Billionaire Israel Englander is the founder and CEO of Millennium Management, a hedge fund that beat the S&P 500 (^GSPC +0.65%) by about 39 percentage points over the past three years. In fact, Millennium is the third most successful hedge fund in history as measured by net gains, according to LCH Investments.
That makes Englander and his team a good source of inspiration for individual investors, and the hedge fund made some noteworthy trades during the third quarter.
- Millennium sold 4.5 million shares of Palantir Technologies (PLTR +0.36%), reducing its stake by 91%. Palantir ranked among the fund's top 10 holdings in the previous quarter.
- Millennium bought 311,000 shares of Tesla (TSLA +2.06%), quadrupling its stake in the automaker turned artificial intelligence company. Tesla's share price is up 27,300% since its 2010 IPO.
The trades above are particularly interesting because Palantir crushed the S&P 500 last year, whereas Tesla underperformed. Furthermore, Palantir is growing rapidly due to strong demand for its artificial intelligence software, whereas Tesla has been losing market share in electric cars.
Here are the important details.
Image source: Getty Images.
Palantir Technologies: The AI stock that Israel Englander sold
Palantir develops analytics and artificial intelligence (AI) software that helps customers across the public and private sectors make sense of complex data and automate business processes. Forrester Research has recognized the company as a leader in AI platforms and AI decisioning software. The analysts commented, "Palantir is quietly becoming one of the largest players in this market."
Palantir has consistently reported solid financial results, and that pattern continued in the third quarter. Its customer count climbed 45%, and the average spend per existing customer rose 34%. In turn, revenue jumped 63% to $1.1 billion, the ninth straight acceleration, and non-GAAP net income increased 110% to $0.21 per diluted share.
Management says Palantir is unique in its ability to operationalize AI, meaning its software more effectively moves AI projects from prototype to production. Praise from independent analysts and strong financial results support that opinion, but the stock is still risky because of its valuation. Palantir trades at 110 times sales, making it the most expensive stock in the S&P 500 several times over.
Historically, few software companies have achieved valuations above 100 times sales, and none have ever sustained such a high multiple indefinitely. In fact, within the S&P 500, the second most expensive stock is AppLovin at 38 times sales. That means Palantir could fall 65% and still be the most expensive stock in the index. Investors with large positions in Palantir should consider trimming.
NASDAQ: PLTR
Key Data Points
Tesla: The AI stock that Israel Englander bought
Tesla's electric vehicle business is struggling. The company lost about 5 percentage points of market share over the past year due to increased competition and consumer backlash against CEO Elon Musk's political activities. The company is no longer the global leader in electric car sales. That title now belongs to Chinese automaker BYD.
However, the investment thesis for Tesla now centers around physical artificial intelligence, a term that refers to autonomous vehicles and autonomous robots. While Alphabet's Waymo has launched commercial robotaxi services in far more cities, Tesla has important cost and scalability advantages in its camera-only approach.
Specifically, Tesla pays less to build robotaxis because it eschews lidar and radar, relying entirely on computer vision. Also, its software does not depend on high-definition maps to make decisions, so Tesla does not need to map cities before deploying robotaxis. Finally, the company has about 8 million vehicles on the road from which it plans to crowdsource rides by letting owners add their cars to its robotaxi platform.
Meanwhile, Tesla is also developing an autonomous humanoid robot called Optimus, a product that could revolutionize industries from manufacturing to healthcare by replacing human workers. Indeed, Musk recently said, "Optimus will be an incredible surgeon." He believes the robot could top $10 trillion (that's not a typo) in revenue in the future.
Here's the big picture: Tesla is losing market share in electric cars, and that trend is likely to persist in the years ahead. But the company has substantial opportunities in physical AI. The robotaxi market is projected to grow at 74% annually through 2030 and the humanoid robot market is projected to grow at 54% annually through 2035.
Unfortunately, neither robotaxis nor robots are substantial sources of revenue today, which means valuing the stock involves a lot of guesswork. However, I think risk-tolerant investors with a long time horizon (at least five years) should own a small position in this stock, and now is a reasonable time to buy a few shares.
