PLTR & SMIC Soar : Time to Buy ? Read to know !
During the first quarter, these hedge fund managers trimmed their positions in Nvidia and reallocated capital to other AI stocks.
Many investors see $NVIDIA Corp(NVDA)$ as the quintessential artificial intelligence (AI) stock because its chips provide the computing horsepower needed to train the most advanced AI systems, such as OpenAI's ChatGPT and $Tesla Motors(TSLA)$ 's full self-driving (FSD) software.
Recently, some hedge fund billionaires sold Nvidia stock during the first quarter, while purchasing shares of $Palantir Technologies Inc.(PLTR)$ and/or $SUPER MICRO COMPUTER INC(SMCI)$.
These two supercharged AI stocks have YTD returns of +67% and +215%, respectively, as of 08 Jul 2024.
Who Sold What ?
Louis Bacon of Moore Capital Management sold 2,006 shares of Nvidia in the first quarter, reducing his stake by -19%. And, Bacon started a small position in Super Micro Computer.
Israel Englander of Millennium Management sold 720,000 shares of Nvidia in the first quarter, reducing his stake by -35%. At the same time, he increased his positions in Palantir and Super Micro Computer by +4% and +235%, respectively.
Philippe Laffont of Coatue Management sold 2.9 million shares of Nvidia in the first quarter, reducing his stake by -68%. Meanwhile, Laffont increased his position in Palantir by +40%.
Trades by Israel Englander are to be noted because Millennium Management handily beat the S&P 500 over the last 3 years.
It ranks as the 2nd-best performing hedge fund of all-time as measured by net gains since inception.
Safe to assume, this guy knows his stuff ?
Getting intimate with Palantir & Supermicro.
Palantir Technologies
Palantir specializes in data analytics.
Its software lets government and commercial clients (a) integrate data, (b) develop artificial intelligence (AI) and (c) machine learning (ML) models, and (d) build applications that lean on those data sets and models to improve decision-making.
Palantir recently introduced its Artificial Intelligence Platform (AIP), a product that brings support for large language models and generative AI to its existing software.
Certain industry analysts have praised the company for its technological prowess:
Forrester Research ranked Palantir Foundry as the best AI/ML platform in a report published in July 2022.
Dresner Advisory Services ranked Palantir as a leader in the AI/ML and data science market in a report published in August 2023.
Other analysts are skeptical.
RBC Capital’s Rishi Jaluria sayid conversations with industry observers and company employees have led to the conclusion that Palantir does not offer "anything truly differentiated when it comes to generative AI."
Q1 2024 Earnings.
Palantir reported reasonably good financial results in Q1 2024.
Earnings have beaten top line estimate and met bottom line expectations.
Its customer count increased +42% to 554 customers.
With average (existing) customer spending +11% more.
In turn, revenue increased +21% to $634 million, the third consecutive sequential acceleration, and non-GAAP earnings increased +60% to $0.08 per diluted share.
CFO Dave Glazer said the commercial segment benefited from "unprecedented demand driven by momentum from AIP."
However, the stock still slipped -7% following Q1 2024 earnings results because management guided for full-year revenue growth of +20%, implying a slight deceleration in the coming quarters.
Analysts anticipated full-year revenue growth of +22%.
Company’s Outlook.
Going forward, Wall Street expects Palantir to grow adjusted earnings per share at +22% annually through 2026.
That consensus estimate makes its current valuation of 97x earnings look very expensive.
Investors should be cautious with this stock. Personally, I plan to avoid Palantir until earnings growth accelerates or the valuation improves.
Palantir has come a long way since the beginning of 2024. (see above)
It bottomed on 31 Jan 2024 at $16.09 per share.
With share price at $27.70 (as of 08 Jul 2024), it has gained a respectable +67.07% YTD.
Super Micro Computer
Super Micro Computer designs high-performance computing platforms for (a) enterprise and (b) cloud data centers.
Its portfolio includes servers and storage systems, ranging from individual devices to full rack solutions.
Its products can be optimized for use cases like artificial intelligence and 5G infrastructure, and they feature chips like (1) Nvidia graphics processing units (GPUs) and (2) $Intel(INTC)$ central processing units (CPUs).
Importantly, Supermicro is the market leader in AI servers due to (1) its manufacturing prowess and (2) its building-block approach to product development.
To elaborate, nearly 50% of its workforce are engineers, and it handles most research and development (R&D) internally.
Staff’s engineering aptitude, coupled with their internal manufacturing capability, enables rapid prototyping and product roll-out."
Supermicro's modular product design (i) reduces time to market, and (ii) affords clients flexibility in designing custom solutions.
It is able to "quickly assemble a broad portfolio of solutions by leveraging common building blocks across product lines."
This also means, Supermicro can rapidly integrate the latest CPUs, GPUs, and memory into preassembled server chassis, such that it often beats competitors to market by 2 to 6 months.
Company’s Outlook.
When Nvidia releases its latest GPUs, codename “The Blackwell” either end 2024 or early 2025, Supermicro anticipates it will be first-to-market in deploying full rack clusters featuring these latest puppies.
This will be to the company’s advantageous because businesses are eager to purchase AI hardware, so they are turning to the server maker that brings computing products to market at the fastest clip.
As a result, Supermicro's AI server market share is expected to reach +23% by the end of 2024, up from +10% at the beginning of 2024.
Wall Street expects Supermicro to grow earnings per share at +48% annually for the next 3 years.
That consensus estimate makes its current valuation of 47x earnings look very reasonable.
Indeed, it gives a PEG ratio (the price-to-earnings ratio divided by the forecasted earnings growth) of approximately 1.0.
For comparison, Palantir currently has a PEG ratio of 4.4.
Supermicro has been on a bull run since the beginning of 2024. (see above)
It started low. On 02 Jan 2024, it cost $285.45 per share.
With share price at $899.34 (as of 08 Jul 2024), it has gained a whooping +215.06% YTD.
My viewpoints: (mine only)
Palantir was already running the AI-race way before Nvidia’s AI chips made its debut.
Its significance will grow with time as the commercial world takes to AI apps to grow its businesses.
The background noise about Palantir’s main contracts is government-based will remain.
However, any astute investor will know that business is business, be it public or private.
What is certain is military contracts are (a) lucrative, (b) difficult to secure and (c) for the long term (possibly).
With heightened geopolitical tension around the world, it is illogical that US government will scale down on its intelligence operations, in a bid to remain at the forefront of intelligence espionage.
In Q1 2024 earnings report, PLTR’s commercial revenue has grown +40% YoY and +14% QoQ to $150 million.
All it really needs now is to be invited to join the S&P 500 index.
When it does, hitting $35.18 (previously achieved on 29 Jan 2021) again may become a thing of the past.
It is without a doubt that Supermicro has benefited handily from a close partnership with Nvidia as a preferred server partner.
It did not ride on the coattail of Nvidia’s sudden AI-popularity surge.
With newfound success, SMCI has exit from the Russell 2000 Index on 28 June 2024 as its market value has become too large to remain in the Russell 2000.
It has ascended the Russell 1000 Index instead on 25 May 2024.
Will you be taking a moment to study these 2 US stocks with a fine tooth comb before taking the plunge?
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Do you think you will take your time with PLTR until its Q2 2024 earnings are out first ?
Do you think SMCI is expensive at $899.34 per share; given that it’s gross profit margin was 18% in 2023;, up slightly from 15.2% profit margin it earned over the past 10 years on average?
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what's the chances to see a new all time high this year?😜
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