A select group of Wall Street billionaires sold Nvidia during the fourth quarter while buying stock in Amazon and Palantir Technologies.
The gold rush driven by artificial intelligence (AI) is in full swing, Nvidia One of the biggest winners so far. The company's chips power cutting-edge AI systems such as OpenAI's ChatGPT, and its stock has soared 230% over the past year.but goldman sachs We think software and services companies could be the biggest beneficiaries over the long term.
Some Wall Street billionaires seem to think the same way. The hedge fund managers listed below sold their positions in Nvidia in the fourth quarter and reinvested capital into AI stocks that better fit into the software and cloud services category.
- Millennium Management's Israel Englander sold 1.7 million Nvidia shares, reducing his holdings by 45%.
- Steven Cohen of Point72 Asset Management sold 1.1 million shares of Nvidia stock, reducing his holdings by 66%.
On the other hand, Englander and Cohen Amazon (AMZN -1.54%) and Palantir Technologies (PLTR -0.74%) AI stocks rose significantly in the fourth quarter, soaring 84% and 170%, respectively, over the past year.
1.Amazon
Amazon reported fourth-quarter earnings that shattered Wall Street's expectations. Sales increased by 14% to $170 billion, the third consecutive quarter of accelerated growth. This was primarily driven by advertising and retail momentum, but cloud computing sales also accelerated from last quarter. Meanwhile, GAAP net income improved to $1.00 per diluted share from $0.03 a year ago.
Amazon has a strong presence in three markets and intends to maintain that momentum. The company operates the world's most popular e-commerce marketplace, as measured by monthly visitors, and the largest online marketplace in North America and Western Europe, as measured by sales revenue. Amazon is the world's largest retail advertiser and the world's third largest ad tech company. Amazon Web Services (AWS) is the largest provider of cloud infrastructure and platform services.
This puts Amazon on track for double-digit sales growth through 2030. That's because the online retail, digital advertising, and cloud computing markets are expected to grow at 8%, 16%, and 14% annually, respectively. during that period. In fact, because of these tailwinds, Wall Street expects Amazon to grow its revenue by 11% annually over the next five years.
But Amazon could surprise Wall Street by how successful it is at monetizing artificial intelligence (AI), especially in its cloud computing business. The company has designed custom chips for AI training and inference called Trainium and Inferentia. Although these chips can't outperform Nvidia graphics processing units (GPUs), they can be cost-effective in certain situations and can bring more business to AWS.
Additionally, Amazon Bedrock is a cloud service that allows companies to customize language models at scale and build generative AI applications. Similarly, Amazon Q is a conversational business assistant that leverages generative AI to search and summarize information from a variety of internal and external data sources. Chatbots can also answer questions and automate tasks such as blogging and social media posting. Taken together, these products have the potential to drive sales growth that exceeds Amazon's expectations.
The stock currently trades at 3.4 times sales, an acceptable valuation if the Wall Street consensus is correct, and if the company can grow sales at more than 11% annually The valuation will be a reasonable value. Personally, I think Amazon is a worthwhile long-term investment at current prices.
2. Palantir Technologies
Palantir reported fairly positive financial results in the fourth quarter, exceeding expectations on revenue and meeting expectations on bottom line. The number of customers increased by 35% to 497, and the amount spent by the average existing customer increased by 8%. Meanwhile, revenue increased 20% to $608 million, reflecting a 32% increase in commercial sales and an 11% increase in government sales. Non-GAAP net income doubled to $0.08 per diluted share.
CEO Alex Karp commented on Palantir's AI ambitions in his annual shareholder letter. “Every part of our organization is focused on deploying our Artificial Intelligence Platform (AIP), and we went from prototype to production in a matter of months. And our momentum with AIP is now contributing significantly to new revenue and new customers. “We are doing so,” he wrote. AIP brings extensive language model support to Palantir's commercial platform, Foundry.
In detail, Palantir builds software that helps businesses integrate and analyze data, develop and manage machine learning (ML) models, and build applications that improve decision-making. forrester research recognizes Palantir's Foundry as a leading AI/ML platform. AIP powers Foundry to enable clients to develop and leverage generative AI to improve business outcomes. For example, one of the largest healthcare organizations in the United States uses AIP to generate shift schedules that take into account employee preferences, decision costs, and demand forecasts.
In other news, the U.S. Army recently selected Palantir to build its Titan ground station system. The system uses AI/ML to rapidly process data received from sensors located on the ground, in the air, at high altitudes, and in extraterrestrial locations. The 24-month contract is valued at $178 million, so it won't amount to much change for Palantir, but it does highlight its versatility, and the deal could lead to further deals with the U.S. government. There is.
Going forward, the data analytics market is expected to grow at 27% annually until 2030. Given its past performance and small customer base, I don't think Palantir can match that pace, but the tailwinds are still positive for the company. Wall Street expects Palantir to grow revenue 21% annually over the next five years.
In that context, the current valuation of 23.5 times sales looks expensive, especially given the three-year average of 17.8 times sales. Also of note, Palantir currently has a consensus rating of Sell among Wall Street analysts, with a median price target of $20.50 per share. This represents a 10% downside from the current stock price of $22.80 per share. I will stay away from Palantir until the stock trades at a more reasonable valuation.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool's board of directors. Trevor Jennewine works at Amazon, Nvidia, and Palantir Technologies. The Motley Fool has positions in and recommends Amazon, Goldman Sachs Group, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.