Investors are never without numbers on Wall Street. With thousands of publicly traded companies reporting their results every three months and economic data becoming available on a regular basis, it can be easy for something important to slip through the cracks.
On August 14, perhaps the most important data dump of the entire third quarter occurred – and it’s possible you missed it. This was 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 provides an easy-to-understand snapshot of what stocks Wall Street’s most successful money managers bought and sold in the last quarter (in this case, the quarter ending in June).
Although Berkshire Hathaway CEO Warren Buffett is probably the most followed money manager, billionaire Steven Cohen of Point72 Asset Management often causes a stir.
Perhaps the most surprising aspect of Cohen’s hedge fund, which has thousands of positions and more than $38 billion in assets under management, is his and his team’s approach to Wall Street’s darling artificial intelligence (AI). Nvidia (NASDAQ: NVDA).
Cohen dumped almost all of Point72’s stake in Nvidia
At the end of September 2023, Cohen’s fund owned 16,457,320 shares of Nvidia, making it Point72’s fifth-largest stock position by market value (excluding options). I should also mention that this number of shares is adjusted for Nvidia’s historic 10-for-1 stock split, which took place in June 2024.
But over the next nine months, through June 30, Cohen oversaw an 87% reduction in this position to 2,115,018 shares.
With Nvidia shares up 822% since the start of 2023, as of the closing bell on October 11, Cohen’s aggressive selling could mean nothing more than profit-taking and asset reallocation. Then again, there may be more to this story than meets the eye.
For example, it is a given that Nvidia will face increasing competition. Third-party competitors will release new AI graphics processing units (GPUs) in the hope that their hardware can dethrone Nvidia’s ultra-popular H100 and successor AI GPU architecture, Blackwell.
But the bigger problem for Nvidia may be internal competition. The company’s four largest customers by net revenue — Microsoft, Metaplatforms, AmazonAnd Alphabet — are all developing AI GPUs internally for their data centers. Nvidia maintaining its superiority in computing won’t matter much if the easy access to AI GPUs and the cost are more beneficial for these internally developed chips. In other words, this suggests that Nvidia will lose out on future orders from its top customers.
History is another factor that makes Point72’s brightest investment minds, including Steven Cohen, skittish about Nvidia. Every breakthrough technology of the past thirty years, including the Internet, has experienced a bubble-bursting event early in its existence. Investors have a terrible habit of overestimating the introduction of new technologies, which can ultimately lead to disappointment.
No leading company has benefited more directly from the AI revolution than Nvidia. If the AI bubble were to burst, Nvidia’s shares would logically be hit harder than their peers.
The regulatory landscape hasn’t done Nvidia any favors either. In each of the previous two years, US regulators have restricted exports of Nvidia’s powerful AI GPUs to China. Without access to the world’s second-largest economy, Nvidia could lose billions of dollars in sales every quarter.
But while billionaire Steven Cohen and his team have been busy sending Nvidia stock to the chopping block, they’ve definitely piled on a high-flying stock split with undeniable competitive advantages.
Cohen’s Point72 is taking a big bite out of this high-performing stock split
Of the many holdings Cohen oversaw in the quarter ending in June, perhaps none stands out more than the fast-casual restaurant chain Chipotle Mexican Grill (NYSE: CMG). Chipotle completed its first-ever split after the close of trading on June 25. The size of this split, 50 to 1, was one of the largest in the history of the New York Stock Exchange.
During the second quarter, Cohen’s fund bought 1,458,700 shares of Chipotle, increasing its holdings by a whopping 446% to 1,785,950 shares at the end of March. As with Nvidia, this share count has been adjusted to take into account the company’s split.
The lure that probably attracted Point72’s brightest investing minds to take a big bite out of Chipotle’s stock is its many clearly defined competitive advantages.
Differentiation has been a key reason why Chipotle Mexican Grill has been able to stand out in the highly competitive restaurant landscape. The commitment to using responsibly sourced meat that is free of unnecessary antibiotics and sourcing vegetables locally where possible has resonated with consumers.
Just as grocery stores capitalized on the organic/natural food trend two decades ago, Chipotle’s management team quickly realized that its customers would happily pay more for higher quality food. As food costs have risen significantly in recent years, this pricing power has come in particularly handy.
The company’s limited menu also helps it stand out from the crowd. By keeping the menu relatively small, Chipotle allows staff to quickly prepare food and prepare meals to keep the lines moving in stores. Plus, a small menu leads to bigger buzz when new items are introduced.
The lift Chipotle’s business has received from the introduction of Chipotlanes – drive-thru lanes dedicated to fulfilling mobile orders – should also be recognized. Mobile ordering has added a new dimension to the company’s sales channels and helped introduce the brand to Generation Z.
While there’s no denying that Chipotle Mexican Grill has far exceeded expectations since it became a publicly traded company in January 2006, the one aspect that could leave a bad taste in the minds of investors, including Steven Cohen, is its valuation. While Chipotle earns a premium relative to its peers, the company’s price-to-earnings (P/E) ratio of 45 as of October 11 is a bit excessive for a restaurant chain.
Because some of the organic growth is driven by higher prices rather than additional orders, the company’s outsized price-to-earnings ratio becomes even more egregious. After all, there is only a limited degree of innovation that can be expected from a restaurant chain.
Although billionaire Steven Cohen has invested in a truly supercharged block of stocks, the near-term upside potential appears limited.
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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. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Sean Williams holds positions at Alphabet, Amazon and Meta Platforms. The Motley Fool holds positions in and recommends Alphabet, Amazon, Berkshire Hathaway, Chipotle Mexican Grill, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: a long call in January 2026 at $395 at Microsoft, a short call in December 2024 at $54 at Chipotle Mexican Grill, and a short call in January 2026 at $405 at Microsoft. The Motley Fool has a disclosure policy.
Billionaire Steven Cohen sold 87% of Point72’s stake in Nvidia and is piling into this supercharged Stock-Split Stock. Originally published by The Motley Fool
