Less than two weeks ago, Wall Street and investors were aware of one of the most important figures for the fourth quarter – and NoI’m not talking about the October inflation report.
No later than 45 days after the end of a quarter, institutional investors with at least $100 million in assets under management (AUM) must file Form 13F with the Securities and Exchange Commission. A 13F gives ordinary investors a way to track what stocks Wall Street’s top money managers bought and sold last quarter (in this case, the quarter ending in September).
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While the highlight of the 13F filing season is usually Warren Buffett’s Berkshire HathawayThere’s no shortage of billionaire investors who have dazzled Wall Street over the years. Billionaire Israel Englander of Millennium Management, who oversees nearly $211 billion in assets under management across thousands of securities (common stocks and options), is a perfect example.
Among the thousands of trades executed by Englander and his top advisors, two contrarian trades stand out. In one respect, Englander has been a decisive seller of Wall Street’s top artificial intelligence (AI) stocks. Nvidia (NASDAQ: NVDA). By comparison, he’s piled into a struggling healthcare stock whose dividend yield is approaching a scorching hot 12%!
Since the page moved to 2023, AI giant Nvidia has become virtually unstoppable. Shares are up 871% as of the closing bell on Nov. 22, with the company’s market value increasing by more than $3.1 trillion. Wall Street has never witnessed a market-leading company value increase so quickly. Perhaps this is what sparked Millennium’s sell-off spree.
Based on 13F filings, the UK fund sold 26,371,575 Nvidia split shares over the past year ending September 30. The split-adjusted aspect refers to Nvidia executing a historic 10-for-1 stock split after the close of trading on June 7. Millennium’s remaining 11.15 million shares of Nvidia mean its position has shrunk by 70% in a year.
The wind in Nvidia’s sails is fueled by its dominance in AI-accelerated data centers. Demand for the company’s H100 graphics processing unit (GPU) and next-generation Blackwell chip has overwhelmed supply, leading to exceptional pricing power and an overwhelming 74.6% gross margin at the end of the fiscal third quarter ( October 27). , 2024).
Furthermore, Nvidia’s GPUs have collectively proven superior to competing hardware in terms of computing power. Because Nvidia’s CUDA software platform keeps customers loyal to its ecosystem and its compute-performing GPUs, it has had little trouble exceeding Wall Street’s already high consensus growth forecasts.
But a perfect storm could be brewing for Nvidia, which could explain Englander’s continued selling activity in Wall Street’s AI darling.
One of the biggest indicators that Nvidia stock has been outperformed is its gross margin. While the AI GPU shortage and higher prices for the H100 pushed the company’s gross margin to more than 78% in the first fiscal quarter, it subsequently rebounded to 75.1% in the second quarter and 74.6 % in the last quarter. Nvidia’s fiscal fourth quarter forecast puts gross margin between 73% and 73.5%, +/- 50 basis points. This steady decline in gross margin would imply that the AI GPU scarcity is waning, along with Nvidia’s pricing power.
Nvidia also faces competition from all sides. Although direct competitors, such as Advanced micro devicesthat are attracting the most attention, the bigger threat to Nvidia’s data center “real estate” likely comes from within. Many of the top customers by net revenue, who are members of the Magnificent Seven, are developing AI GPUs in-house for use in their data centers. Even if Nvidia’s chips have computing advantages, these internally developed chips are cheaper and easier to access.
History could be the other catalyst that pushes Englanders to cash in their chips. At no point in the last thirty years have we witnessed a potentially game-changing technology that avoided an early-stage bubble. The Internet, genome decoding, 3D printing and the metaverse are just a few examples of critically acclaimed developments where investors overestimated their utility and adoption early on. If history were to rhyme and the artificial intelligence bubble burst, no company would take this on more than Nvidia.
But while Israel Englander has been sending shares of the world’s hottest AI stocks to the chopping block, he’s been busy buying shares in the pharmacy chain Walgreens Boots Alliance (NASDAQ: WBA)which is trading at levels last seen at the end of the 20th century, delivering returns of over 11.5%!
During the quarter ending September, the UK fund bought 5,138,342 shares of Walgreens, increasing its position by a whopping 953% in just three months! It should be noted that Millennium typically hedges its common stock holdings with put and call options, which is the case with both Nvidia and Walgreens Boots Alliance.
To say that business has been challenging for Walgreens would be nothing short of an understatement. It is facing growing pressure on online pharmacies from, among others Amazonhas faced complications (i.e. significant write-downs) in its efforts to become a healthcare company, and its bottom line has even been negatively affected by theft in certain markets.
Despite these challenges, which have lowered Walgreens Boots Alliance’s stock price by more than 90% since it hit an all-time high, Englander and his team have succeeded.
One of the key catalysts for Walgreens was the appointment of Tim Wentworth as CEO in October 2023. While former CEO Rosalind Brewer was a seasoned retail leader but had no healthcare experience, Wentworth brings decades of healthcare leadership with themselves along. While his scam approach has been a bit of a shock to Wall Street and investors, he hasn’t been shy about laying out his long-term vision for Walgreens.
Currently, the company is focusing on reducing costs and advancing higher-margin initiatives. The plan is to close 1,200 of its approximately 8,500 U.S. stores over the next three fiscal years, which will reduce operating costs and focus the company’s efforts on areas of greater opportunity.
Additionally, Wentworth plans to continue advancing the transition to healthcare services. While the partnership and investment in VillageMD has resulted in significant write-downs, Walgreens’ president believes the company is on a path to recurring profitability from its co-located primary care clinics.
At the time of writing, Walgreens Boots Alliance yields an almost unfathomable 11.5%. However, with Walgreens in the midst of cost-cutting and the company attempting a multi-year turnaround, it wouldn’t be surprising if this payout were reduced again or suspended entirely to conserve cash.
While I believe Walgreens Boots Alliance has the resources to effect a turnaround, it will be a slow process full of holes and speed bumps.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Sean Williams has positions in Amazon and Walgreens Boots Alliance. The Motley Fool holds positions in and recommends Advanced Micro Devices, Amazon, Berkshire Hathaway, and Nvidia. The Motley Fool has a disclosure policy.
Billionaire Israel Englander sold 70% of Millennium’s stake in Nvidia, plunges into supercharged dividend stock with nearly 12% yield originally published by The Motley Fool
