It's been a big week for data releases -- and I'm not just talking about the monthly inflation report.
On the same day that investors were laser-focused on October's inflation figures (Nov. 14), money managers with at least $100 million in assets under management were required to file Form 13F with the Securities and Exchange Commission. A 13F provides a snapshot of what Wall Street's brightest and most successful money managers bought and sold in the most recent quarter.
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What's particularly noteworthy about the latest round of 13Fs is how billionaire investors have approached artificial intelligence (AI), the hottest trend on Wall Street in 2023. AI involves the use of software and systems to oversee tasks typically assigned to humans. The incorporation of machine learning gives these systems the ability to "learn" over time and become efficient and/or expansive at their tasks.
Although some researchers have suggested that AI can add nearly $16 trillion to global gross domestic product by 2030, not all billionaire investors are onboard. Based on 13Fs for the September-ended quarter, billionaires piled into one exceptionally popular AI stock while decisively selling two others.
The artificial intelligence stock billionaires can't stop buying: Palantir Technologies
If there's one AI stock that stands head and shoulders above its peers as the most desired by billionaire investors during the third quarter, it's data-mining company Palantir Technologies (PLTR 3.73%). Filed 13Fs show that six billionaires gobbled up shares, including (number of shares purchased in parenthesis):
- David Siegel and John Overdeck of Two Sigma Investments (4,655,969 shares)
- Jim Simons of Renaissance Technologies (3,805,496 shares)
- Philippe Laffont of Coatue Management (893,931 shares)
- Israel Englander of Millennium Management (604,716 shares)
- Jeff Yass of Susquehanna International (509,063 shares)
If there's one standout reason billionaires scooped up shares of AI stock Palantir, it's the company's much improved operating performance. The September-ended quarter featured Palantir's fourth consecutive quarter of generally accepted accounting principles (GAAP) profits. A combination of meaningful cost controls and a sustained double-digit growth rate have helped Palantir turn the corner.
For years, Palantir's growth has primarily come from its AI-inspired Gotham platform, which helps governments mine data and plan missions. Multiyear contracts have been critical to consistent cash-flow generation and the company's push to recurring profits.
However, the future for Palantir is very much reliant on its Foundry platform, which is tasked with streamlining large amounts of data for big businesses so they can optimize their operations. Foundry is still in its relative infancy, with a mere 181 customers as of the end of September. It's worth noting that commercial revenue surged 33% to $116 million, which signals plenty of strength from this relatively new segment.
Palantir is also sitting on a treasure chest of cash. It closed out the third quarter with approximately $3.3 billion in cash, cash equivalents, and U.S. Treasuries on its balance sheet, which should afford it plenty of financial flexibility.
Artificial intelligence stock No. 1 billionaires are decisively selling: Snowflake
However, not all of Wall Street is stoked about the prospects of AI-driven stocks. A total of five billionaires reduced their stakes in cloud data-warehousing company Snowflake (SNOW 3.69%) during the third quarter, including (total shares sold in parenthesis):
- Jeff Yass of Susquehanna International (532,828 shares)
- David Siegel and John Overdeck of Two Sigma Investments (408,488 shares)
- Jim Simons of Renaissance Technologies (127,600 shares)
- Ken Griffin of Citadel Advisors (116,074 shares)
The likeliest reason billionaires are souring on Snowflake, a company that's allowing its vendors to utilize generative AI solutions, is its tapering growth prospects. Don't get me wrong: The company's fiscal 2024 full-year guidance (Snowflake's fiscal year ends on Jan. 31), which calls for 34% year-over-year sales growth, is impressive in the current uncertain environment.
But Snowflake more than doubled its sales in fiscal 2022 and delivered 70% sales growth in fiscal 2023. Full-year sales growth estimates for the current fiscal year have fallen from 47% (as of the end of November 2022) to the aforementioned 34% (as of the end of July 2023). Even though the company's existing clients are spending quite a bit more on a year-over-year basis, higher interest rates and economic uncertainty have coerced businesses to be more cautious with their spending.
The issue with slowing growth, at least for Snowflake, is the company's ultra-premium valuation. When it was growing sales by 70% or more annually, investors were willing to support a triple-digit forward price-to-earnings (P/E) ratio. But even with shares down roughly 60% over the past two years, investors are still ponying up close to 160 times forward-year earnings to own shares of Snowflake. The valuation no longer makes much sense with its growth rate falling.
If there's a silver lining here, it's that Snowflake has well-defined competitive advantages in its corner. For instance, its infrastructure is built atop the most popular cloud infrastructure service platforms. Sharing data can be challenging across competing platforms, but it's seamless with Snowflake.
While these competitive edges are worthy of a premium, a triple-digit forward P/E ratio may be asking a bit much.
Image source: Getty Images.
Artificial intelligence stock No. 2 billionaires are decisively selling: Intel
A second AI stock billionaires decisively sold during the September-ended quarter is semiconductor giant Intel (INTC -9.20%). The chipmaker, which is set to debut its AI-fueled graphics processing unit (GPU) named Falcon Shores for high-compute data centers in 2025, was sold by a half-dozen billionaires, including (total shares sold in parenthesis):
- Israel Englander of Millennium Management (5,796,294 shares)
- Jim Simons of Renaissance Technologies (4,229,294 shares)
- Ken Griffin of Citadel Advisors (3,660,427 shares)
- Jeff Yass of Susquehanna International (1,828,149 shares)
- David Tepper of Appaloosa Management (525,000 shares)
- Ken Fisher of Fisher Asset Management (279,788 shares)
The probable catalyst that saw these six billionaires pare down or completely exit their funds' respective stakes is Intel's tepid operating performance in 2023. Following the worst of the COVID-19 pandemic, chipmakers have struggled with weak personal-computing demand. Unsurprisingly, Intel's desktop revenue, along with network and edge sales, have shifted into full reverse.
Another reason a half-dozen of Wall Street's most successful investment minds decisively sold Intel may have to do with its late entrance into AI-focused GPUs. Although Intel appears to have plenty of runway to gobble up AI-accelerated market share with Falcon Shores, Nvidia (NVDA 6.18%) could hold 90% or more of high-compute AI-GPU share in 2024 -- especially with higher production capacity around the corner. Skeptics are clearly concerned that ongoing innovation from Nvidia could leave Intel in the dust.
But it's not all bad news. Beyond Intel's legacy processing segment, it's making a name as a chip foundry. Intel has two chip-manufacturing plants slated to open in Ohio next year and recently worked out a deal to build a chip-fab plant in Germany, with a third of the cost covered by the German government. By the turn of the decade, Intel's business should be better diversified as it aims to become the global No. 2 foundry.
Don't forget about Mobileye Global (MBLY -5.50%), either, which Intel spun off a little over a year ago. Mobileye's advanced driver assistance systems and autonomous-driving solutions have translated into healthy double-digit growth. Intel still holds the lion's share of Mobileye Global's outstanding shares.
In other words, these billionaires may regret paring down or exiting a chip giant with a renewed focus.
