Billionaire Investor’s Contrarian Moves: A Tale of Two Stocks
Israel Englander, founder of Millennium Management, has built a reputation as one of the most successful hedge fund managers in history. His investment decisions are closely watched by individual investors seeking inspiration. In the second quarter, Englander made two notable moves: selling 7.7 million shares of Palantir Technologies and buying 553,323 shares of Super Micro Computer.
Unpacking Palantir Technologies
Palantir specializes in big data analytics, offering software products like Foundry and Gotham, which enable businesses to collect data, develop machine learning models, and surface insights. Its artificial intelligence platform, AIP, supports large language models and generative AI. Palantir has received recognition from Forrester Research and Dresner Advisory Services for its AI and machine learning capabilities.
The company’s Q3 financial results exceeded Wall Street’s expectations, with revenue increasing 30% to $726 million and non-GAAP earnings jumping 43% to $0.10 per diluted share. However, despite its strong performance, Palantir’s valuation appears unsustainable, with a price-to-earnings ratio of 168. Wall Street expects adjusted earnings to increase at 27% annually through 2025, but the current valuation looks expensive.
Super Micro Computer: A Leader in AI Servers
Super Micro Computer builds servers, including full server racks equipped with storage and networking, providing turnkey solutions for data center infrastructure. The company’s internal engineering expertise and modular approach to product development have helped it secure a dominant position in AI servers, a market forecast to grow at 30% annually over the next decade. Super Micro has also positioned itself as an early leader in direct liquid cooling technology, a more efficient alternative to traditional air cooling.
However, the company faces serious challenges. Short seller Hindenburg Research accused Super Micro of accounting manipulation, which CEO Charles Liang dismissed. The company delayed filing its Form 10-K for fiscal 2024 and has yet to correct the problem. Additionally, the Justice Department is investigating Super Micro based on accusations made by a former employee. The situation deteriorated further when the company’s auditor Ernst & Young resigned, citing concerns over the financial statements prepared by management.
Contrarian Moves: A Cautionary Tale
While Englander’s decision to sell Palantir and buy Super Micro may seem counterintuitive, it highlights the importance of careful consideration before investing. Palantir’s strong performance and leadership in AI and machine learning are overshadowed by its unsustainable valuation. Super Micro, on the other hand, faces serious allegations and uncertainty, making it a risky investment.
Investors should exercise caution when considering these stocks, taking into account the potential risks and rewards. Englander’s contrarian moves serve as a reminder to stay informed and vigilant in the ever-changing world of finance.
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