Possibly the most exciting day for investors during the first quarter has come and gone.
Less than two weeks ago, the deadline hit for money managers with over $100 million in assets under management to file Form 13F with the Securities and Exchange Commission. A 13F provides a detailed look at what the brightest and most successful money managers were holding at the end of the most recent quarter. Even though these filings are dated (i.e., they show what was held six or more weeks earlier), they can nevertheless cue Wall Street and investors onto stocks or trends that have the attention of money managers.
After perusing many of the moves made by billionaire money managers, one trend stands out: They're high on technology. In particular, billionaires couldn't stop buying the following five tech stocks during the fourth quarter.
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Palantir Technologies
With data-mining company Palantir Technologies (PLTR 3.85%) becoming a public company via direct listing at the tail-end of the third quarter, it's not really a huge surprise to see ownership statistics among 13F filers skyrocket. In total, 137% more funds were holding Palantir at the end of the year, compared to Sept. 30, and aggregate ownership jumped 82% to 321.8 million shares, according to WhaleWisdom.com. We witnessed both Larry Fink's BlackRock and Jeff Yass's Susquehanna International pile into Palantir, with respective purchases of 4.05 million and 3.94 million shares.
Wall Street's bullishness has certainly been rewarded with exceptional growth prospects. Palantir grew sales by 47% in 2020 to roughly $1.1 billion, and it's calling for 45% growth in the first quarter from the prior-year period. Large military/government contract wins for the company's Gotham platform have been key to Palantir's outperformance.
What remains to be seen if Palantir can maintain such a lofty valuation. Even if it were to grow sales by 40% in 2021, it'd still be valued at close to 24 times sales. The operating performance of Palantir's enterprise-focused analytics platform (Foundry) may be what buoys or trips up the company in 2021.
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Fastly
Billionaire investors aren't afraid of a wild ride, as long as the growth prospects are worth it. Edge cloud services provider Fastly (FSLY 6.78%) was a big-money favorite in Q4, with aggregate ownership among 13F filers increasing by 18% to 66.2 million shares from Q3 2020. More specifically, Susquehanna more than doubled its existing stake in Fastly, while BlackRock picked up almost 331,000 additional shares.
The optimism surrounding Fastly has to do with businesses shifting online and into the cloud, and consumers altering their consumption habits. Since it's Fastly's job to securely speed up the process by which content reaches end users, the pandemic has accelerated this existing online shift. Not surprisingly, sales rocketed 45% higher in 2020 to $291 million, with adjusted gross margin increasing 430 basis points to 60.9%.
On the bright side, the company's dollar-based net expansion rate of 147% and 143% in Q3 and Q4 suggest that its existing clients are growing quickly, which is fantastic news for gross margin expansion. However, the company's fourth-quarter sales growth was aided by an acquisition, and total customer growth slowed considerably. If Fastly is to maintain its premium valuation -- which is something I believe it can do -- it's going to need customer growth to pick up in the early part of 2021.
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Datadog
Another tech stock with a bulls-eye on its proverbial back is application performance monitoring company Datadog (DDOG +1.25%). In total, 13F filers increased their holdings in this software-as-a-service stock by 17% (about 23 million shares) from the sequential third quarter. Billionaire Stephen Mandel's Lone Pine Capital picked up an additional 541,225 shares in Q4, while BlackRock added just over 2 million shares.
Similar to Fastly, the buzz around Datadog has to do with the coronavirus pandemic accelerating shifts that were already under way. For Datadog, we're talking about businesses shifting into the cloud and/or remote-work environments. Being able to use Datadog's cloud-based software to better understand consumer behaviors, expedite problem-solving, and improve the understanding of key business metrics, is now more important than ever.
Datadog has certainly delivered, with sales jumping 66% in 2020 to $603.5 million. But what's even more impressive is that the number of customers with annual recurring revenue (ARR) above $1 million nearly doubled to 97 from 50, while customers with an ARR over $100,000 jumped by 46% from the previous year. This suggests Datadog is attracting bigger clients and effectively scaling with its fast-growing customers.
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Snowflake
Cloud data warehousing stock Snowflake (SNOW +0.57%) was also popular among billionaire investors during the fourth quarter. Like Palantir, it debuted in September, so we weren't able to see a full quarter of optimism reflected in the previous round of 13F filings. In Q4, aggregate ownership by 13F filers increased by 14%, with 101 additional funds adding it as a holding. Among billionaires, Chase Coleman's Tiger Global Management and Yass's Susquehanna each added a bit over 500,000 shares.
What allows Snowflake to stand out is the uniqueness of its operating model. For example, Snowflake shuns the subscription model and allows its clients to pay based on the storage and Snowflake Compute Credits they use. Also, since Snowflake's architecture is layered atop many of the most-popular storage services, it breaks down the difficulties of sharing cloud data across rival platforms.
But like Palantir, Snowflake has some serious questions to answer regarding its valuation. Third-quarter sales (ended Oct. 31) rocketed 115% higher, with existing clients spending 62% more than they did in the prior-year quarter. But even if Snowflake nearly doubles its sales in its next fiscal year, it'll still be valued at north of 65 times sales. Snowflake's operating results will likely need to blow Wall Street's socks off to maintain its premium valuation.
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CrowdStrike Holdings
Finally, billionaire money managers simply couldn't stay away from cybersecurity stock CrowdStrike Holdings (CRWD +2.84%). Despite aggregate ownership among 13F filers only increasing 6%, the total number of funds holding CrowdStrike at the end of the quarter rocketed 24% higher. BlackRock bought over 2 million shares, with Gabe Plotkin's Melvin Capital Management opening a 750,000-share position.
What makes CrowdStrike such a fantastic company is its cloud-native security platform, Falcon. This platform evaluates over 3 trillion events each week, and with the help of artificial intelligence becomes more effective at identifying and responding to threats. Because it's entirely cloud-based, CrowdStrike's security solutions are often cheaper and faster to respond than on-premises solutions.
Despite being fundamentally pricey, CrowdStrike looks to be worth every penny. Over a 14-quarter stretch between the first quarter of fiscal 2018 and the third quarter of fiscal 2021, the percentage of customers that had a least four cloud module subscriptions jumped from 9% to 61%. This shows how trusted CrowdStrike's cybersecurity solutions have become, as well as how easily it's built to scale with its clients.
