Affluent Individuals Dismantle Palantir Shares and Invest in Predicted AI Pioneer, According to an Analyst, Who Believes It Will Yield Unprecedented Influence Over Our Society
Stock shares of Palantir Technologies (PLTR) have seen a significant increase of 275% this year, positioning it as the second-best-performing stock in the S&P 500 (SNPINDEX: ^GSPC). This surge is primarily attributed to a series of impressive financial reports highlighting strong demand for its Artificial Intelligence Platform (AIP).
Meanwhile, renowned hedge fund billionaires, including Ken Griffin's Citadel Advisors and David Shaw's D.E. Shaw, decided to sell their Palantir stock during the third quarter. In contrast, they invested in shares of Nvidia (NVDA), a leading chipmaker, which CFRA analyst Angelo Zino forecasts to be "the most important company to our civilization over the next decade as the world becomes more AI-driven."
Citadel Advisors sold 5.1 million shares of Palantir, decreasing its stake by 91%, while simultaneously purchasing 7.1 million shares of Nvidia, amplifying its position by 194%. Citadel now considers Nvidia its second-largest holding, excluding options contracts and index funds. D.E. Shaw followed suit, selling 8.7 million shares of Palantir, reducing its stake by 45%, and purchasing 6 million shares of Nvidia, boosting its position by 53%. Now, Nvidia holds the mantle as the largest holding in D.E. Shaw's portfolio.
These trades carry significant weight, considering the financial success of Citadel and D.E. Shaw. They are two of the most successful hedge funds to date, according to LCH Investments.
1. Palantir Technologies
Palantir specializes in data analytics, offering businesses intelligent data operations platforms, such as Foundry and Gotham, powered by its Artificial Intelligence Platform (AIP). These software solutions enable businesses to integrate data, develop machine learning models, and query data using analytical applications to produce insights that improve decision-making.
Dresner Advisory Services recently ranked Palantir and Domino Data Lab as the top vendors in its 2024 market study of artificial intelligence (AI), data science, and machine learning platforms. This recognition means Palantir surpassed all three major public clouds and data analytics specialist Snowflake. Forrester Research also praised Palantir's AIP as the strongest AI/machine learning platform available.
Palantir demonstrated solid financial performance in the third quarter, surpassing estimates and adjusting its guidance. Revenue rose by 30% to $726 million, marking the fifth consecutive sequential acceleration. Non-GAAP (non-generally accepted accounting principles) earnings swelled by 43% to $0.10 per diluted share. During the earnings call, Chief Financial Officer Dave Glazer emphasized that unprecedented demand for AIP was the main factor contributing to a successful quarter. Palantir anticipates revenue growth of 26% in the fourth quarter.
However, investors seem dismissive of the valuation considerations regarding Palantir, frequently focusing on news that has no direct effect on business fundamentals. For example, shares rose by 11% on Nov. 15 due to news that Palantir was planning to relist on the Nasdaq Stock Exchange. A similar upturn occurred following Palantir's addition to the S&P 500 in September.
Gregg Moskowitz at Mizuho recently expressed his reservations in a note, stating, "Valuation cannot and should not be irrelevant, and we find it increasingly difficult to justify Palantir's high multiple." Wall Street estimates Palantir's adjusted earnings to grow by 27% annually through 2025. Given this projected growth, the current valuation of 180 times adjusted earnings appears excessively expensive. Potential investors should stay away from this stock, and current shareholders may want to reduce large positions.
2. Nvidia
Most investors are aware that Nvidia's graphics processing units (GPUs) serve as the industry standard for AI chips. GPUs excel at performing specific calculations more quickly and efficiently than CPUs. This makes them well-suited for handling computationally intensive tasks, like training large language models and running artificial intelligence applications.
Nvidia GPUs consistently outperform in the MLPerf benchmarks, neutral tests that evaluate performance across AI training and AI inference. Moreover, Nvidia has also secured a dominant position in AI networking equipment and experienced rapid growth in its software and services business.
Nvidia CEO Jensen Huang recently informed analysts, "We build the entire data center, and we can monitor everything, measure everything, optimize across everything." By offering data center systems with the best performance and lowest total cost of ownership, Nvidia can maintain a competitive advantage in AI technologies for many years to come.
In the third quarter, Nvidia reported better-than-expected results, besting estimates on both revenue and earnings. Revenue climbed by 94% to $35 billion, while non-GAAP earnings surged by 103% to $(0.81) per diluted share. Management also presented a more optimistic guidance than Wall Street had predicted, and revenue is projected to increase by 70% in the fourth quarter.
The consensus among Wall Street analysts forecasts Nvidia's adjusted earnings to grow by 51% annually through fiscal 2026. Given this projected growth, the current valuation of 54.2 times adjusted earnings appears relatively reasonable. Compared to Palantir's projected earnings growth rate, which is only half as high, Nvidia's valuation is significantly lower. As a result, Nvidia is considered a more affordable and promising investment option at present.
Despite Citadel Advisors and D.E. Shaw selling their Palantir stock, they saw potential in investing their funds into Nvidia's shares. The hedge funds appreciated Nvidia's leading position in chipmaking and forecasts by analysts like CFRA's Angelo Zino, who views Nvidia as "the most important company to our civilization over the next decade as the world becomes more AI-driven."
Finance analysts extensively use Nvidia's graphics processing units (GPUs) due to their superior performance in AI calculations. These GPUs surpass CPUs in handling computationally intensive tasks, making them ideal for training large language models and running AI applications. With its consistent performance in MLPerf benchmarks and dominant position in AI networking equipment, Nvidia's software and services business has experienced substantial growth.
