Investors were given an almost impossible task in November of keeping up with important data releases. Between earnings season, Election Day, and the usual allotment of monthly economic reports, it would have been easy to miss a key announcement.
For example, investors may have overlooked that Nov. 14 was the deadline for institutional investors with at least $100 million in assets under management (AUM) to file Form 13F with the Securities and Exchange Commission. A 13F provides investors with a snapshot of which stocks Wall Street’s most-prominent money managers purchased and sold in the latest quarter.
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Investors can use 13Fs to mirror the trading activity of top-tier asset managers, such as Berkshire Hathaway‘s Warren Buffett, or they can use these filings as a means to discover which stocks, industries, sectors, and trends are piquing the interest of Wall Street’s smartest investors.
One billionaire investor who’s rightly earned a lot of attention is Lone Pine Capital’s Stephen Mandel. As of the end of September, Mandel was overseeing $13.4 billion in AUM, which was spread across 29 stocks.
What’s particularly noteworthy about Mandel’s trading activity is that he’s been steadily showing shares of global chip fabricator Taiwan Semiconductor Manufacturing(NYSE: TSM) to the door, all while piling into the one of the most-beloved global consumer brands.
No trend has been hotter in 2024 than the rise of artificial intelligence (AI). In Sizing the Prize, the analysts at PwC are forecasting a 26% increase in global gross domestic product by 2030 solely from the effects of AI.
While direct players like Nvidia have enjoyed the spoils of the AI revolution, companies like Taiwan Semiconductor Manufacturing are playing a close second fiddle. With orders for Nvidia’s graphics processing units (GPUs) growing at a breakneck pace, Taiwan Semi is dramatically increasing its chip-on-wafer-on-substrate production capacity to help Nvidia and other GPU makers meet demand.
Despite Taiwan Semi’s seemingly perfect positioning as the world’s leading chip fabrication company, Mandel’s fund has been an active seller. Over the previous four quarters (ended Sept. 30), Lone Pine Capital has dumped 3,587,291 shares of its Taiwan Semi stake, which equates to a 46% cumulative reduction.
Although Taiwan Semi appears poised to benefit over the long run from the ongoing ramp-up in AI-accelerated data center infrastructure, there are three catalysts, beyond simple profit-taking, which may explain why Mandel and his top advisors have nearly halved their stake in this trillion-dollar chip-fab company.
The first potential concern for Lone Pine’s brightest investment minds is the possibility of an artificial intelligence bubble taking shape and bursting. There hasn’t been a next-big-thing innovation for at least three decades that’s avoided a bubble-bursting event early in its expansion. Put another way, investors have a terrible habit of overestimating how quickly a new technology or innovation will be adopted by consumers/businesses and gain mainstream utility. We’re nowhere close to mainstream adoption for AI, which opens the door for a possible demand cliff if the bubble bursts.
A second catalyst that may have coerced Mandel and his team to send close to 3.6 million shares of Taiwan Semi to the chopping block over the last year is regulatory concerns. The Joe Biden administration has made it difficult to ship high-powered AI chips and equipment to China. Likewise, the incoming Donald Trump administration is expected to impose tariffs on imports into the U.S. These grey clouds may keep Taiwan Semi from reaching its full potential.
The third and final impetus behind this selling activity might be the company’s valuation. On the surface, Taiwan Semiconductor Manufacturing still appears reasonably cheap at 23 times forward-year earnings. But dig deeper and you’ll find that Taiwan Semi is trading at 50% premium to its average price-to-cash-flow ratio over the trailing-five-year period.
Image source: Starbucks.
Mandel and his team have also done quite a bit of buying as the stock market’s major indexes have ascended to new highs. Among Lone Pine Capital’s nine new additions during the September-ended quarter, arguably none stands out more than world-leading coffee chain Starbucks(NASDAQ: SBUX).
Lone Pine’s 13F shows that Mandel oversaw the purchase of 4,050,850 shares of Starbucks stock during the third quarter, which made it the fund’s 18th-largest position by market value.
Mandel’s attraction to Starbucks likely has to do with the company working its way through some difficulties, which had been reflected in its share price until the midpoint of August — this is a point I’ll touch on in greater detail in a moment. Starbucks has struggled in China, the company’s No. 2 market behind the U.S., and has delivered a year-over-year decline in same-store sales for three consecutive quarters. In spite of these challenges, there are reasons to believe Starbucks can get its act together and deliver for its shareholders.
Arguably Starbucks’ biggest catalyst was luring Chipotle Mexican Grill‘s former CEO Brian Niccol to become its new chief. Chipotle’s profits soared under Niccol’s tenure, with the company focusing on process efficiency and innovation to deliver outsized gains for shareholders.
Niccol was announced as the new CEO in mid-August, which is what caused Starbucks’ stock to soar. Since taking the helm, he’s laid out a multipoint plan designed to get Starbucks back to its roots. In particular, Niccol plans to address order bottlenecks in stores by relying on technology, as well as revamping the company’s supply chains to better meet store and customer needs.
Furthermore, Niccol aims to simplify the company’s menu and rework the mobile ordering platform to make it less complex. Starbucks closed out its fiscal year (ended Sept. 29) with 33.8 million active U.S. Rewards Memberships, and it’s imperative that Niccol keeps these higher-margin customers coming back for more. Rewards members often have larger tickets than non-members, and they’re more likely to use mobile ordering, which keeps lines moving faster.
The other factor that shouldn’t be overlooked is that Starbucks has needed to reinvent itself before, and it’s previously succeeded. This is a well-known global brand that often possesses exceptional pricing power on the food and beverages it serves and sells.
While Starbucks has a lot to prove to grow into its current valuation following its recent slipups, its long-term track record and accomplished CEO suggest it can be done.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Chipotle Mexican Grill, Nvidia, Starbucks, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: short December 2024 $54 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
