A New Investment Shift: Wall Street’s Focus on Nvidia Over Palantir

In 2024, the S&P 500 index has seen a remarkable rise of 26%, with the technology-heavy Nasdaq Composite jumping about 28%. The surge in these markets is largely attributed to advances in artificial intelligence (AI).

Palantir and Nvidia: AI Stock Leaders

This year, standout performers in AI stocks include data analytics company Palantir Technologies (NASDAQ: PLTR) and semiconductor powerhouse Nvidia (NASDAQ: NVDA). Palantir shares have skyrocketed by 291%, while Nvidia has increased about 179% (as of market close Nov. 29).

While both companies are considered dominant players in the AI market, it may surprise you to learn that many top investors are currently favoring only one of them. This article will explore the moves by prestigious hedge funds and examine the reasoning behind their investment choices.

Wall Street’s Investment Strategies with Palantir and Nvidia

The Form 13F provides valuable insights into stock trading by large institutional investors. Below is a summary of trades made by two significant hedge fund managers during the third quarter involving Palantir and Nvidia:

• Ken Griffin (Citadel Advisors): In the quarter ending September, Citadel Advisors sold 5,172,681 shares of Palantir, cutting its exposure by 91%. Concurrently, Griffin increased Citadel’s Nvidia stake by 194%, adding over 4.7 million shares.
• David Shaw (D.E. Shaw): D.E. Shaw also reduced its Palantir position, selling 8.7 million shares and decreasing its stake by 45%. Similar to Citadel, D.E. Shaw boosted its Nvidia investment by over 50%, acquiring nearly 6 million shares in the same period.

The Rationale Behind Selling Palantir

In April 2023, Palantir introduced its new software suite, the Palantir Artificial Intelligence Platform (AIP), which has significantly boosted the company’s revenue across various sectors. Despite its impressive growth, there is a notable reason some investors choose to sell: valuation.

PLTR PS Ratio data by YCharts

Currently, Palantir trades at a price-to-sales (P/S) ratio of 61. The graph shows a significant valuation increase throughout 2024, positioning Palantir as one of the most expensive software-as-a-service (SaaS) stocks compared to its competitors.

Many analysts believe Palantir stock may be overvalued at this time. With the substantial momentum in its price, it is understandable why Citadel and D.E. Shaw are reducing their holdings.

The Case for Buying Nvidia

Nvidia stands as a core component of the AI infrastructure today, with its graphics processing units (GPUs) being crucial for generative AI development.

Two key factors driving Nvidia’s strong outlook include increased investment in AI infrastructure and the upcoming release of the company’s new GPU architecture, Blackwell.

Similar to the reasons for selling Palantir, Nvidia’s valuation also plays a significant role in investment decisions.

NVDA PE Ratio data by YCharts

Nvidia’s current price-to-earnings (P/E) and price-to-free-cash-flow (P/FCF) multiples are largely consistent with its 10-year averages. As Nvidia has grown significantly over the past decade, its potential for gaining further market share in the rapidly growing AI sector leads some investors to see it as undervalued, making it an attractive option.

Conclusion: Evaluating Wall Street’s Moves

While the choices to sell Palantir and buy Nvidia make sense, the specific motives behind the hedge fund managers’ decisions remain unclear.

As mentioned in earlier analyses, competition in the GPU market may begin to limit Nvidia’s growth in the near future. Therefore, while I own shares in both Palantir and Nvidia, I am hesitant to increase my investments at their current market prices.

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*Stock Advisor returns as of December 2, 2024

Adam Spatacco holds positions in Nvidia and Palantir Technologies. The Motley Fool has positions in and recommends Datadog, MongoDB, Nvidia, Palantir Technologies, ServiceNow, and Snowflake. The Motley Fool adheres to a disclosure policy.

The views expressed here are those of the author and do not necessarily reflect those of Nasdaq, Inc.