Investors are rarely left at a loss as a result of major data releases on Wall Street. Earnings season brings a flurry of corporate results for many of America’s most important companies, with economic data released almost daily Monday through Friday. But every now and then, one of these meaningful data dumps can slip through the cracks.
For example, August 14 marked the deadline for institutional investors with at least $100 million in assets under management to file Form 13F with the Securities and Exchange Commission — and chances are you missed it. A 13F provides an under-the-hood look at which stocks Wall Street’s top money managers bought and sold last quarter (in this case, the August 14 filings detailed trading activity for the quarter ending in June).
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Although Berkshire Hathaway‘s Warren Buffett is an investor favorite, there are other billionaire money managers making waves. One of these highly regarded billionaires is Israel Englander of Millennium Management, who at the end of June oversaw an investment portfolio of nearly $216 billion spread across thousands of securities, including put and call options.
Despite running a terribly active hedge fund, a handful of trades stand out for Englander, including dumping a high-performing ultra-high yield dividend stock and piling into a struggling artificial intelligence (AI) company.
Of the thousands of positions Englander and his team have cut, perhaps the one that raises the most eyebrows is the sales activity we’ve seen in the first six months of 2024 at the telecom titan. AT&T(NYSE:T). Despite the company’s shares being up 49% on a total return basis (including the juicy 5% yield) over the past year, Englander has roughly 40% of his fund’s stake in AT&T this year (8,979,263 shares) sent to the chopping block.
Profit taking is one of the reasons why Millennium’s brightest investing minds have hit the sell button. It’s not often that AT&T achieves a total return of almost 50% over a twelve-month period. Although the price-earnings ratio (P/E) of 10 is still well below that of the benchmark S&P500it is currently trading at a price of 24% premium to the average future price-earnings ratio over the past five years.
It’s also possible that Englander and his advisers are concerned about an increase in legal costs for AT&T. In July 2023, an investigation report from the Wall Street Journal suggested that AT&T and other legacy telecom companies could incur financial liabilities related to their use of lead-sheathed cables. Despite AT&T refuting these findings, there may still be some degree of overhang or uncertainty.
But as an AT&T shareholder, I find Millennium’s actions to be a bit of a headache. While AT&T’s heyday is long gone, the shift to 5G download speeds has led to a modest but steady growth cycle across most facets of the company’s business. Wireless service revenues are increasing at a low to mid-single-digit rate, while churn remains at or near all-time lows. Over time, access to wireless services and broadband has become a basic necessity.
Speaking of broadband, it has quickly become a major source of operating cash flow for AT&T. By upgrading its broadband services to support 5G download speeds, the company could report at least 1 million net broadband customers for the seventh year in a row.
Additionally, AT&T has made significant progress with its balance sheet since spinning off its content arm WarnerMedia in April 2022. When WarnerMedia merged with Discovery to create the media goliath we now know as Warner Bros. Discoverythis new entity was responsible for assuming debt and making payments to AT&T totaling $40.4 billion. As of March 31, 2022, AT&T’s net debt has fallen from $169 billion to $125.8 billion as of September 30, 2024.
While I don’t expect AT&T to outperform the S&P 500 on a regular basis, I suspect Millennium will eventually regret scaling back its bet.
At the other end of the spectrum, perhaps the most, in retrospect, puzzling major purchase that Englander and his team at Millennium Management made during the quarter ended in June is the customizable rack server and storage solutions company. Super microcomputer(NASDAQ: SMCI).
Millennium’s 13F shows that 5,533,230 shares were purchased, increasing the fund’s stake in Super Micro by more than 800%. Please note that this stock data has been adjusted for Super Micro Computer’s first-ever split (10-to-1) after the close of trading on September 30.
On paper, Super Micro seems like nothing short of a no-brainer purchase. Companies eager to take advantage of the artificial intelligence revolution are spending a lot of money on the infrastructure needed to make that happen. Super Micro has clearly been the beneficiary, as evidenced by its fiscal 2024 (ending June 30, 2024) operating results and guidance. Revenue rose 110% to $14.94 billion in the most recent fiscal year, with expected revenue of $26 billion to $30 billion for the current year.
Another factor that has made Super Micro Computer particularly popular among companies wanting to be at the forefront of innovation is the integration of Nvidia‘s ultra-popular H100 graphics processing units in its customizable rack servers.
But there are two sides to every story. While the company uses top-of-the-line hardware from Nvidia, it is also at the mercy of its suppliers. With orders for the H100 lagging behind, Super Micro may not be able to meet all the demand for its products.
The bigger problem, however, appears to be the perceived reliability of the company’s financial statements. In late August, well-known short seller Hindenburg Research released a report alleging, among other things, that Super Micro had committed “accounting manipulation, sibling self-dealing and sanctions evasion.” Despite denying these claims, the company has postponed the filing of its annual report.
There has been somewhat of a snowball effect since Hindenburg published his short seller report. According to the WJthe U.S. Department of Justice is conducting an early investigation into Super Micro’s accounting practices. In addition, accounting firm Ernst & Young recently resigned, raising additional questions about the company’s financial statements.
While Super Micro’s potential is clearly visible, there’s no reason for investors to consider dipping their toes in the water until this ever-growing gray cloud over the company’s accounting practices is cleared.
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Sean Williams holds positions at AT&T and Warner Bros. Discovery. The Motley Fool holds positions in and recommends Berkshire Hathaway, Nvidia and Warner Bros. Discovery on. The Motley Fool has a disclosure policy.
Billionaire Israel Englander sold 40% of Millennium’s stake in AT&T and is instead piling into this troubled artificial intelligence (AI) stock. originally published by The Motley Fool
