While there is no shortage of information on Wall Street, perhaps no publication is more meaningful than the quarterly filing of Form 13Fs.
A 13F is a required filing with the Securities and Exchange Commission for institutional investors with at least $100 million in assets under management. It’s a tool that allows investors to see which stocks Wall Street’s smartest money managers have been buying and selling.
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While Warren Buffett’s Berkshire Hathaway While investors expect the most every quarter, the Oracle of Omaha isn’t the only billionaire investor making waves on Wall Street.
Image source: Getty Images.
For example, billionaire Ken Griffin of Citadel is another Wall Street success story that investors are paying a lot of attention to. Even though Citadel often hedges its common stock positions with put and call options, and with short-held options contracts, which would not appear on a 13F, it is still one of the most anticipated 13Fs each quarter.
During the quarter ended in June, Citadel’s hedge fund made some headline-grabbing moves into Wall Street’s hottest artificial intelligence (AI) stocks.
It’s easy to see why top asset managers are intrigued by the AI revolution. The ability of AI-powered software and systems to become more proficient at their assigned tasks, or even learn new tasks without human intervention, makes this technology useful in virtually every sector around the world. That’s why PwC analysts expect AI to add $15.7 trillion to the global economy by 2030.
With the understanding that Citadel’s hedge fund has hedged its positions with options contracts, its 13F shows that holdings in AI-powered data mining specialist Palantir Technologies(NYSE:PLTR) and colossal AI networking solutions Broadcom(NASDAQ:AVGO) rose 1,140% and 64% respectively during the quarter ending in June.
Aside from their continued double-digit revenue growth, perhaps their biggest selling point is that they are irreplaceable.
Palantir has two core businesses: Gotham and Foundry. The first is an AI-powered platform that collects data and helps plan and execute missions for federal governments. Meanwhile, Foundry is the AI and machine learning (ML)-powered platform that helps companies make sense of large amounts of data with the aim of streamlining their operations. No large-scale company comes close to what Palantir can offer, which provides some cash flow certainty.
By comparison, Broadcom’s networking solutions have become a top option in AI-accelerated data centers. The Jericho3-AI fabric can connect up to 32,000 graphics processing units (GPUs) to maximize their computing potential and reduce tail latency, which is critical when split-second decision making is needed.
Equally important, both companies have businesses that are not completely dependent on AI. While Palantir Technologies integrates AI and ML into its Gotham and Foundry platforms, it is not a pure AI company. For example, if an AI bubble were to form and burst, demand for Palantir’s services would in no way disappear or necessarily decrease.
Something similar can be said for Broadcom. While AI has played a key role in recent revenue growth, this company is more than just AI networking solutions. For example, Broadcom is a major supplier of wireless chips and accessories for smartphones. It is also a supplier of optical components used in industrial equipment and offers cybersecurity solutions.
However, Citadel’s brightest investing minds weren’t buyers of all AI stocks in the second quarter.
Image source: Getty Images.
With most AI stocks on the rise, Griffin’s fund has cut 79% of its stake in Wall Street’s most valuable company as of the closing bell on Nov. 8. Nvidia(NASDAQ: NVDA). I would like to emphasize again that Citadel hedges its positions with put and call options, and may also have other hedges that are not disclosed in a 13F.
Nvidia has built more than $3 trillion in market cap since the start of 2023, and investors don’t have to look far to understand why. While it has other established operating lines, including GPUs used in gaming and cryptocurrency mining, as well as virtualization software, the lion’s share of Nvidia’s revenue growth is tied to its AI GPUs.
According to TechInsights estimates, Nvidia was responsible for 98% of GPUs shipped to data centers in 2022 and 2023, and it seems unlikely to give up much of its market share this year. Orders for the company’s flagship H100 and its successor Blackwell GPU have lagged, giving the company exceptional pricing power.
But there are a number of viable reasons, beyond mere profit-taking, that may have prompted Griffin and his team to reduce their common stock stake in Nvidia.
As I’ve suggested before, history is Nvidia’s biggest potential enemy. There hasn’t been a next-big-thing innovation or technology in at least thirty years that has avoided a bubble burst early in its existence. The simple fact that most companies don’t have a clear plan or direction with their AI investments is a glaring warning that AI has no use to support Nvidia’s near-parabolic move up.
Griffin and his advisers may also be concerned about increased competition coming from all angles at Nvidia. While most investors are probably focused on rivals like Advanced micro devices By ramping up AI GPU production and introducing new chips, perhaps the biggest concern is internal competition. A majority of Nvidia’s top customers by net revenue are developing AI GPUs in-house for their data centers. Even if Nvidia’s GPUs maintain their computing advantage, it could still lose valuable data center real estate.
Insider trading activity is another potential red flag for Nvidia stock. While not all insider selling activity indicates trouble, insiders haven’t bought Nvidia stock on the open market in almost four years. If company executives and directors don’t see value in Nvidia stock, why should Citadel’s investment team?
Suffice to say, at its current valuation, Nvidia has a lot to prove.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, Berkshire Hathaway, Nvidia, and Palantir Technologies. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
Citadel Billionaire Ken Griffin Gets Into Palantir and Broadcom, Selling Shares of Wall Street’s Artificial Intelligence (AI) Darling was originally published by The Motley Fool
