According to Grand View Research, investments in artificial intelligence (AI) infrastructure, software, and services are projected to surge by 550% from 2024 to 2030, presenting a significant opportunity for investors. In the second quarter, two highly successful, billionaire-led hedge funds acquired shares in Nvidia ( NVDA 0.35%) and Palantir Technologies ( PLTR -0.23%), as outlined below:
- Citadel Advisors, led by Ken Griffin, purchased 6.1 million shares of Nvidia, boosting its holdings by over 900%. Nvidia is now Citadel’s second largest position. The firm also initiated a small stake in Palantir by acquiring 61,100 shares.
- D.E. Shaw & Co., managed by David Shaw, increased its Nvidia shares by 28.4 million, more than tripling its stake. Nvidia now stands as the fund’s second largest holding. D.E. Shaw also nearly doubled its Palantir position by buying 7.6 million shares, making it the sixth largest holding in the portfolio.
Notably, Citadel and D.E. Shaw are the most profitable hedge funds ever, based on net gains since their inception. Their investment choices can serve as valuable references for individual investors. Here’s what you need to know about Nvidia and Palantir.
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1. Nvidia
Nvidia is most recognized for creating graphics processing units (GPUs), a technology it pioneered to transform computer graphics. Today, these GPUs are vital for powering AI workloads in data centers, and Nvidia’s products are considered the industry benchmark. The company commands more than 80% of the AI accelerator market and is likely to retain its lead thanks to two key strengths.
Firstly, Nvidia’s CUDA software platform offers an unmatched suite of code libraries, pretrained models, and frameworks, simplifying AI development for a wide array of applications. This includes everything from generative AI and predictive analytics to self-driving cars and humanoid robots.
Secondly, Nvidia enhances its GPUs with CPUs, interconnects, and networking hardware, delivering comprehensive data center solutions. This end-to-end optimization enables Nvidia to design systems with a lower total cost of ownership compared to rivals. CEO Jensen Huang has remarked that Nvidia’s GPUs are “so effective that even if competitors gave away their chips for free, it still wouldn’t be enough of a bargain.”
Analysts on Wall Street predict Nvidia’s earnings will grow at an annual rate of 36% over the next three years, which matches expectations for AI sector expansion during that time. This growth outlook makes the current price-to-earnings ratio of 51 seem justified. However, investors should remember that Nvidia’s stock has historically been volatile, having dropped over 50% from its peak on seven occasions since its 1999 IPO. For those comfortable with risk, now may be a suitable moment to consider a modest investment.
2. Palantir Technologies
Palantir specializes in developing data analytics and AI software for both commercial enterprises and government agencies. Its primary platforms help organizations structure and interpret complex data, theoretically enabling improved decision-making. Additionally, its AI platform allows companies to integrate large language models into their operations and applications.
The main argument for investing in Palantir is its capacity to help clients put AI into practical use. While many firms offer AI development tools, businesses often find it challenging to create solutions that genuinely enhance productivity or efficiency. Palantir addresses this gap. Chief Revenue Officer Ryan Taylor stated, “Our distinctive strength is our ability to move from prototype to full-scale production.”
Palantir has received high praise from independent industry analysts. The International Data Corp. (IDC) has named it a leader in decision intelligence software. Dresner Advisory Services also recognized Palantir as a leader in its recent report on AI, data science, and machine learning (ML) platforms. Forrester Research similarly ranked Palantir as a top performer in AI/ML platforms.
Despite these accolades, which support management’s claims about its unique software architecture, Palantir’s stock is trading at an extremely high valuation. Its current price-to-sales (PS) ratio is 134, the highest in the S&P 500 by a wide margin. The next closest is AppLovin, with a PS ratio of 41. This means Palantir could lose two-thirds of its value and still remain the priciest stock in the index.
Given this, Palantir’s risk-reward balance is heavily tilted toward potential losses for shareholders, as its valuation is not sustainable in the long run. While this doesn’t guarantee an imminent crash, it does suggest that investors should keep their positions small to avoid significant future losses.
