Investors Eye Major Moves by Coatue Management in AI Stocks
The landscape of investing has transformed with the rise of the internet, making information readily available to everyday investors. Every quarter, during the earnings season, a majority of S&P 500 companies report their operating results. Additionally, weekly economic reports can overwhelm investors, causing crucial information to slip through the cracks.
In the midst of this data overload, the most significant information release of the third quarter occurred in mid-August.
Institutional investors managing at least $100 million in assets are required to file Form 13F with the Securities and Exchange Commission within 45 days after the end of each quarter. These filings reveal the stocks bought and sold by some of Wall Street’s top investors, providing insights into their strategies (the latest report reflects trades from the quarter ending in June).
While 13Fs have limitations—such as not showing short positions and providing potentially outdated information—they still serve as valuable indicators of the interests of major money managers.
Warren Buffett, CEO of Berkshire Hathaway, is a highly followed asset manager, but others like Philippe Laffont of Coatue Management also attract significant attention. Laffont’s firm primarily invests in transformative tech stocks, managing about $25.7 billion as of the end of June.
However, it’s Laffont’s recent decisions regarding three notable artificial intelligence (AI) stocks that have caught the eye of investors.
Drastic Sales from Coatue: Nvidia and Palantir
Among the most talked-about AI stocks are semiconductor giant Nvidia (NASDAQ: NVDA) and data-mining expert Palantir Technologies (NYSE: PLTR).
Nvidia’s market value has skyrocketed by over $3 trillion in 2023, driven by high demand for AI graphics processing units (GPUs). Meanwhile, Palantir has seen its stock soar by 601% over the past 22 months, fueled by its AI platform aiding government operations.
Despite their advantages, Laffont and his team at Coatue have chosen to reduce their holdings substantially. From March 30, 2023, to June 30, 2024, they sold 72% of their stake in Nvidia and completely exited their position in Palantir by the end of June, unloading 4,816,195 shares.
This selling activity likely reflects profit-taking, but potential challenges are also at play.
There is historical context to consider, particularly with Nvidia. Past tech innovations have often experienced early-stage bubbles, where investor optimism leads to inflated valuations. The tech boom of the mid-1990s serves as a reminder of the risk of overestimating the speed at which revolutionary technologies can become mainstream. Nvidia may find itself in a similar predicament.
Additionally, Nvidia faces increasing competition. Not only from external companies, but its largest customers are also developing their own AI-GPUs, which could limit Nvidia’s market presence in data centers.
For Palantir, valuation concerns have emerged as a major issue. Currently valued at 105 times its projected earnings per share (EPS) for 2025 and 29 times its estimated revenue, these multiples indicate a significant investment risk, especially since Palantir’s market potential is restricted to serving U.S. government agencies and allies.
While Coatue’s investors have been offloading shares in Nvidia and Palantir, they have notably ramped up investment in another leading AI infrastructure company.
A Massive Stake Boost in Taiwan Semiconductor
During the June-ended quarter, Laffont’s team made six new purchases and increased holdings in 21 existing positions. A standout among these was their significant investment in leading chip producer Taiwan Semiconductor Manufacturing (NYSE: TSM).
At the start of 2024, Coatue held just 312,466 shares of Taiwan Semiconductor, ranking it as their 66th-largest holding by value. By June, this had transformed into a much larger stake of 11,393,702 shares, marking an extraordinary 3,500% increase during the first half of the year.
Investors are enthusiastic about Taiwan Semiconductor due to its essential role in manufacturing GPUs for AI-enhanced data centers. Waiting lists for Nvidia’s H100 GPU reveal sustained demand for Taiwan’s services.
Taiwan Semiconductor is also actively enhancing its production capacity, aiming for 80,000 wafers per month of advanced chip packaging by 2026. Notably, some analysts believe the company is ahead of this timeline, positioning it as a crucial player in the AI supply chain.
It’s clear that artificial intelligence has become a significant factor in the growth of Taiwan Semiconductor.
Taiwan Semiconductor: A Solid Investment Amidst AI Excitement
Investors are increasingly drawn to Taiwan Semiconductor Manufacturing Company (TSMC), which plays a crucial role beyond just artificial intelligence (AI) production. Notably, TSMC crafts all custom chips for Apple, including those power-packed chips found in the flagship iPhone.
Resilience from Diversity in Sales
Should the current AI boom fizzle out, TSMC has set itself up for stability thanks to its diverse sales channels developed long before AI captured the market’s interest. While these alternative channels may not provide the rapid growth associated with AI, having a variety of revenue sources is undeniably beneficial for TSMC.
Attractive Valuation and Growth Potential
Moreover, TSMC’s valuation remains appealing. Current projections show the stock trading at a multiple of 24 times the expected earnings per share (EPS) for 2025, along with anticipated sales and earnings growth exceeding 20%.
Is Now the Right Time to Invest in Taiwan Semiconductor?
Before purchasing shares in Taiwan Semiconductor, consider some advice:
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Sean Williams does not hold shares in any of the stocks mentioned. The Motley Fool recommends and has positions in Berkshire Hathaway, Nvidia, Palantir Technologies, and Taiwan Semiconductor Manufacturing. For more details, refer to the Motley Fool’s disclosure policy.
The views and opinions expressed herein reflect those of the author and do not necessarily represent the views of Nasdaq, Inc.