In case you missed it, one of the most-important data releases of the quarter occurred last week -- and I'm not talking about the monthly inflation report.
No later than 45 days following the end of a quarter, money managers with at least $100 million in assets under management are required to file Form 13F with the Securities and Exchange Commission. A 13F provides a concise snapshot of what Wall Street's most-successful investors bought, sold, and held in the most recent quarter. Nov. 14 was the filing deadline for the third quarter.
Although 13Fs have their drawbacks -- e.g., they're filed roughly six weeks after a quarter ends, so investors are looking at potentially antiquated positions -- they can help clue investors into what stocks and trends are piquing the interest of top asset managers.
With the three major stock indexes meaningfully rallying off of their 2022 bear market lows, growth stocks are once again back in focus, as evidenced by the latest round of 13Fs. More specifically, we witnessed billionaire investors pile into two supercharged growth stocks while decisively selling another.
Supercharged growth stock No. 1 billionaires can't stop buying: Palantir Technologies
The first high-powered growth stock that's acted as a beacon for billionaire money managers is data-mining company Palantir Technologies(NYSE: PLTR). During the September-ended quarter, a total of six prominent billionaires purchased shares of Palantir, including (total shares purchased in parentheses):
- John Overdeck and David Siegel of Two Sigma Investments (4,655,969 shares)
- Jim Simons of Renaissance Technologies (3,805,496 shares)
- Philippe Laffont of Coatue Management (893,931 shares)
- Israel Englander of Millennium Management (604,716 shares)
- Jeff Yass of Susquehanna International (509,063 shares)
The top reason investors are excited about Palantir is arguably the company's decisive shift to recurring profitability. The third quarter represented Palantir's fourth consecutive quarter with a generally accepted accounting principles (GAAP) profit. Mindful spending, coupled with a sustained double-digit growth ramp, are beginning to pay off for the company and its patient shareholders.
Palantir has also become one of the many faces of the artificial intelligence (AI) revolution. The company's AI-driven platforms have utility for government agencies and can be used by big businesses looking to streamline their operations.
For much of the past decade, Palantir's AI-fueled Gotham platform has done a lot of the heavy lifting. Government contracts usually last for multiple years, and federal agencies tend to pay their bills on time.
However, the company's long-tail growth opportunity that sports a considerably higher ceiling is its Foundry platform. This segment, which helps larger businesses make sense of big data, is just scratching the tip of the iceberg in regard to its growth potential. Palantir ended the third quarter with 23% year-over-year sales growth from its commercial segment, and may see it sales accelerate in the coming years.
Supercharged growth stock No. 2 billionaires can't stop buying: Microsoft
A second supercharged growth stock that billionaire money managers can't seem to get enough of is software giant Microsoft(NASDAQ: MSFT). The always-popular tech stock was purchased by 10 billionaires, including (total shares purchased in parentheses):
- Ole Andreas Halvorsen of Viking Global Investors (1,822,348 shares)
- Ken Griffin of Citadel Advisors (1,631,542 shares)
- Jim Simons of Renaissance Technologies (1,112,483 shares)
- Israel Englander of Millennium Management (1,032,317 shares)
- John Overdeck and David Siegel of Two Sigma Investments (733,563 shares)
- Dan Loeb of Third Point (705,000 shares)
- Ken Fisher of Fisher Asset Management (554,792 shares)
- Chase Coleman of Tiger Global Management (462,360 shares)
- David Tepper of Appaloosa Management (395,000 shares)
There are three standout reasons why billionaires have been piling into shares of Microsoft. For starters, it's a key player in the AI arena. Microsoft has invested billions in OpenAI, the company behind popular chatbot ChatGPT, and has worked with OpenAI to incorporate AI-driven search into Bing.
Secondly, Microsoft has been nothing short of a beast in cloud computing. The company's Intelligent Cloud saw sales jump 19% during the fiscal first quarter (ended Sept. 30), with Azure delivering 28% constant-currency sales growth from the prior-year period. Azure has been closing the gap with Amazon, which currently holds the lead in cloud infrastructure services market share with Amazon Web Services.
The third reason billionaires can't stop buying Microsoft is the consistency of its cash flow and its phenomenal balance sheet. Microsoft has generated $95 billion in operating cash flow over the trailing-12-month period, and it closed out September with nearly $144 billion in cash, cash equivalents, and short-term investments. Microsoft has the luxury of taking chances and making acquisitions that virtually no other tech company can.
Perhaps the one knock against Microsoft is its premium valuation. At 32 times forward-year earnings, Microsoft is currently at the upper end of its historic valuation range.
The supercharged growth stock billionaire investors can't sell fast enough: Rivian Automotive
But not all supercharged growth stocks are created equally. During the third quarter, five billionaire money managers couldn't sell shares of electric-vehicle (EV) maker Rivian Automotive(NASDAQ: RIVN) fast enough, including (total shares sold in parentheses):
- Ken Griffin of Citadel Advisors (5,870,407 shares)
- Ole Andreas Halvorsen of Viking Global Investors (5,433,046 shares)
- Steven Cohen of Point72 Asset Management (2,058,801 shares)
- Jeff Yass of Susquehanna International (718,427 shares)
- Philippe Laffont of Coatue Management (249,331 shares)
One possible explanation for this billionaire exodus could be slowing domestic demand for EVs. Legacy automakers General Motors and Ford Motor Company have both stepped back from EV production and/or spending targets as demand for EVs has tapered in recent quarters. Although Rivian raised its production forecast in 2023 to 54,000 EVs, the takeaway is there's no guarantee these new (and future) EVs find a home.
Rapidly rising interest rates are another potential concern for Rivian on two fronts. First, higher lending rates make financing new vehicles costlier for consumers. In a span of two years, the average 60-month car loan has effectively doubled, which is bound to price some new-vehicle buyers out of the market.
The other issue is that Rivian is borrowing money to fund its future. Though it closed out the September quarter with more than $7.9 billion in cash and cash equivalents (along with $1.2 billion in short-term investments), its long-term debt more than doubled to $2.7 billion from $1.2 billion from the prior-year period, while its cash, cash equivalents, and restricted cash plunged by $5.9 billion. Future borrowing will be considerably costlier at higher interest rates, which could be a problem for an EV maker that's still losing a lot of money.
The competitive advantage Rivian Automotive has working in its favor is that it's a luxury vehicle manufacturer that beat other EV makers to market. No other EV maker, as of now, has a luxury truck that can compete with the likes of the R1T. Unfortunately, first-mover advantages may not mean much, given Rivian's extraordinary cash burn and aggressive spending on new production.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Sean Williams has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Microsoft, and Palantir Technologies. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.