Over the past two years, there hasn’t been a trend hotter on Wall Street than growth artificial intelligence (AI). The ability for AI-powered software and systems to become more adept at their existing tasks, and to learn new jobs over time without human intervention, gives this technology a virtually limitless ceiling and widespread utility across most industries.
According to one aggressive estimate by analysts at PwC, the AI ​​revolution could add $15.7 trillion to the global economy by the end of the decade.
Image source: Getty Images.
However, not everyone is sold on the idea that AI stocks are a bargain just yet. Although several billionaire money managers have benefited greatly from the rise in AI stocks over the past two years, some are locking in their gains and heading for the sidelines. , including Stanley Druckenmiller.
As of the end of September, Druckenmiller controlled nearly $3 billion in assets in the Duquesne Family Office, spread across 75 holdings pick a few AI stocks Druckenmiller still likeshe sends two of Wall Street’s most famous AIs, Nvidia:(NASDAQ: NVDA) and: Palantir Technologies(NASDAQ: PLTR)to the mill.
As 2024 began, Duquesne owned 6,174,940 shares of AI-graphics processing unit (GPU) company Nvidia, accounting for its historic 10-for-1 stock split that ended after the close of trading on June 30. as of now, every share had been sold.
Meanwhile, Druckenmiller’s foundation sold 728,255 shares of AI-powered data mining specialist Palantir in the third quarter, reducing the Duquesne Family Office’s stake in the company by roughly 95%.
If you’re looking for a viable reason why one of Wall Street’s most famous billionaire investors is dumping shares of two hot artificial intelligence stocks, a simple take on Nvidia and Palantir makes sense as of the December 20th closing bell are 172% and 369% per annum, respectively.
The worry on Wall Street and investors is that there may be reasons beyond simple profit making that encouraged Druckenmiller and his advisers to abandon ship.
Perhaps the primary concern is that every major innovation over the past three decades has followed the same path: a period of hype and euphoria followed by a bubble burst require to mature.
Despite this same process occurring in a number of the next big trends, including genome sequencing, 3D printing, blockchain technology, and the metaverse, investors consistently overestimate how quickly a new technology or innovation will be adopted and widely used, even by enterprises While investing aggressively in infrastructure, most of them don’t have well-defined plans to deliver a positive return on their AI investment suggests that AI is the next Wall Street bubble waiting to burst.
Valuation is another front for Nvidia and Palantir.In late June and early July, Nvidia’s trailing 12-month (TTM) price-to-sales (P/S) ratio exceeded 40, matching the peak of market-leading businesses. bursting point: com bubble. Palantir’s valuation is even more distasteful as the company currently trades at an all-time high TTM P/S, which history tells us are not sustainable levels.
Even with Nvidia expected to maintain its market share lead in AI-GPUs and Palantir lacking large-scale competition, a realignment is likely for both stocks.
Image source: Getty Images.
But while Stanley Druckenmiller was busy overseeing the sale of high-end artificial intelligence stocks in Duquesne’s investment portfolio, he was piling on one of Wall Street’s best-performing pharmaceutical stocks of 2024: Teva Pharmaceutical Industries(NYSE: TEVA). Teva shares are up 112% for the year, with Druckenmiller’s fund adding 1,427,950 shares in the quarter ended in September.
The past eight years haven’t been the easiest for Teva, to say the least. It racked up big debt, overpaying for generic drug Actavis in 2016, and faced lawsuits from nearly every state in the U.S. over its role in the opioid crisis The potential for legal regulation, combined with the low pricing power and sales performance of generic drugs in recent years, has greatly influenced Teva. on the stock price.
The good news is that a series of strategic changes and regulatory decisions have made Teva one of the most sought-after drug stocks on Wall Street through 2025.
Of course, the most important upside catalyst is putting its opioid litigation in the rearview mirror. Last year, the company signed a $4.25 billion settlement that will be spread over 13 years. This settlement includes up to $1.2 billion supply of the overdose-reversing drug Narcan to states.
One of the key strategic moves made by Teva’s management team has been to focus on branded therapies. Although new drugs have a limited period of sales exclusivity, they have better margins and juicier growth potential than generic drugs Austedo for tardive dyskinesia and Ajovy for migraine prevention grew more than 20% year-over-year in the quarter ended September (constant currency basis).
Teva’s pipeline of new drugs also shows a lot of promise.The reason the stock was burning in December was due to the report of positive phase 2b data for the treatment of patients with moderate to severe inflammatory bowel disease Sanofimet its primary endpoints and achieved clinical remission in more ulcerative colitis and Crohn’s disease patients than placebo.If approved, duvakitug could exceed $1 billion in annual sales.
Furthermore, Teva’s management has done a major job of selling off non-core assets, reducing operating costs and steadily improving the company’s financial flexibility. less than $7 billion in net debt on its balance sheet.
With Teva’s long-awaited turnaround finally here, shares remain cheap at less than 8 times forecast 2025 earnings per share (EPS).
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Sean Williams holds positions at Teva Pharmaceutical Industries. The Motley Fool has positions and offers Nvidia and Palantir Technologies has a disclosure policy.
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