Laffont’s Coatue Management sent shares of Wall Street’s two hottest artificial intelligence (AI) stocks devaluing in the quarter ended June in favor of a company critical to the AI supply chain.
Thanks to the advent of the Internet, information is no longer an expensive affair for ordinary investors. Between earnings season – the six weeks of each quarter were a majority of them S&P500 companies report their bottom line – and weekly economic reports, investors can become overwhelmed and let important data slip through the cracks.
You may not realize it, but what could easily be described as the most significant data dump of the third quarter occurred in mid-August.
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No later than 45 calendar days after the end of a quarter, institutional investors with at least $100 million in assets under management (AUM) must file Form 13F with the Securities and Exchange Commission. In simple terms, a 13F tells investors which stocks Wall Street’s smartest money managers bought and sold in the last quarter (in this case, the quarter ending in June).
To be fair, 13Fs are far from perfect. They do not list short positions (if there are any) and since they are filed up to 45 days after the end of a quarter, they may provide outdated information for active hedge funds. Nevertheless, they provide valuable clues as to which stocks, industries, sectors and trends have the undivided attention of leading money managers.
While Berkshire Hathaway CEO Warren Buffett is probably the most followed asset manager on Wall Street, but a number of other billionaire investors also often draw audiences, including Philippe Laffont of Coatue Management. Laffont and his team invest primarily in breakthrough technology stocks and oversaw nearly $25.7 billion in assets under management at the end of June.
But the real eyebrow-raiser is what Laffont and his team have been up to with three of Wall Street’s hottest artificial intelligence (AI) stocks.
Laffont’s Coatue has been aggressively selling shares of Nvidia and Palantir
There probably haven’t been two hotter AI stocks in recent history than the semiconductor giant Nvidia (NVDA -1.36%) and cloud-based data mining specialist Palantir Technologies (PLTR -2.76%).
The outlandish demand for AI graphics processing units (GPUs) has helped Nvidia realize more than $3 trillion in market value since early 2023. Meanwhile, shares of Palantir are up a whopping 601% in about 22 months. These gains are thanks to the AI-powered Gotham platform, which is tasked with helping federal governments plan and execute missions, as well as collect data.
Despite both Nvidia and Palantir having competitive advantages and being irreplaceable, Laffont and his team at Coatue have been decisive sellers of both stocks. Between March 30, 2023 and June 30, 2024, Laffont oversaw the sale of 72% of his fund’s stake in Nvidia. By comparison, Coatue’s brightest investment minds, including Laffont, dumped their entire stake in Palantir (4,816,195 shares) in the quarter ended June.
While profit-taking is a logical reason that may summarize this selling activity, there are other headwinds that may have pushed Laffont and his investment advisors to make the move.
History is the elephant in the room that cannot be ignored, especially when it comes to Nvidia. Including the Internet in the mid-1990s, no next big innovation or technology in the past three decades has prevented an early-stage bubble. In other words, investors have a terrible habit of overestimating how quickly breakthrough technologies will become mainstream, and historically this ends badly for the companies leading these trends, like Nvidia.
Plus, Nvidia will face a slew of new competition. While external competitors get most of the attention, internal competition is perhaps the biggest problem. All four of Nvidia’s largest customers by net revenue are developing their own AI GPUs, which could ultimately reduce Nvidia’s opportunity to acquire valuable data center “real estate.”
As for Palantir, valuation is perhaps the biggest concern for Coatue’s investment team. While irreplaceable on a large scale, Palantir deserves some degree of valuation premium, Palantir is now valued at 105 times expected 2025 earnings per share (EPS), and at a multiple of 29 times expected revenue.
This is an extremely aggressive valuation considering Gotham’s sales ceiling is somewhat limited. This means that Palantir will only work with the US government and its allies, which limits the platform’s reach beyond domestic borders.
But while Coatue’s smartest investors have been busy sending shares of Nvidia and Palantir to the chopping block, they’ve definitely piled on another top player in artificial intelligence infrastructure.
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Laffont’s stake in this AI infrastructure leader has increased by more than 3,500% this year
During the quarter ending in June, Laffont and his team made six new acquisitions and expanded 21 existing holdings. While most of these additions were relatively minor, the one that still stands out is Laffont’s aggressive purchase of a world-leading chip manufacturing company. Taiwanese semiconductor manufacturing (TSM -1.25%).
When 2024 began, Coatue Management owned just 312,466 shares of Taiwan Semi, and it was the fund’s 66th largest holding by market value. Six months later, it is now the third largest holding company, with a total of 11,393,702 shares. This amounts to an increase of more than 3,500% in the total number of shares in the first half of 2024.
As you can rightly imagine, the excitement surrounding Taiwan Semi has to do with its role in producing GPUs for AI-accelerated data centers. Orders for Nvidia’s H100 GPU (commonly known as the “Hopper”) and its successor GPU architecture (Blackwell) have lagged, meaning Taiwan Semi should see extended demand for its services.
Taiwan Semiconductor, in turn, has proactively invested in its production capacity. While the company is targeting chip-on-wafer-on-substrate (CoWoS) packaging capacity of 80,000 wafers per month by 2026, at least one Wall Street analyst believes Taiwan Semi is a full year ahead of schedule. Packaging high-bandwidth memory is a cost-effective necessity for AI-accelerated data centers, meaning Taiwan Semi plays a critical role in the supply chain.
While artificial intelligence has been the undeniable wind in Taiwan Semiconductor’s sails, Laffont and his team likely recognize that there’s much more to its production than just AI GPUs. For example, it’s the company responsible for making all of Apple’s custom chips, including the chips used in the market-leading iPhone.
If history were to repeat itself again, and the AI bubble burst at some point in the future, Taiwan Semi would be somewhat isolated in the sense that it had multiple sales channels long before AI was the hottest thing since sliced bread. While these other sales channels don’t offer the same growth potential as AI, a broad degree of sales diversity is ultimately positive for Taiwan Semiconductor.
Finally, Laffont and his advisors could be attracted to Taiwan Semi’s still-attractive valuation. With the understanding that forecasts can and will change, shares are valued at a multiple of 24 times expected 2025 earnings per share, with sales and earnings growth of more than 20%.
