Important news releases weren't hard to come by in November. Between Election Day and earnings season, which sees a majority of the most-influential publicly traded companies report their quarterly operating results in a span of six weeks, an important filing could easily have slipped through the cracks.
For example, Nov. 14 was the deadline for institutional investors with at least $100 million in assets under management (AUM) to file Form 13F with the Securities and Exchange Commission. A 13F allows investors to track which stocks Wall Street's top money managers purchased and sold in the most recent quarter.
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With Berkshire Hathaway's Warren Buffett overseeing a cumulative return of greater than 5,800,000% in his company's Class A shares (BRK.A) since he became CEO in the mid-1960s, it's no surprise that his trading activity is closely watched by investors. But he's far from the only billionaire money manager with a successful investment track record or a following on Wall Street.
Billionaire Philippe Laffont has made quite a name for himself since founding Coatue Management in 1999. Laffont's fund, which has a very clear focus on high-growth/innovative businesses in the tech space, closed out the September-ended quarter with close to $27 billion in AUM.
Despite running a relatively concentrated fund -- Coatue ended the third quarter with only 81 holdings -- there have been some eyepopping trades made of late by Laffont. In particular, he's been dumping shares of two artificial intelligence (AI) leaders and is piling into one of Wall Street's top-performing stock-split stocks.
Laffont's Coatue sent shares of Nvidia and AMD to the chopping block
Over the last two years, there hasn't been a hotter trend on Wall Street than the rise of AI. According to the analysts at PwC, AI can add $15.7 trillion to the global economy by 2030. This is a big enough addressable market that there can be a multitude of winners -- and investors have wanted their piece of the pie.
NASDAQ: NVDA
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But in spite of this sky-high addressable market, Laffont and his top advisors have been persistently selling shares of two of Wall Street's top artificial intelligence stocks, Nvidia (NVDA +0.64%) and Advanced Micro Devices (AMD 2.27%).
Accounting for Nvidia's historic 10-for-1 stock split in June, Coatue has sold 39,663,859 shares of Nvidia over an 18-month stretch (March 31, 2023 through Sept. 30, 2024), which equates to an 80% reduction in its position. As for AMD, Laffont has overseen the sale of 4,249,190 shares over the same 18-month time frame, which works out to a 50% reduction in its stake.
Aside from simple profit-taking, there are a couple of catalysts that may be encouraging Laffont and his team to ring the register on some of their top AI stocks.
History may offer one of the more compelling reasons why Coatue's brightest minds are reducing their exposure to Nvidia and AMD. Inclusive of the advent of the internet, there hasn't been a game-changing technology in at least 30 years that's avoided an early stage bubble.
Investors have a terrible habit of overestimating how quickly a new technology will be adopted and utilized. Every next-big-thing innovation needs ample time to mature, and we're just not there yet with artificial intelligence. If the AI bubble were to burst, the "brains" of AI data centers (Nvidia and AMD) would almost certainly be clobbered.
NASDAQ: AMD
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There may also be some degree of concern about gross margin at both companies. In particular, Nvidia's gross margin has soared on account of scarcity for AI-graphics processing units (GPUs) and demand for its hardware handily outpacing supply. However, with AMD ramping up production of its Insight MI300X GPUs and introducing its next-generation MI325X GPU, scarcity should wane in the coming quarters.
To add to this point, many of Nvidia's largest customers by net sales -- i.e., members of the "Magnificent Seven" -- are internally developing GPUs to use in their data centers. Even though these chips are likely to lag Nvidia's and AMD's in computing capabilities, their mere existence is bound to take up valuable data center "real estate" and reduce pricing power (and gross margin) for Nvidia and AMD.
Lastly, insiders have provided little in the way of encouragement for investors. It's been almost four years since the last insider purchased shares on the open market at Nvidia. Meanwhile, no company executive or director at AMD has bought shares of their company on the open market in over a half-decade. If insiders fail to see value in their company's stock, why should investors, or billionaire money managers, for that matter?
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Laffont is gobbling up shares of this high-flying stock-split stock
But while Laffont has been persistently selling two of Wall Street's leading AI companies, he's been piling into shares of a top-performing consumer brand that completed a historic stock split in June. I'm talking about fast-casual restaurant chain Chipotle Mexican Grill (CMG +2.35%), which conducted a 50-for-1 stock split.
According to Coatue's 13F, 4,575,054 shares of Chipotle were purchased during the third quarter, which made it the 30th-largest position Laffont is overseeing in his fund's nearly $27 billion portfolio.
Since its initial public offering price of $22 in January 2006, shares of Chipotle have catapulted higher by almost 13,900%, as of the closing bell on Nov. 29. These gains have been built atop a solid foundation of trust, pricing power, and innovation.
For instance, Chipotle has pledged to use responsibly raised meats that are free of unnecessary antibiotics, and attempts to use locally sourced vegetables when it's economically feasible to do so. For two decades, consumers have been fiercely loyal to Chipotle for taking these extra steps to ensure they receive higher-quality food.
NYSE: CMG
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To build on the above, Chipotle's Mexican Grill's management team also realized long ago that its customers will gladly pay more if they're receiving a superior product. Just as grocery stores benefited from a significant increase in demand for organic and natural foods two decades ago, Chipotle has had little issue passing along price hikes to deliver fresh food that'll never see a freezer.
Innovation has also been vital to the company's success. In 2018, it began rolling out its "Chipotlane" concept, which is a digital order-dedicated drive-thru lane. Chipotlanes came in especially handy during the COVID-19 pandemic and have since ushered in a new sales channel for the company.
However, Chipotle Mexican Grill's path forward is a bit clouded. In August, Starbucks announced that it was pilfering Chipotle's now-former CEO Brian Niccol to become its new chief. With things going so well from an operating standpoint, a change in the executive suite isn't exactly something that comforts existing shareholders.
Perhaps the bigger concern is Chipotle's valuation. Though there's only so much innovation that can be squeezed out of the proverbial avocado, Chipotle is trading at an ultra-aggressive multiple of 47 times forward-year earnings. It's quite the premium to pay for a company that delivered modest same-store sales growth of 6% in the September-ended quarter.
While there's no denying that Chipotle holds clear-cut competitive advantages over other fast-casual restaurant chains, it's difficult to envision much in the way of additional near-term upside for its shares.
