January 20, 2025
Nvidia (NASDAQ: NVDA) and Palantir Technologies (NASDAQ: PLTR) have recently been two of the hottest stocks on Wall Street because both companies play a key role in the artificial intelligence economy. However, the hedge fund billionaires listed below bought Nvidia and sold Palantir in the third quarter.
As of December 2023, Citadel and D.E. Shaw were the two most profitable hedge funds in history as measured by net gains since inception. That makes both hedge funds good sources of inspiration. However, the trades listed above were made during the third quarter, which ended in September.
Here is a more current look at Nvidia and Palantir.
Nvidia reported solid financial results in the third quarter of fiscal 2025 (ended in October), beating estimates on the top and bottom lines. Sales increased 94% to $35 billion and non-GAAP earnings more than doubled to $0.81 per diluted share. That was the sixth consecutive quarter in which Nvidia reported triple-digit earnings growth.
Going forward, Wall Street expects Nvidia's adjusted earnings to increase at 39% annually through fiscal 2027, which ends in January 2027. That makes the current valuation of 52 times adjusted earnings look reasonable. Moreover, that consensus may underestimate the company's earnings growth in the coming years because of underappreciated opportunities in Blackwell GPUs and autonomous robotics.
To elaborate, Nvidia GPUs are the industry standard in accelerating complex data center tasks such as running artificial intelligence (AI) applications. Blackwell GPUs deliver up to four times faster AI training and 30 times faster AI inference versus the previous Hopper architecture. The Blackwell production ramp began during the fourth quarter of fiscal 2025 and will continue into fiscal 2026.
The Wall Street consensus calls for revenue to reach $197 billion in fiscal 2026, implying 52% growth versus fiscal 2025. But Beth Kindig at the I/O Fund thinks Blackwell sales alone could top $200 billion in fiscal 2026. That means Nvidia could crush the consensus sales and earnings estimates when adjacent products like networking equipment and software services are included.
Dan Ives at Wedbush Securities shares that opinion. In fact, he believes Wall Street is underestimating Nvidia's earnings growth by as much as 30% in the next few years. Ives attributes part of that discrepancy to Blackwell sales estimates being too low, but he also sees an overlooked $1 trillion opportunity in autonomous driving and robotics.
Here is the bottom line: Nvidia shares currently trade at an attractive price, but the stock may look downright cheap in hindsight if earnings increase faster than Wall Street anticipates. So, investors with a time horizon of at least three to five years should feel confident buying a small position today.
Palantir reported third-quarter financial results that beat expectations. Its customer count climbed 39% to 629, and the average existing customer spent 18% more over the past year. In turn, revenue increased 30% to $725 million, the fifth straight acceleration, and non-GAAP net income rose 42% to $0.10 per diluted share.
The company also raised its full-year guidance, such that sales are projected to grow 26% in the fourth quarter. Wall Street anticipated 22% growth. Management attributed its beat-and-raise performance to tremendous demand for its artificial intelligence platform, called AIP, a product that has supercharged the business since its launch in April 2023.
"The world is in the midst of a U.S.-driven AI revolution that is reshaping industries and economies, and we are at the center of it," commented CEO Alex Karp in his latest shareholder letter. "The growth of our business is accelerating, and our financial performance is exceeding expectations as we meet an unwavering demand for the most advanced artificial intelligence technologies from our U.S. government and commercial customers."
Importantly, Palantir ranks second behind Microsoft in AI platform software market share, according to the International Data Corporation. That sets the company up for strong growth because spending on AI platforms is forecast to grow at 41% annually through 2028. But the stock trades at 205 times adjusted earnings. That multiple is absurd for a company whose earnings are expected to grow at 25% annually through 2027.
Here is the bottom line: Palantir is an excellent business, but investors should avoid the stock until the price falls substantially and current shareholders should consider trimming large positions. Among the 23 analysts that follow Palantir, the median 12-month target is $39 per share. That implies 45% downside from the current share price of $71. I would feel comfortable buying the stock around its consensus target.
Before you buy stock in Nvidia, consider this:
