In the third quarter, two hedge fund billionaires sold Amazon (AMZN +0.40%) and added to positions in the iShares Bitcoin Trust (IBIT +0.44%), an exchange-traded fund (ETF) managed by BlackRock that tracks the spot price of Bitcoin (BTC 2.19%).
- Philippe Laffont of Coatue Management sold 1.4 million shares of Amazon, trimming the position 14%. He also purchased 76,100 shares of the iShares Bitcoin Trust, more than doubling his stake.
- Steven Schonfeld of Schonfeld Strategic Advisors sold 253,700 shares of Amazon, reducing the position 72%. He also added 1.1 million shares of the iShares Bitcoin Trust, increasing his stake 20%.
The trades are noteworthy because Laffont and Schonfeld outperformed the S&P 500 (^GSPC 0.06%) by 94 percentage points and 22 percentage points, respectively, in the last three years. That makes both hedge fund managers good sources of inspiration.
Several Wall Street analysts expect Bitcoin to be far more valuable in the future. Tom Lee at Fundstrat Global Advisors says its price could hit $3 trillion in the long run, which implies more than 3,000% upside from where it currently trades at $95,000. Michael Saylor of Strategy says its price could hit $13 million by 2045, implying more than 13,500% upside.
Here's what investors should know.
Image source: Getty Images.
Amazon: The stock Laffont and Schonfeld sold
Amazon has a strong presence in e-commerce, digital advertising, and cloud computing. Building on that advantage, the company has integrated artificial intelligence (AI) products and features across all three business segments to drive revenue growth and improve profit margins.
In e-commerce, Amazon has developed hundreds of generative AI applications to improve operational efficiency. They automate customer service, optimize demand forecasting, improve inventory placement, and expedite last-mile delivery. Amazon has also developed an AI model called DeepFleet that helps robots navigate warehouses more quickly.
In cloud computing, Amazon Web Services (AWS) has launched new foundational models and services, such as Bedrock for generative AI application development. AWS has also introduced AI agents for coding, security, and incident monitoring, and a business intelligence platform called Quick Suite, which leans on generative AI to analyze data, surface insights, and automate workflows.
Wall Street estimates Amazon's earnings will increase at 19% annually over the next three years. That seems reasonable given that Amazon has strong competitive presence in three large markets, which itself means the company is well positioned to benefit form AI. Shares trade at 34 time earnings and most analysts see the stock as undervalued. The median forecast of $300 per share implies 25% upside from its current price of $239 per share.
So, why did Laffont and Schonfeld sell Amazon? It may have been profit taking, or perhaps they simply saw better buying opportunities elsewhere. Whatever the reason, it would be wrong to assume they lost confidence in the company. Both hedge fund managers still own shares, and Amazon is still Laffont's fifth largest position. Personally, I think Amazon is worth buying at its current price.
NASDAQ: IBIT
Key Data Points
iShares Bitcoin Trust: The BlackRock ETF Laffont and Schonfeld bought
Bitcoin has fallen 25% from its record high as macroeconomic uncertainty and geopolitical tensions have led to a rotation away from assets perceived as risky. Also, profit taking and the unwinding of positions built on borrowed money contributed to the drawdown. But the investment thesis has not changed.
Demand for Bitcoin will likely continue increasing because the introduction of spot Bitcoin ETFs (like the iShares Bitcoin Trust) has made it very easy for retail investors and institutional investors to get exposure to the cryptocurrency. And as the most popular and most liquid cryptocurrency, Bitcoin is likely to be the first digital asset that many investors buy.
Indeed, over the past year, the number of BTC held by government agencies increased 25%, and the number of BTC held by public and private companies increased 55%. Meanwhile, the number of large asset managers (those required to file Forms 13F) with positions in the iShares Bitcoin Trust more than doubled, and the number of shares they reported owning more than quadrupled.
Here's the big picture: Bitcoin is notoriously volatile. That the cryptocurrency is currently trading 25% below its record high is nothing out of the ordinary. Of course, that knowledge does not make the experience any more pleasant for investors, but history says Bitcoin will eventually rebound to new highs.
Indeed, the cryptocurrency is arguably cheap right now. Analysts often compare market value (the collective value of all circulating Bitcoin) to thermocap (the collective value of all Bitcoin mining rewards). Bitcoin's market value-to-thermocap ratio is similar to a stock's price-to-book ratio. Bitcoin currently trades at 20 times its thermocap, which is well below the historical average of 50, according to Morgan Stanley.
So, risk-tolerant investors with a long time horizon should consider adding Bitcoin exposure to their portfolio, and the iShares Bitcoin ETF is a cheap and easy way to make that happen.
