Wealthy Individuals Offload 2022's Leading AI Stocks with Top Performance. Could This Signal a Caution for Financiers?
Wealthy Individuals Offload 2022's Leading AI Stocks with Top Performance. Could This Signal a Caution for Financiers?
Automated intelligence (AI) has emerged as the most popular investment trend globally recently. Investors have been pouring money into AI-related stocks, those developing the technology and those utilizing it, with hopes that AI will transform both businesses and daily lives.
The current $200 billion AI market is expected to reach a staggering $1 trillion by 2030, presenting tremendous opportunities for forward-thinking companies. Consequently, these AI stocks have contributed to the growth of the S&P 500, contributing to its confirmation of a bull market earlier this year.
Billionaire investors have spearheaded this movement, investing heavily in top AI players and emerging ones, with other investors closely monitoring their moves for future insights. These successful investors have consistently proven their abilities to identify trends and the most promising investment opportunities.
This leads to a significant event in the third quarter, with billionaire investors selling shares of two top-performing AI stocks this year: Nvidia (NVDA -1.81%) and Palantir Technologies (PLTR 6.22%). Notable investors like Stanley Druckenmiller, Israel Englander, and Jeff Yass have sold shares of both.
Does this shift away from two prominent AI players signal caution for investors?
Nvidia and Palantir
Let's delve into these two AI trailblazers. Nvidia is the leading force in the global AI chip market, with over 80% market share, and offers a diverse range of related products and services. This has enabled the company to report triple-digit revenue growth in recent quarters while maintaining profit margins exceeding 70%.
Nvidia's stock performance mirrors its success, surging over 180% this year and soaring 2,500% in the past five years.
Palantir uses AI to enhance its software-as-a-service platform, helping clients aggregate and analyze their data for more informed decision-making, product development, and improved operational efficiency. Palantir's AI Platform (AIP) has experienced robust demand and has enabled the 20-year-old company to report record profits.
Like Nvidia, Palantir stock has thrived, gaining 250% this year and over 500% in the past five years.
Unsurprisingly, investors, including billionaires, have flocked to these stocks as the AI craze surged. However, several billionaires adjusted or even sold their positions in these AI leaders in the third quarter. Here are a few instances:
- Stanley Druckenmiller of the Duquesne Family Office sold his entire Nvidia position in Q4 2022 and reduced his Palantir position by 94% in Q1 2023.
- Israel Englander of Millennium Management reduced his Nvidia position by 13% in Q3 2008 and trimmed his Palantir position by 90% in Q3 2020.
- Jeff Yass of Susquehanna International reduced his Nvidia position by 29% in Q3 2008 and cut his Palantir position by 28% in Q4 2020.
Have AI stocks reached their peak?
Let me clarify the main question: Is this selling of two major AI stocks an indication that AI stocks may have peaked? This move could be interpreted as a warning to investors who have been aggressively investing in AI stocks.
However, I am hesitant to make this conclusion. While it is true that certain stocks, especially this year's top performers, have seen their valuations grow radically based on forward earnings estimates, some investors may cautiously reassess their holdings in light of such gains.
Consequently, it's logical for investors who have reaped significant profits from these stocks to consider reducing or even selling their positions. Yet, these actions are not necessarily permanent. During a Bloomberg interview, Druckenmiller hinted that he might reconsider buying Nvidia at a lower price.
Investing in Broadcom stock
It is also reasonable to observe these investors cashing in on their winning positions and allocating their gains to other AI stocks that have not yet reached the same heights. Druckenmiller and Englander have both invested in Broadcom (AVGO 5.32%) recently, an AI player that has climbed around 50% in 2023 and still offers ample growth potential at 26x forward earnings estimates.
Lastly, it's essential to keep in mind that the AI narrative is only beginning to unfold. As I mentioned earlier, it is expected to become a trillion-dollar market in a few years.
A retreat from this year's top-performing AI stocks is not necessarily a downside, either for these specific stocks or the market overall. It means that there remains ample room to invest in AI stocks and even potentially-sold stocks could be attractive long-term additions to your portfolio.
The selling of shares by notable investors in Nvidia and Palantir, two prominent AI stocks, has raised questions about whether the AI market might be showing signs of saturation. Despite these moves, billionaire investor Stanley Druckenmiller expressed interest in buying Nvidia at a lower price, indicating potential future demand for the stock. As some investors shift their focus to other AI stocks with growth potential, such as Broadcom, the AI market is still projected to reach a trillion-dollar valuation in the coming years, offering opportunities for long-term investment.