Two of Wall Street’s most successful artificial intelligence (AI) stocks were sent to the chopping block in the quarter ended June, with Englander instead favoring shares of a polarizing AI company.
In mid-August, Wall Street received the most important data dump of the third quarter – and I’m not talking about an inflation report from the Bureau of Labor Statistics.
August 14 marked the deadline for institutional investors and money managers with at least $100 million in assets under management to file Form 13F with the Securities and Exchange Commission. A 13F provides an under-the-hood look at what stocks Wall Street’s smartest and most successful money managers bought and sold in the last quarter (in this case, the quarter ending in June).
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While 13Fs have their shortcomings — for example, they are typically 45 days old when stored, which can lead to outdated data for active funds — they are invaluable when it comes to helping investors figure out which stocks, industries, sectors and trends pique the interest of Wall Street’s top asset managers.
Billionaire Israel Englander of Millennium Management is one of the prominent money managers that investors pay a lot of attention to. Based on Millennium’s latest 13F, Englander and his team oversee nearly $216 billion in managed securities across thousands of positions, including several put and call options.
But what’s most striking about Englander’s trading activity during the quarter ended in June is the way he approached artificial intelligence (AI) stocks. Englander showed shares of two of Wall Street’s favorite high-flying AI stocks at the door, while absolutely piling into another historically cheap AI company facing serious headwinds.
Englander’s Millennium sends shares of Nvidia and Palantir to the chopping block
The two extremely popular artificial intelligence stocks in question that England’s Millennium Management cut in the second quarter are semiconductor giants Nvidia (NVDA -4.71%) and cloud-based data mining specialist Palantir Technologies (PLTR -1.98%).
Millennium has owned shares of Nvidia since 2008, so it’s certainly one of the main beneficiaries of the AI revolution. But during the quarter ending in June, the UK fund cut its position in Nvidia by 676,242 shares.
It is certainly possible that this involves nothing more than simple profit-taking and asset restructuring. Nvidia has grown from a $360 billion company to a $3.25 trillion company as of the closing bell on October 9, 2024 through the end of 2022. It seems like a wise move to hold on to gains after an almost parabolic rise.
But there are other concerns that could force Englander to reduce Millennium’s stake in Nvidia. For example, while Nvidia’s AI graphics processing units (GPUs) are the undisputed first choice as the “brains” of AI-accelerated data centers, external and internal competition is increasing. Notably, Nvidia’s four largest customers by net revenue are developing AI GPUs in-house for use in their data centers. This suggests that future opportunities to gain valuable data center real estate will be limited for the AI hardware queen.
History has also been incredibly unkind to leading companies in next-big-thing innovations. Investors have overestimated the usefulness and application of every breakthrough technology of the past thirty years, and it seems unlikely that AI will be the exception to this unwritten rule.
In addition to the sale of Nvidia shares, the English fund has reduced its stake in Palantir Technologies by 7,074,815 shares. Millennium has been a continuous holder of Palantir shares since its IPO in 2020.
On the one hand, Palantir is riding the wave of irreplaceability to astronomical profits. The company’s AI-powered Gotham platform, which collects data and helps with mission planning for federal governments, combined with its enterprise-focused Foundry platform, has no competitors at scale. Wall Street often rewards companies with sustainable moats with premium valuations.
But at some point, even with a durable moat, a nosebleed rating can become a tough pill to swallow. As of October 9, Palantir is valued at 100 times annual earnings per share (EPS) and a staggering 35 times expected current year revenue. It is almost impossible to justify this valuation, given the annual revenue growth of approximately 20%.
Furthermore, the long-term potential of Palantir’s Gotham segment is obviously limited. This is a platform to which Palantir’s leaders will only grant access to the US and its allies. This means that future growth and profits will be heavily dependent on Foundry. While this isn’t a bad thing, Foundry is still in the early stages of its expansion, making Palantir’s $96.6 billion market cap a thorn in its side.
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Here’s the historically cheap AI stock that Israel Englander can’t stop buying
While Englander was a busy seller of two of Wall Street’s top artificial intelligence stocks, he was also an avid buyer of a stunningly cheap AI stock whose path forward has become clouded in recent months. I’m talking about a specialist in customizable rack servers and storage solutions Super microcomputer (SMCI 0.39%).
Adjusted for the 10-for-1 stock split that Super Micro completed two weeks ago, England’s Millennium Management bought 5,533,230 shares in the second quarter, increasing the fund’s existing stake in the company by more than 800% since late March .
Just as Nvidia has become the go-to provider of AI GPUs for high-compute data centers, Super Micro Computer has been a top infrastructure player for companies looking to build out their AI data centers. Super Micro integrates Nvidia’s ultra-popular H100 GPU into its customizable rack servers, increasing the desirability of its solutions.
In fiscal 2024, which ended June 30, the company achieved net sales growth of 110% to $14.94 billion. For the 2025 fiscal year, the midpoint of Super Micro’s revenue forecast calls for $28 billion. Despite projected annualized earnings growth of 62% through fiscal 2029, the company’s stock currently trades at less than 11 times fiscal 2026 earnings per share.
The reason Super Micro Computer stock isn’t trading at a more aggressive premium given high growth expectations is because of mounting headwinds. For example, it was the target of a short-seller report from Hindenburg Research in late August. Hindenburg has alleged “accounting manipulation” at Super Micro. While the company has denied these allegations, it has also delayed the filing of its annual report and is reportedly facing an early-stage investigation by the US Department of Justice.
There are also concerns that supply chains could hinder Super Micro Computer’s ability to meet the needs of its customers. There’s such high demand for Nvidia’s H100 GPUs that Super Micro’s rack servers could fall victim to supply backlogs.
Suffice to say, despite its relative cheapness, Super Micro Computer is a risky bet for Englander and Millennium Management.
