In case you haven't noticed, data releases are occurring all the time on Wall Street. From earnings reports to economic data, it's easy for investors to be overwhelmed and miss something important. A little over three weeks ago, there's a decent chance you missed one of those important announcements.
May 15 marked deadline for institutional money managers with at least $100 million in assets under management to file Form 13F with the Securities and Exchange Commission. A 13F provides a snapshot of what Wall Street's smartest and most-successful fund managers bought and sold in the most recent quarter (in this instance, the March-ended quarter).
Image source: Getty Images.
As should come as no surprise, tech stocks were very much in focus -- especially among billionaire investors. Based on 13Fs, Wall Street billionaires piled into two large-cap tech stocks and avoided another widely held tech innovator like the plague during the first quarter.
Large-cap tech stock No. 1 billionaire investors piled into: Intel
The first big-name tech stock that Wall Street billionaires couldn't stop buying in the March-ended quarter is underperforming semiconductor company Intel (INTC +4.89%). All told, five billionaires were avid buyers, including:
- Ken Griffin of Citadel Advisors
- Steven Cohen of Point72 Asset Management
- Israel Englander of Millennium Management
- Jim Simons of Renaissance Technologies
- Jeff Yass of Susquehanna International
Keeping this same order intact, these billionaires respectively purchased approximately 13.13 million shares, 10.4 million shares, 7.69 million shares, 1.99 million shares, and 1.2 million shares of Intel stock.
NASDAQ: INTC
Key Data Points
What makes these purchases so intriguing is that they occurred during Intel's worst quarter in its storied history. The company lost $2.76 billion and saw revenue for its core client computing group and data center and AI (artificial intelligence) segments fall by 38% and 39%, respectively, from the prior-year period. Normally, such poor performance would chase prospective investors away. However, there looks to be genuine value here for those willing to be patient.
For example, Intel is currently spending $20 billion to construct two chip fabrication plants in Ohio, which are slated to open sometime next year. It's also in the process of acquiring Tower Semiconductor. When all of these actions are complete, Intel will be on track to potentially become the second-largest foundry service provider by 2030. Providing domestic businesses with an alternative to overseas chip fab should help Intel regain some of its luster.
Something else to consider is that Intel's market share losses to chief rival Advanced Micro Devices aren't game-changing. Intel still controls the lion's share of central processing unit sales in personal computers and data centers. That's not going to change anytime soon, which is good news for Intel's top cash-flow-generating segments.
Furthermore, Intel has a beast on its hands with autonomous driving solutions company Mobileye Global (MBLY +1.01%). Intel acquired Mobileye six years ago for a little north of $15 billion. When it was spun-out in 2022, Intel retained a majority of the outstanding shares. Mobileye closed this past week with a market cap of nearly $35 billion and the company's sales are rapidly rising.
NASDAQ: PANW
Key Data Points
Large-cap tech stock No. 2 billionaire investors piled into: Palo Alto Networks
A second large-cap tech stock that select Wall Street billionaires absolutely piled into during the first quarter is cybersecurity company Palo Alto Networks (PANW +1.58%). Form 13Fs show there were three big buyers:
- Steven Cohen at Point72 Asset Management
- Ken Griffin at Citadel Advisors
- Chase Coleman at Tiger Global Management
During the first quarter, Cohen, Griffin, and Coleman oversaw the respective purchase of roughly 571,400 shares, 355,100 shares, and 257,700 shares of Palo Alto Networks' stock.
Unlike the buying activity with Intel, which doesn't make sense unless you do some digging, it's crystal clear why billionaires are lapping up shares of Palo Alto. Next-generation security annual recurring revenue surged 60% in the latest quarter from the prior-year period, with total remaining performance obligations (i.e., the company's backlog) rising 35% to $9.2 billion. In short, the company is firing on all cylinders.
Ever since management made the decision nearly five years ago to shift the company's focus to cloud-based software-as-a-service (SaaS) subscriptions, Palo Alto has been virtually unstoppable. These higher-margin subscriptions now account for about 79% of net sales. More importantly, SaaS is helping to court larger customers that are more willing to add to their initial purchase. Add-on sales with its next-gen solutions are critical to boosting the company's subscription gross margin.
As I've stated in the past, Palo Alto Networks has also done a phenomenal job of incorporating inorganic growth into the mix. Bolt-on acquisitions have given the company a means to expand its product offerings and appeal to a broader swath of businesses.
Lastly, cybersecurity can be considered a basic necessity service. Even though tech stocks tend to be cyclical, businesses are migrating their data online and into the cloud at a faster pace than ever before. Since hackers don't take time off from trying to steal sensitive information, the need for cybersecurity solutions tends to be a constant in any economic environment.
Image source: Getty Images.
The large-cap tech stock billionaires wanted nothing to do with: Apple
However, it wasn't only buying on billionaires' minds during the first quarter. America's largest public company by market cap, Apple (AAPL +0.11%), was given the heave-ho by a number of successful fund managers, including:
- Ken Fisher of Fisher Asset Management
- Jim Simons of Renaissance Technologies
- Ken Griffin of Citadel Advisors
- Israel Englander of Millennium Management
- Jeff Yass of Susquehanna International
In the order listed above, these five billionaires respectively dumped 7.52 million shares, 7.09 million shares, 5.12 million shares, 2.22 million shares, and 1.1 million shares of Apple stock.
NASDAQ: AAPL
Key Data Points
If you're wondering why billionaires are avoiding Apple like the plague, it may have to do with the company's valuation. Between the start of 2013 and end of 2018, you could nab shares of Apple for 10 to 15 times earnings. Best of all, it was consistently growing by a low double-digit rate.
Today, you'll be paying about 30 times Wall Street's consensus earnings for Apple in fiscal 2023 (Apple's fiscal year ends in late September). While some investors might argue that a multiple of 30 isn't egregious for an industry leader like Apple, consider that its sales are expected to decline by nearly 3% in fiscal 2023, even with historically high inflation as a tailwind. Further, rapidly rising interest rates have removed access to cheap capital, which has the potential to slow Apple's pace of stock buybacks.
The other possible knock with Apple is that it simply didn't do enough with iPhone 14 to differentiate it from previous 5G-capable models. Make no mistake, sales of the iPhone still dominate the U.S. smartphone market. However, there had been talk about expanding iPhone production in September of last year, which ultimately fell through after iPhone 14's relatively subdued launch.
On the other hand, Apple is still a cash cow. It generated almost $110 billion in operating cash flow over the trailing-12-month period, and has repurchased a jaw-dropping $586 billion worth of its common stock over the past 10 years.
As a long-term business, Apple is rock-solid. But from an investment standpoint right now, it's difficult to justify its current valuation, especially with sales and profits contracting.
