensive. So why did Israel Englander buy the stock in Q3? My guess here is the exact opposite of my guess about Nvidia. AppLovin stock looked more attractive in the third quarter.
Specifically, Wall Street’s three-year earnings forecast was for 28% annual growth, and the stock was trading at an average of 39 times earnings. In other words, analysts expected AppLovin’s revenue growth to accelerate and its valuation to decline. To that end, I think AppLovin has a bright future, although Englander may sell its shares in the fourth quarter.
