Billionaire Israel Englander founded Millennium Management in 1989. The company has since become the second most successful hedge fund in history (after Ken Griffin’s Citadel) in terms of net profit since inception, according to LCH Investments. That makes Englander a good source of inspiration for individual investors.
In the second quarter, Englander sold 7.7 million shares Palantir Technologies (NYSE:PLTR)reducing his position by 59%. He simultaneously purchased 553,323 shares of Super microcomputer (NASDAQ: SMCI)increasing his stake by 807%. Both stocks have more than doubled since January 2023, although England apparently had more conviction in Super Micro in the June quarter.
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Here’s what investors need to know.
Palantir specializes in big data analysis. Its flagship software products, Foundry and Gotham, enable companies to collect data, develop machine learning (ML) models, and surface insights through analytics applications. The adjacent artificial intelligence (AI) platform, AIP, provides support for large language models (LLMs) and generative AI in the core software.
In August, Forrester research recognized Palantir as a leader in artificial intelligence and machine learning platforms, calling AIP “one of the strongest offerings in AI/ML.” In September, Dresner Advisory Services listed Palantir as one of the top-rated vendors in a market study of artificial intelligence, data science and machine learning software.
Palantir announced excellent financial results in the third quarter, exceeding Wall Street expectations on both revenue and profit. Revenue rose 30% to $726 million, the fifth consecutive acceleration, and non-GAAP earnings rose 43% to $0.10 per diluted share. On the earnings call, CFO Dave Glazer attributed the strong performance to “unprecedented demand” for AIP.
Looking ahead, the International Data Corp. estimates (IDC) that spending on AI platforms will increase 41% annually through 2028. That will undoubtedly be a boost for Palantir, but a strong presence in a fast-growing market doesn’t necessarily make Palantir a good stock to buy. Investors seem to be ignoring the company’s unsustainable valuation.
Wall Street expects Palantir’s adjusted profits to rise 27% annually through 2025. That makes the current valuation of 168 times adjusted earnings absurdly expensive. Indeed, Wall Street has set the stock at a 12-month average price target of $38 per share. That implies a 36% downside from the current share price of $59. Investors should avoid this stock now.
Super Micro Computer builds servers, including complete server racks equipped with storage and networking that provide turnkey solutions for data center infrastructure. The company often beats competing equipment manufacturers to the market when suppliers want it to Nvidia And AMD launching new chips thanks to in-house technical expertise and a unique modular approach to product development.
That advantage has helped Super Micro gain a dominant position in AI servers, a market expected to grow 30% annually over the next decade. The company has also positioned itself as one of the early leaders in direct liquid cooling technology, a more efficient alternative to traditional air cooling. Analysts expect explosive demand for liquid-cooled servers as power-hungry AI infrastructure becomes more prevalent.
However, Super Micro has run into potentially serious problems. In August, short seller Hindenburg Research accused the company of accounting manipulation. CEO Charles Liang dismissed the allegations, but Super Micro delayed the filing of its Form 10-K for fiscal year 2024 and has not yet resolved the issue. Importantly, the company was accused of similar misconduct several years ago and was ultimately fined $17.5 million in 2020.
In September, The Wall Street Journal reported that the Department of Justice was investigating Super Micro based on allegations made by a former employee. Details are scarce, but the allegations appear to mirror Hindenburg’s. The situation continued to deteriorate in October when the company’s accountant, Ernst & Young, resigned, saying he was “unwilling to be associated with the financial statements prepared by management”.
To be fair, it’s possible that Super Micro did nothing wrong. The allegations may be false and the accountant may have resigned due to the complexity of the situation. But investors simply don’t have enough information to make an informed decision, so the stock is best avoided (or sold) for now. I wouldn’t be surprised if Israel Englander had sold its entire position in Super Micro since the end of the second quarter.
Consider the following before purchasing shares in Palantir Technologies:
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Trevor Jennewine holds positions at Nvidia and Palantir Technologies. The Motley Fool holds positions in and recommends Advanced Micro Devices, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.
Palantir Stocks vs. Super Micro Stocks: Billionaire Israel Englander Buys One and Sells the Other. was originally published by The Motley Fool
