Though there’s no shortage of information on Wall Street, perhaps no data release has more bearing than the quarterly filing of Form 13Fs.
A 13F is a required filing with the Securities and Exchange Commission for institutional investors with at least $100 million in assets under management. It’s a tool that allows investors to see which stocks Wall Street’s smartest money managers have been buying and selling.
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For instance, billionaire Ken Griffin of Citadel is another Wall Street success story investors play close attention to. Even though Citadel often hedges its common-stock holdings with put and call options, as well as options contracts held short, which wouldn’t show up on a 13F, it’s nevertheless one of the most-awaited 13Fs each quarter.
During the June-ended quarter, Citadel’s hedge fund made a number of eye-opening moves in Wall Street’s hottest artificial intelligence (AI) stocks.
It’s easy to see why top-tier asset managers are intrigued by the AI revolution. The ability for AI-driven software and systems to become more proficient at their assigned tasks, or even learn new tasks without human intervention, gives this technology utility in almost every industry across the planet. It’s why the analysts at PwC expect AI to add $15.7 trillion to the worldwide economy by 2030.
With the understanding that Citadel’s hedge fund has hedged its positions with options contracts, its 13F shows that stakes in AI-fueled data-mining specialist Palantir Technologies(NYSE: PLTR) and AI networking solutions colossus Broadcom(NASDAQ: AVGO) were increased by 1,140% and 64%, respectively, during the June-ended quarter.
Aside from their sustained double-digit sales growth, perhaps their top selling point is that they’re irreplaceable.
Palantir has two core operating segments: Gotham and Foundry. The former is an AI-powered platform that collects data and helps with mission planning and execution for federal governments. Meanwhile, Foundry is the platform driven by AI and machine learning (ML) that helps businesses make sense of copious amount of data, with the goal of streamlining their operations. No company at scale comes close to offering what Palantir can, which provides a degree of safety to its cash flow.
Comparatively, Broadcom’s networking solutions have become a top option in AI-accelerated data centers. The Jericho3-AI fabric can connect up to 32,000 graphics processing units (GPUs) to maximize their computing potential and reduce tail latency, which is critical when split-second decision-making is needed.
Equally important, both companies have operations that aren’t entirely dependent on AI. While Palantir Technologies incorporates AI and ML into its Gotham and Foundry platforms, it’s not a pure-play AI company. If, for instance, an AI bubble was to form and burst, the demand for Palantir’s services wouldn’t go away or necessarily taper in any way.
Something similar can be said for Broadcom. Although AI has played a key role in its recent sales growth, there’s more to this company than just AI networking solutions. For example, Broadcom is an important provider of wireless chips and accessories for smartphones. It’s also a supplier of optical components used in industrial equipment and provides cybersecurity solutions.
However, Citadel’s brightest investment minds weren’t buyers of all AI stocks during the second quarter.
Image source: Getty Images.
With most AI stocks flying, Griffin’s fund pared down 79% of its stake in Wall Street’s most-valuable company, as of the closing bell on Nov. 8, Nvidia(NASDAQ: NVDA). Once again, I want to emphasize that Citadel hedges its positions with put and calls options, and may have other hedges that aren’t published in a 13F.
Nvidia has tacked on well over $3 trillion in market cap since the start of 2023, and investors don’t have to look hard to understand why. Though it has other established operating lines, including GPUs used in gaming and cryptocurrency mining, as well as virtualization software, the lion’s share of Nvidia’s sales growth is tied to its AI-GPUs.
According to estimates from TechInsights, Nvidia accounted for 98% of GPUs shipped to data centers in 2022 and 2023, and seems unlikely to relinquish much of its market share this year. Orders for the company’s flagship H100 and successor Blackwell GPU are backlogged, which have provided the company with exceptional pricing power.
But there are a couple of viable reasons, beyond simple profit-taking, which may have encouraged Griffin and his team to reduce their common-share stake in Nvidia.
As I’ve previously suggested, history is Nvidia’s biggest potential enemy. There hasn’t been a next-big-thing innovation or technology for at least 30 years that’s avoided a bubble-bursting event early in its existence. The simple fact that most businesses lack a clear plan or direction with their AI investments is a glaring warning that AI lacks the utility to support Nvidia’s nearly parabolic move higher.
Griffin and his advisors might also be concerned about increased competition coming at Nvidia from all angles. While most investors are likely focused on rivals like Advanced Micro Devices ramping up AI-GPU production and introducing new chips, the bigger worry might just be internal competition. A majority of Nvidia’s top customers by net sales are internally developing AI-GPUs for their data centers. Even if Nvidia’s GPUs maintain their computing advantage, it can still lose valuable data-center real estate.
Insider trading activity is another potential red flag for Nvidia’s stock. Although not all insider selling activity points to trouble, there hasn’t been an open-market purchase of Nvidia’s stock by insiders in almost four years. If company executives and directors don’t see value in Nvidia’s stock, why should Citadel’s investment team?
Suffice it to say, Nvidia has a lot to prove at its current valuation.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Berkshire Hathaway, Nvidia, and Palantir Technologies. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
