Billionaire Israel Englander runs Millennium Management, a hedge fund that outperformed the S&P 500 (^GSPC 1.52%) by 38 percentage points over the last three years.
In the fourth quarter, Englander sold 3 million shares of Nvidia (NVDA 1.53%), trimming his position 17%. He also bought 543,300 shares of Palantir Technologies (PLTR +1.25%), doubling his stake.
While Englander is a good source of inspiration, the fourth quarter ended about 50 days ago, so investors need to reassess both stocks before making the same trades. Here are the important details.
Image source: Getty Images.
Nvidia: The stock Englander sold in the fourth quarter
Nvidia dominates the market for artificial intelligence (AI) infrastructure. While the company is best known for graphics processing units (GPUs), chips that accelerate AI applications, its greatest strength lies in vertical integration. Nvidia pairs superior GPUs with adjacent data center hardware and software development tools to provide a turnkey solution for AI.
Why does that matter? Nvidia can optimize the performance and power efficiency of data center infrastructure at the system level rather than the component level, which often means its computing platforms come with a lower total cost of ownership (TCO) despite high upfront costs. CEO Jensen Huang recently said, "I'm very confident that Nvidia architecture is the best performance per TCO."
Also, Nvidia's CUDA platform -- which comprises code libraries, pretrained models, and application frameworks -- is an unparalleled ecosystem of software tools that streamlines AI application development. It provides a starting point for AI projects that is not available on non-Nvidia systems, which affords the company a deep competitive moat, according to analysts.
Wall Street expects Nvidia's earnings to increase at 38% annually over the next three years, which makes the current valuation of 47 times earnings look attractive. However, Wall Street has consistently underestimated AI spending due to the rapid shift to agentic AI and more complex reasoning models, which means Nvidia's earnings may grow even faster.
So, why did Israel Englander trim his position in Nvidia? Perhaps he wanted to take profits or diversify his portfolio. But it would be wrong to assume he has lost confidence. Nvidia is still the third-largest holding in his hedge fund excluding options contracts.
NASDAQ: PLTR
Key Data Points
Palantir Technologies: The stock Englander bought in the fourth quarter
Palantir develops data integration and analytics platforms, as well as adjacent AI software that lets developers build large language models into workflows and applications. While most analytics vendors focus on reporting and visualization, Palantir has distinguished itself by building software around a decision-making framework known as an ontology.
Experts have lavished Palantir with praise since the company introduced its AI software (called AIP) nearly three years ago. Forrester Research has recognized the company as a leader in AI decisioning platforms. The International Data Corporation has recognized its leadership in AI-enabled source-to-pay software. And Morgan Stanely has said Palantir is "emerging as the enterprise AI standard."
Meanwhile, Palantir's business fundamentals have been exceptional. Sales growth has accelerated in 10 straight quarters, and the company achieved an unprecedented Rule of 40 score (revenue growth plus non-GAAP operating margin) of 127% in the fourth quarter. Morgan Stanley analyst Sanjit Singh wrote, "It is hard to find a better fundamental story in software than Palantir."
However, despite dropping 35% from its high, Palantir remains the most expensive stock in the S&P 500. It currently trades at 72 times sales, which is 60% higher than the next closest stock, Texas Pacific Land, at 42 times sales. Additionally, Wall Street estimates earnings will increase at 45% annually over the next three years, which makes the current price-to-earnings multiple of 212 look very rich.
So, why did Israel Englander buy the stock? Perhaps he anticipates a rebound in the near future, but his position is very small. Palantir does not rank among his top 50 holdings. I think individual investors can comfortably own a similarly small position.
