Billionaire hedge fund manager Israel Englander co-founded Millennium Management in 1989 with $35 million. Today, Millennium has more than $70 billion in assets under management and is one of the largest hedge funds in the world. The Englishman has done well and has one of the best investing minds in the game. That’s why investors are eagerly awaiting Millennium’s quarterly 13F filing, a form required by the Securities and Exchange Commission (SEC) to disclose a fund’s holdings.
Investors should understand that Millennium is a “pod shop,” meaning it allocates capital to different teams (or “pods”) that have their own strategies and a lot of autonomy. Therefore, an investment in Millennium may not have been made directly at Englander’s direction. However, as CEO, Englander likely still has some control and involvement in major hiring decisions, so he certainly has faith in his portfolio managers. So don’t blindly follow these managers, but they can serve as sources for collecting new ideas and verifying investment theses.
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In the third quarter, Millennium sold a large part of its stakes in artificial intelligence (AI) companies NVIDIA(NASDAQ: NVDA) and Palantir(NYSE: PLTR) and bought a new stock that Wall Street thinks can skyrocket.
Millennium isn’t the only big fund selling chipmaker Nvidia and analytics platform Palantir; has definitely been a trend in the third quarter. Millennium sold 13% of its stake in Nvidia in the third quarter, although it still owns 11.15 million shares and put and call options. Millennium sold 90% of its shares in Palantir, but increased the company’s call and put options on the stock, which could be a combined options strategy. The sales appear to be more of a valuation call in a market many consider overbought and frothy. The market has skyrocketed over the past two years, driven primarily by themes such as technology, growth, and artificial intelligence.
YCharts NVDA PE Ratio Data
As you can see above, these are astronomical valuations, despite AI’s ability to disrupt life as we know it. I don’t think institutional fund managers doubt the potential of AI, but an important if difficult lesson for investors is that valuation does matter. Top companies with unlimited potential can be bad buys if bought at extremely high valuations. On the other hand, bad companies with high debt loads can make big investments if they are bought at sufficiently low valuations.
It’s hard to walk away from businesses you have convictions in, but sometimes it can be the right decision. When stocks are trading at high values, even if the business is doing well, there is less margin for error. For example, Nvidia’s third-quarter earnings report saw sales nearly double year-over-year, but the stock fell the next day after forecasts failed to impress.
During the third quarter, Millennium bought more than 3.2 million shares of the electric aircraft maker. archer aviation(NYSE: ACHR) for a total value of approximately $9.8 million, making Millennium the eleventh largest holder of shares.
Archer is one of two companies trying to launch air taxis for commercial use in select US cities to help alleviate traffic congestion. The company’s Midnight electric aircraft can make consecutive flights of 20 to 50 miles with minimal charging time and carry up to four passengers in addition to the pilot. They are also supposed to make minimal noise.
Archer has already achieved some key regulatory milestones, including receiving final airworthiness criteria from the Federal Aviation Administration (FAA) and completing 400 test flights ahead of schedule. In August, Archer also announced a planned air taxi network in Los Angeles that could replace one- or two-hour trips with 10- and 20-minute flights. The company has also closed agreements to develop a network with Southwest Airlines. The timing will be uncertain, but the launch of commercial flights and networks in select cities is not ruled out in 2025.
Wall Street seems to like the company’s plan, with an average price target of $9.38 among four analysts covering the stock, implying an 88% upside from current levels. The most optimistic analyst has a price target of $12.50, implying an upside of 151%. Understand that investing in a stock like Archer Aviation is equivalent to investing in a late-stage startup. The company is not yet profitable. However, the risk-reward proposition is favorable, so investors could make substantial profits if things go well. If Archer can take off, it could gain significant share in a potentially lucrative market.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has posts and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.
Billionaire Israel Englander is selling Nvidia and Palantir and buying new stocks that Wall Street believes can soar as much as 151%. Originally published by The Motley Fool.
