Billionaire Israel Englander is the CEO of Millennium Management, the second most profitable hedge fund in history in terms of net profit since inception, according to LCH Investment. That makes Englander a good source of inspiration for private investors, and he made some interesting transactions in the third quarter.
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Englander sold 1.6 million shares Nvidia (NASDAQ: NVDA)reducing his position by 13%. Nvidia stock has returned 705% over the past two years.
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Englander bought 213,096 shares of AppLovin (NASDAQ: APP)increasing his stake by 43%. AppLovin shares have returned 2,260% over the past two years.
What makes these trades interesting is that Wall Street analysts generally see significant upside in Nvidia, but they also see downsides in AppLovin, as detailed below:
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Of the 67 analysts covering Nvidia, the average price target is $175 per share. That implies an upside of 26% from the current share price of $138.
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Of the 30 analysts who follow AppLovin, the average price target is $303 per share. That implies a 10% downside to the current share price of $336.
One explanation for Englander’s trades is that he knows something that most Wall Street analysts have overlooked. Alternatively, the transactions mentioned above were made in the third quarter, but we are now a few months into the fourth quarter, so England could buy Nvidia and sell AppLovin.
Here’s what investors need to know.
ChatGPT’s launch in late 2022 was the spark that ignited the artificial intelligence (AI) boom, and Nvidia is one of the biggest winners. The company’s graphics processing units (GPUs) are the gold standard in accelerating data center workloads such as AI. And its dominance is rooted not only in superior performance, but also in a more robust ecosystem of software development tools.
Nvidia delivered another beat-and-raise performance in the third quarter of fiscal 2025. Revenue rose 94% to $35 billion and non-GAAP earnings rose 103% to $0.81 per diluted share. Analysts expected growth of 84% and 88% respectively. Additionally, Nvidia estimates that fourth-quarter revenue will rise 70%, above Wall Street’s expected 68% growth.
Looking ahead, CEO Jensen Huang sees a $1 trillion opportunity by 2030 as data centers transition from general purpose computing to accelerated computing. But Huang also sees new opportunities as some companies evolve into AI factories, a term that refers to large-scale computing environments built specifically for AI. For context, spending on AI hardware, software and services is expected to increase 36% annually through 2030.
Against that backdrop, Wall Street expects Nvidia’s revenues to rise 38% annually over the next three years. That makes the current valuation of 54.4 times earnings seem very reasonable. That begs the question: why did Israel Englander sell the stock in the third quarter? I can only speculate about his reasoning, but one possibility is that Nvidia stock looked less attractive at the time.
Specifically, Wall Street’s three-year third-quarter earnings forecasts called for annual growth of 35%, and shares traded at an average valuation of 60 times earnings. Put another way, analysts expected slower earnings growth and the stock was trading at a higher earnings multiple. Both figures have improved since then, so Britain could buy Nvidia stock in the current quarter.
AppLovin provides advertising technology software that allows mobile app developers to market and monetize their applications. The company also provides software tools that serve the same purpose for connected TV (CTV) publishers. Additionally, AppLovin recently launched an e-commerce marketing product that allows brands to reach consumers through mobile advertising.
AppLovin has differentiated itself with Axon, a constellation of predictive machine learning algorithms that target advertising content with high precision. Last year, the company introduced a more advanced model called Axon 2.0, and its improved recommendation capabilities have boosted ad spend on the platform.
As a result, AppLovin reported excellent financial results in the third quarter, exceeding expectations on the top and bottom lines. Revenue rose 39% to $1.2 billion, and GAAP net income more than quadrupled to $1.25 per diluted share. Management attributed the strong quarter to improvements in the Axon models.
Importantly, AppLovin introduced a pilot of its new e-commerce advertising product earlier this year. CEO Adam Foroughi said during the third-quarter earnings call that it was the best and fastest-growing product in the company’s history. He expects revenue in the core mobile gaming business to grow 20% to 30% annually, and says the e-commerce advertising product is a positive contributor to that estimate.
Wall Street expects AppLovin’s revenues to grow 25% annually over the next three years. That makes the current valuation of 102 times earnings expensive. So why did Israel Englander buy the stock in the third quarter? My assessment here is the exact opposite of what I speculated about Nvidia: AppLovin stock looked more attractive in the third quarter.
Specifically, Wall Street’s three-year earnings forecast called for annual growth of 28%, and the stock traded at an average valuation of 39 times earnings. In other words, analysts expected AppLovin’s profits to rise faster and its valuation to be cheaper. While I think AppLovin has a bright future, that’s why Englander could sell shares in the fourth quarter.
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Trevor Jennevine has positions at Nvidia. The Motley Fool holds and recommends positions in AppLovin and Nvidia. The Motley Fool has a disclosure policy.
Does Billionaire Israel Englander Know Something Wall Street Missed? He’s Selling Nvidia Stock, Buying AI Stock That’s Up 2,260% Since 2022 Originally published by The Motley Fool
