Palantir Technologies (PLTR 6.50%) and Rigetti Computing (RGTI 10.95%) are two of the hottest stocks on Wall Street. In the past year, Palantir shares have advanced 210%, while Rigetti shares have advanced 1,800%. Yet, the hedge fund billionaires listed below bought the former and sold the latter in the second quarter.
- Israel Englander at Millennium Management added 3.6 million shares of Palantir, tripling his stake. That made Palantir his eighth largest holding excluding options. He also sold 298,000 shares of Rigetti, completely exiting the position.
- Cliff Asness at AQR Capital Management purchased 439,700 shares of Palantir, increasing his stake 20%, though it remains a small position. He also sold 4,100 shares of Rigetti, reducing his stake by 5%.
Importantly, both hedge fund managers beat the S&P 500 during the last three years, which makes them good sources of inspiration. But the trades above were made in the second quarter, which ended more than four months ago. Here's what retail investors should know about these popular stocks today.
Image source: Getty Images.
Palantir Technologies: The stock Englander and Asness bought
Palantir develops analytics software for customers in the public and private sectors. Its core platforms, Gotham and Foundry, integrate data and machine learning (ML) models into a decisioning framework called an ontology. Its adjacent artificial intelligence (AI) platform, AIP, lets customers build large language models into applications and business processes.
Several analysts have praised Palantir for its differentiated software. Dan Ives at Wedbush says AIP is the "gold standard when it comes to AI use cases." Also, Forrester Research recently recognized the company as a leader in AI decisioning platforms, highlighting its ability to accommodate "the world's most difficult and highest-return use cases."
Palantir reported strong third-quarter financial results, beating estimates on the top and bottom lines amid continued to demand for AIP. Revenue soared 63% to $1.1 billion, the ninth consecutive acceleration, and non-GAAP net income increased 110% to $0.21 per diluted share. Management also raised its full-year guidance, such that revenue is forecast to increase 53% in 2025.
However, Palantir's valuation is disconnected from reality. Its price-to-sales (PS) ratio of 112 is three times higher than the next closest company in the S&P 500, which is AppLovin at 36 times sales. That means Palantir would still be the most expensive stock in the index even if it lost 66% of its value. A valuation that extreme is unsustainable.
To be clear, Palantir stock may continue to trend higher in the coming months, but a major correction is all but guaranteed at some point. Prospective investors should avoid the stock and current shareholders should consider trimming large positions. I would be surprised if Israel Englander or Cliff Asness added shares of Palantir in the third quarter.
NASDAQ: PLTR
Key Data Points
Rigetti Computing: The stock Englander and Asness sold
Qubits, the fundamental unit of information in a quantum computer, can exist in states of superposition and entanglement. That means they can exist in multiple states at the same time and the state of multiple qubits can be inextricably linked. Those phenomena allow quantum computers to solve complex problems beyond the scope of classical computers.
Rigetti Computing uses superconducting qubit processors to perform calculations based on the universal gate model. Annealing systems from D-Wave Quantum are closer to widespread commercialization but limited to optimization problems, while gate-based systems may be a decade from commercial viability but will solve more problems, like simulations in drug discovery and materials science.
Rigetti has an advantage in vertical integration, meaning it controls much of its hardware supply chain. The company designs and fabricates its own quantum processors, and maintains the infrastructure required to deliver cloud quantum computing services. The company says its vertically integrated approach "offers both the fastest and lowest risk path to building commercially valuable quantum computers."
Quantum computing will undoubtedly revolutionize industries, but the market has gotten ahead of itself. The technology may not be useful to most enterprises for another decade, yet Rigetti trades at 1,087 times sales. That is nearly 10 times more expensive than Palantir, which itself traded at an absurd valuation. Investors should avoid this stock, or at least keep any positions very small.
