The S&P 500 has roared higher over the past three years, and one particular sector has led the way: artificial intelligence (AI). Investors flocked to technology players in the field as they recognized the potential of AI to transform everything from daily life to how companies operate. This could result in cost savings, earnings growth, innovation -- and ongoing stock price performance over time.
Since the fourth quarter of 2024, billionaire Peter Thiel has been one of these investors, buying shares such as Nvidia, Amazon, Microsoft, and other leading AI players. Thiel, as co-founder of PayPal and later Palantir Technologies, has proven his ability to identify a great business and investment theme -- he was also Facebook's (now Meta Platforms) first outside investor.
But, in recent times, the market's and Thiel's enthusiasm may have waned. The S&P 500 has struggled to take off this year, delivering ups and downs amid concerns about the pace of AI spending, AI's impact on the software sector, and general uncertainty about the economy. On top of this, Thiel just made a shocking move, delivering a $74 million warning to Wall Street. Should you listen?
Image source: Getty Images.
The stock market's recent performance
First, we'll take a quick, closer look at the market's recent path. In spite of fantastic earnings reports from AI stocks, including Nvidia, Amazon, Taiwan Semiconductor Manufacturing and other key players, investors haven't piled into AI stocks as easily as they did in the past. The news has been positive -- strong ongoing demand and pledges from major cloud companies to increase AI spending -- but investors have grown cautious.
They've worried that AI may take over the role of certain software, and that's weighed on software stocks. And they also have expressed concern that the AI opportunity won't justify the current valuations of some stocks. Finally, investors have kept a close eye on economic data and the pace of interest rate cuts. All of this hasn't resulted in a very supportive backdrop for the stock market, and therefore, the S&P 500 remains little changed so far this year.
SNPINDEX: ^GSPC
Key Data Points
Now let's consider Peter Thiel's warning to Wall Street. In the fourth quarter of last year, as revealed recently through the billionaire's 13F filing, he sold all of the stocks in his portfolio at Thiel Macro. This represented more than $74 million and involved shares of Tesla, Microsoft, and Apple.
He sold:
- 65,000 Tesla shares
- 49,000 Microsoft shares
- 79,181 Apple shares
Thiel closed positions in other tech holdings, such as the ones I mentioned above, in earlier quarters.
More cautious regarding AI
We don't know the exact reason for Thiel's moves, but they reinforce the idea we've seen in the market over the past few months: Investors have become more cautious about AI- and tech-related stocks and, in many cases, have locked in profits.
Like others, Thiel may be concerned about near-term stock performance and decided to secure gains and remain on the sidelines for the time being.
Now, the question is: Should you follow this warning? Not necessarily. It's great to draw inspiration from the investing ideas of billionaires, but their strategies may sometimes differ from ours. A billionaire might sell all AI stocks, then return to others in the following quarter -- and we won't know that until after the move is made.
So, it's best to consider our own strategies and risk tolerance before making any major moves. In this case, it's true that general uncertainty is hurting the market right now, but importantly, this doesn't change the long-term prospects for quality companies -- including many in the area of AI.
It's also important to note that, at times like these, valuations come down, offering us the opportunity to get in on great companies at very reasonable prices. All of this means that, even though Palantir billionaire Peter Thiel sold his AI stocks, these and other players still could deliver big over the long term.
