On Wall Street, investors are never looking for data. We are currently entering a six-week period (also known as ‘earnings season’) where a majority of stocks S&P500 Companies will lift the lid on their most recent quarterly operating results. In addition to a barrage of corporate results, economic figures are released almost daily. It can be easy to miss something important.
On August 14, you may have missed what could easily be described as the most crucial data release of the third quarter. This date marked the filing 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 gives investors a quick snapshot of what Wall Street’s smartest and historically successful money managers bought and sold in the last quarter (in this case, the quarter ending in June).
Although Berkshire Hathaway‘s Warren Buffett may be the most followed of all billionaire money managers, there are more than a dozen high-profile billionaire money managers who are attracting a lot of attention, including Philippe Laffont of Coatue Management.
Laffont’s hedge fund, which focuses primarily on breakthrough technology stocks, ended June with about $25.7 billion in assets under management across 74 holdings.
What might come as a bit of a surprise to investors is that Laffont was a big seller of one of Wall Street’s hottest artificial intelligence (AI) stocks. Palantir Technologies (NYSE:PLTR). As Coatue’s brightest minds, including Laffont, show Palantir to the door, they pounced on a growth stock that stands out in a notoriously slow-growing sector.
Laffont completely abandoned Coatue’s stake in Palantir
Let me preface the following discussion by pointing out that Coatue Management is an actively managed fund. The average top 10 position is held for less than a year. Furthermore, Laffont reduced his fund’s stake in 30 companies and sold the 23 companies completely in the second quarter. In other words, Palantir was far from the only stock sent to the chopping block.
Still, the 4,816,195 shares sold by Coatue represented one of the largest share sales of Palantir stock during the quarter ended in June.
Profit-taking is the most logical reason why Laffont and his team have chosen to pull out the stops. Palantir has been a continuous holding company for Coatue since the first quarter of 2023. At that point, shares could have been purchased for around $8. With Palantir’s shares hovering around the low $20s in the second quarter, it appears Coatue has made a triple-digit profit on his initial bet.
Laffont may also have been skittish about Palantir’s premium valuation. On the one hand, there’s no replacement for the company’s AI-driven Gotham platform, which helps federal governments plan missions and collect data, or for its enterprise-focused Foundry platform. Irreplaceability on a large scale is a quality that Wall Street investors are happy to pay a premium for.
On the other hand, Palantir’s shares are currently at near all-time highs and are valued at nearly 100 times full-year earnings and 29 times full-year revenue. These are eye-popping multiples for a company that is growing revenue at about 20% per year. While Foundry has the potential to accelerate Palantir’s growth again in the future, the company’s valuation premium is almost unjustifiable at this point.
Despite being an artificial intelligence bull, the third reason why Laffont has chosen to dump Coatue’s entire stake in Palantir is the possibility of an AI bubble developing.
Since the Internet started going mainstream some thirty years ago, no breakthrough technology has avoided an early-stage bubble. Without a doubt, investors overestimate how quickly new innovations, trends or technologies will be adopted by consumers and/or businesses. This recipe ultimately leads to disappointment and a bubble bursting event.
Although direct AI players, such as Nvidiawould be hit hardest if the AI ​​bubble burst, Palantir will likely be hampered by a slowdown in AI-related spending.
Laffont’s Coatue Management is jumping into this exciting growth stock
But while Laffont and his team were busy sending Palantir’s stock to the chopping block, they were avid buyers of America’s largest electric utility. NextEra Energy (NYSE: NO).
During the quarter ending in June, Laffont’s fund gobbled up 282,544 more shares of NextEra, boosting Coatue’s holdings by 36% to 1,066,083 shares in three months. If this position were to remain static through the third quarter, it would be worth more than $88 million as of the closing bell on October 15.
Traditionally, the utilities sector has been slow to grow and, for lack of a better word, boring. Investors buy utility stocks for their dividends and the consistency of their cash flow. It is a sector that tends to perform better during periods of economic uncertainty and low interest rates.
But apparently none of this applies to NextEra Energy, which has consistently delivered high-single-digit earnings growth for more than a decade.
The factor that sets NextEra apart from the dozens of other publicly traded, slow-growing utilities is its focus on renewable energy. Management has laid out a plan to invest a total of $85 billion to $95 billion in U.S. infrastructure between 2022 and 2025, most of which is tied to clean energy sources.
As of June 2024, the company had a capacity of 72 gigawatts (GW), of which 34 GW can be attributed to its renewable energy portfolio. No electricity company in the world generates more capacity from solar or wind energy than NextEra.
While investing in the future hasn’t been cheap, it has notably reduced the company’s electricity generation costs and given a tangible boost to its bottom line and dividends. If future policy proposals from Capitol Hill necessitate a green shift for America’s electric utilities, NextEra would be miles ahead.
In addition to low-cost generation and a superior growth rate compared to its competitors, NextEra still enjoys the benefits that come with being an electric utility. This includes being a monopoly or duopoly in the areas it serves and generating predictable cash flow year after year.
The last thing worth mentioning about NextEra is that the other half of the 72 GW of capacity – that is, the traditional electricity operations through Florida Power & Light, which are not powered by renewable energy sources – is regulated by the Florida Public Service. Commission (FPSC). The advantage of being a regulated utility and requiring FPSC approval to increase rates is that it does not guarantee exposure to wholesale electricity prices.
NextEra Energy may not be a traditional “growth” stock, but it has a long track record of delivering results for its shareholders.
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Sean Williams has positions in NextEra Energy. The Motley Fool holds positions in and recommends Berkshire Hathaway, NextEra Energy, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.
Billionaire Philippe Laffont sold Coatue’s entire stake in Palantir and is instead diving into an exciting growth stock. originally published by The Motley Fool
