Point72’s High-Stakes Moves: Selling Nvidia and Investing in Chipotle

Investors always have plenty of information at their fingertips on Wall Street. With thousands of public companies releasing their financial results quarterly, important data can sometimes get overlooked. On August 14, a significant event unfolded that may have flown under the radar—this day marked the filing deadline for institutional investors managing at least $100 million in assets to submit Form 13F to the Securities and Exchange Commission (SEC). This form provides a straightforward glance at which stocks the most successful asset managers on Wall Street have bought or sold in the previous quarter, specifically that ending in June.

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While Berkshire Hathaway CEO Warren Buffett often steals the spotlight, billionaire Steven Cohen of Point72 Asset Management generates his share of attention too.

Cohen’s Sharp Exit from Nvidia Holdings

As of September 30, 2023, Cohen’s fund held 16,457,320 shares of Nvidia, making it Point72’s fifth-largest investment based on market value, adjusted for Nvidia’s 10-for-1 stock split in June 2024. However, by the end of June, Cohen’s team dramatically reduced this stake by 87%, dropping it to 2,115,018 shares.

Nvidia’s stock surged by an astounding 822% since the year’s beginning, leading some to speculate that Cohen’s selling is simply a strategy of profit-taking and reallocating assets. Nonetheless, there may be deeper implications to consider.

Nvidia now faces increasing competition as various companies roll out new AI graphics processing units (GPUs) aiming to challenge Nvidia’s dominance, especially the H100 and its successor, Blackwell. Internal competition also looms large: major clients like Microsoft, Meta Platforms, Amazon, and Alphabet are developing their own AI-GPUs. If these in-house designs offer better accessibility and cost benefits, Nvidia could see a decline in orders.

Historical patterns may also cause some caution in Point72 regarding Nvidia. Many transformative technologies throughout the past three decades, including the internet, experienced sharp declines early on due to over-ambitious investor expectations. Should the AI hype fade, Nvidia might be hit especially hard due to its market leadership position.

Moreover, regulatory challenges have added hurdles for Nvidia as U.S. regulators have previously restricted the export of its advanced AI-GPUs to China, limiting billions in potential revenue each quarter.

While Cohen has been divesting from Nvidia, he has significantly increased investments in a competitive stock that has shown robust growth.

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Point72’s Major Investment in Chipotle

Among the notable holdings that Cohen bought into during the quarter ending in June was the fast-casual restaurant Chipotle Mexican Grill (NYSE: CMG). Chipotle executed its first stock split, a massive 50-for-1, which was one of the largest in New York Stock Exchange history on June 25. During the second quarter, Point72 acquired 1,458,700 shares of Chipotle, marking a staggering 446% increase to a total of 1,785,950 shares, also adjusted for the split.

Chipotle’s competitive advantages certainly played a key role in attracting Cohen’s investment team. Its commitment to responsibly raised meats without unnecessary antibiotics and sourcing local vegetables has resonated well with consumers. Just as grocery stores embraced the organic food trend years ago, Chipotle’s leadership recognized that consumers are willing to pay more for high-quality food, particularly in a market where food costs have risen considerably.

The limited menu Chipotle offers allows for efficient food preparation and helps maintain high customer turnover. Additionally, the introduction of Chipotlanes—dedicated drive-thrus for mobile orders—has expanded their sales channels and attracted engagement from Generation Z.

While Chipotle has certainly outperformed since its public debut in January 2006, its valuation could give investors like Cohen pause. The company’s forward price-to-earnings (P/E) ratio stood at 45 as of October 11, which some may view as excessive for a restaurant business, especially considering that part of its recent growth stems from price increases rather than an expansion in customer base.