Nvidia (NVDA +2.59%) has been one of the biggest winners since ChatGPT started the artificial intelligence (AI) boom in late 2022. The company's trailing-12-month earnings per share have increased 1,690% since the fiscal year that ended in January 2023, and its share price has increased 715%.
Yet several prominent hedge fund managers sold Nvidia during the first quarter and added shares of Palantir Technologies (PLTR 1.87%), a stock that has returned 2,000% since January 2023.
- Billionaire Ken Griffin of Citadel Advisors sold 1.5 million shares of Nvidia, reducing his stake 50%. He also added 902,400 shares of Palantir, increasing his stake 204%.
- Billionaire Israel Englander of Millennium Management sold 740,500 shares of Nvidia, cutting his stake 7%. He also bought 986,400 shares of Palantir, increasing his stake 302%.
The trades detailed above were made in the first quarter, so investors need to reassess both companies before deciding to buy or sell either stock. Here are the details.
Image source: Getty Images.
Nvidia: The stock Citadel and Millennium sold in the first quarter
Semiconductor company Nvidia reported solid financial results in the first quarter. Revenue increased 69% to $44 billion due to what CEO Jensen Huang characterized as "incredibly strong" demand for AI infrastructure. Meanwhile, non-GAAP net income jumped 33% to $0.81 per diluted share, and earnings would have increased more quickly had it not been for new export restrictions.
DeepSeek shook investor confidence in Nvidia earlier this year when it reportedly trained a sophisticated large language model with much less money (and less powerful chips) than U.S. rivals like Anthropic and OpenAI. However, concerns about a decline in AI infrastructure spending have so far been unfounded, and DeepSeek's efficient training methods may even boost demand for Nvidia chips by making AI affordable for more companies.
I still see Nvidia as a worthwhile investment due to the durability of the AI boom. While generative AI is the focal point today, physical AI will gradually steal the spotlight in the years ahead. Physical AI is the technology that will let autonomous machines, like cars and robots, understand and navigate the real world, and Nvidia is well-positioned to be a winner in those markets.
Nvidia graphics processing units (GPUs) are the most coveted AI accelerators on the market, and its dominance is due to a combination of better hardware and a robust ecosystem of supporting software. Most AI projects rely on Nvidia's CUDA software, and that platform includes tools for self-driving cars and robotics that should keep the company on the cutting edge of the AI boom for many years.
Wall Street expects Nvidia's earnings to increase at 28% annually over the next three to five years, which makes the current valuation of 51 times earnings look tolerable. Investors with a long time horizon can hold this stock with confidence.
NASDAQ: PLTR
Key Data Points
Palantir Technologies: The stock Citadel and Millennium bought in the first quarter
Palantir reported solid first-quarter financial results. Customers increased 39% to 769, and the average existing customer spent 124% more.
Revenue climbed 39% to $884 million, the seventh-straight acceleration, and non-GAAP earnings increased 62% to $0.13 per diluted share. Management also raised full-year guidance; sales now are forecast to increase 36% in 2025.
Palantir designs analytics software for the commercial and government sectors. Its core platforms, Gotham and Foundry, let customers integrate and query complex information with analytical applications and machine learning models. Its artificial intelligence platform (AIP) adds support for large language models and natural language processing, which lets customers apply generative AI to their operations.
Management says investments in infrastructure and software architecture have positioned Palantir uniquely to deliver on demand for artificial intelligence. Forrester Research has corroborated that claim to some degree by recognizing the company as a leader in artificial intelligence and machine learning platforms, awarding its AIP product higher scores than similar tools from Alphabet's Google and Microsoft.
Palantir is a good business, but the stock is outrageously expensive. It currently trades at 107 times sales, a valuation that only a handful of software companies have achieved in the last few decades. For context, the next closest company in the S&P 500 is Texas Pacific Land at 33 times sales. Palantir could fall sharply if investors sour on risky growth stocks.
