Wall Street’s Deep Dive: What Israel Englander’s Latest Moves Reveal About AI Stocks

In mid-August, Wall Street experienced a significant event of the third quarter, but it wasn’t just another inflation report from the Bureau of Labor Statistics.

August 14 was the deadline for institutional investors and money managers with at least $100 million in assets to file their Form 13F with the Securities and Exchange Commission. This form gives insight into the stocks that leading money managers have bought and sold in the most recent quarter, which, in this case, covers the quarter ending in June.

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While 13Fs have limitations, such as being filed 45 days after the quarter ends, they are still crucial for investors trying to understand which stocks and trends are attracting the attention of top asset managers.

Billionaire Israel Englander, founder of Millennium Management, is among the investors whose decisions warrant close scrutiny. His firm currently manages about $216 billion, covering a diverse array of securities including various options.

This quarter, Englander’s notable actions involved artificial intelligence stocks. He sold shares of two prominent AI companies while significantly investing in another firm that’s historically undervalued but facing challenges.

Reducing Stakes in Nvidia and Palantir Technologies

The two high-profile AI stocks that Millennium Management decreased their holdings in during the second quarter are semiconductor giant Nvidia (NASDAQ: NVDA) and data analytics leader Palantir Technologies (NYSE: PLTR).

Millennium has held Nvidia stock since 2008, benefiting significantly from its growth. However, during the June-ended quarter, Englander’s team reduced their position by 676,242 shares.

This decision might reflect a strategic profit-taking measure given Nvidia’s rise from a $360 billion company at the end of 2022 to a staggering $3.25 trillion as of October 9, 2024. It seems sensible to lock in profits after such explosive growth.

Yet, there are valid concerns influencing this sell-off. Nvidia faces increasing competition, as some of its largest customers are now developing their own AI GPUs. This may limit Nvidia’s future market share, putting pressure on its dominance in AI hardware.

Historically, major innovative firms often overestimate their prospects. Investors have consistently misjudged groundbreaking technologies over the past three decades, and AI might be no different.

Alongside cutting back on Nvidia, Englander’s fund significantly reduced its holdings in Palantir Technologies by 7,074,815 shares. Millennium has been invested in Palantir since its IPO in 2020.

Palantir boasts unique offerings with its AI-driven Gotham platform for government and its Foundry platform for enterprise solutions, which lack large-scale competitors. Traditionally, companies with sustainable advantages attract premium valuations.

However, even companies with strong market positions can struggle with exorbitant valuations. As of October 9, Palantir’s price-to-earnings ratio hit an excessive 100 times forward earnings, while projected revenue ratios soared to 35 times. Justifying such high valuations alongside a modest 20% annual sales growth presents a challenge.

Furthermore, Palantir’s Gotham platform’s potential is inherently limited since it only serves U.S. and allied interests, leaving its future growth heavily reliant on Foundry, which is still in its nascent stage.

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Super Micro: The Inexpensive AI Stock Drawing Englander’s Attention

While Englander sold off interests in two major AI stocks, he significantly increased his holdings in a much cheaper AI contender: Super Micro Computer (NASDAQ: SMCI).

After a recent 10-for-1 stock split, Millennium Management acquired 5,533,230 shares, marking an increase of over 800% since March.

Super Micro Computer has become a pivotal player for companies aiming to build AI data centers. It integrates Nvidia’s highly popular H100 GPUs into its customizable servers, boosting its market appeal.

For fiscal 2024, ending June 30, Super Micro reported a remarkable 110% increase in net sales, reaching $14.94 billion. For fiscal 2025, it expects revenues to grow to $28 billion. Despite a projected annual earnings growth rate of 62% up to fiscal 2029, the stock currently trades at less than 11 times its projected earnings per share for fiscal 2026.

The reason Super Micro’s stock isn’t valued more highly despite these optimistic growth forecasts stems from increasing competition and market uncertainties.