Some of Wall Street’s most favored stocks were offloaded by notable asset managers before the market’s recent turbulence.
Occasionally, Wall Street demonstrates to investors that stock prices do not continually ascend without interruption. These lessons can be anything but subtle at times.
In recent weeks, investors have experienced volatility akin to the COVID-19 crash of February-March 2020 and the financial crisis in 2008. For instance, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite recently recorded their largest point gains on April 9 since inception. Conversely, these indexes also suffered some of the most significant nominal point declines in history following President Donald Trump’s tariff announcement on April 2, known as Liberation Day.
While history indicates that such volatility can create excellent buying opportunities for patient investors, some of Wall Street’s leading money managers seemed to anticipate these stock market warnings well in advance. In particular, several billionaire investors sold shares in three notably popular but expensive stocks before Wall Street’s record-breaking volatility.
Palantir Technologies
The first expensive yet innovative stock unloaded by billionaires prior to Wall Street’s fluctuations is the artificial intelligence (AI)-driven data-mining specialist, Palantir Technologies (PLTR). Billionaire Philippe Laffont, managing nearly $29.7 billion in assets at Coatue Management, sold over 4.81 million shares of Palantir during the second quarter of 2024. Similarly, Stanley Druckenmiller, the billionaire leading Duquesne Family Office, sold more than 728,000 shares of Palantir after March 31, 2024.
Palantir offers substantial benefits at face value. The company’s AI-powered software-as-a-service platforms, Gotham and Foundry, are essential on a large scale. Gotham often secures contracts with federal governments for four to five years, while Foundry operates on a subscription basis that encourages business loyalty. Despite Palantir’s sustainable moat and predictable cash flow, there is uncertainty regarding its near-term growth due to President Trump’s efforts to control federal spending, which could affect Gotham’s reliance on U.S. government contracts.
The Atlanta Federal Reserve’s GDPNow forecast suggests a 2.4% decline in organic gross domestic product (GDP) for the U.S. economy, excluding the COVID-19 impacted quarters, marking the steepest contraction since the Great Recession. This forecast implies possible subpar subscription growth for the commercially-focused Foundry segment. Additionally, Palantir’s valuation has been challenging. Historically, price-to-sales (P/S) ratios for leading-edge businesses peaked at around 30 to 40 during tech and innovation bubbles, but Palantir’s stock reached nearly 100 times sales at its all-time high. Despite a slight pullback, it still maintains an unsustainable P/S ratio of 75.
Nvidia
Alongside Palantir, semiconductor leader Nvidia (NVDA) was also heavily sold before Wall Street’s volatility. Four billionaire money managers chose to reduce their holdings in this stock. Philippe Laffont sold close to 39.8 million split-adjusted Nvidia shares, David Tepper of Appaloosa Management sold nearly 9.6 million shares, Stanley Druckenmiller offloaded Duquesne’s entire 9.5 million share stake, and Stephen Mandel of Lone Pine Capital sold approximately 6.4 million shares, all since the second quarter of 2023.
Nvidia’s popularity stems from its near-monopoly in graphics processing units (GPUs), which act as critical components in AI-accelerated data centers. Nvidia’s Hopper (H100) and Blackwell GPUs power AI solutions and train most large language models. However, next-big-thing trends have historically undergone early-stage bubble-bursting events. Every major innovation since the mid-1990s has fallen short of high investor expectations, indicating a potential adjustment if the AI bubble bursts, which would impact Nvidia stock.
Additionally, Nvidia faces increasing internal competition, as many of its top customers are developing their own AI-GPUs and solutions for data centers. Although these alternatives do not match the computational speed of Nvidia’s GPUs, they are cheaper and more accessible, which could affect Nvidia’s data center presence and gross margins.
Despite Nvidia’s valuation relative to forward-year earnings not appearing overly expensive, its P/S ratio of 21 remains double that of its closest peers in the “Magnificent Seven,” despite being down from a previous P/S ratio of 42.
Chipotle Mexican Grill
The third expensive stock sold by billionaire managers before Wall Street’s volatility is the fast-casual restaurant chain Chipotle Mexican Grill (CMG). Philippe Laffont sold his fund’s entire stake of nearly 4.6 million shares during the December-ended quarter. Billionaire Bill Ackman of Pershing Square Capital Management also sold nearly 16.6 million split-adjusted shares throughout 2024.
Chipotle has competitive advantages, making it a favorite stock. The company’s use of responsibly raised meats and locally sourced vegetables appeals to consumers preferring organic and natural foods. The fresh ingredients and small menu enable fast food preparation and efficient service. Additionally, Chipotle’s introduction of mobile-dedicated drive-thru lanes, or "Chipotlanes," before the pandemic created new revenue streams.
However, inflationary pressures appear to impact Chipotle’s margins and customer base. The December-ended quarter reported a comparable restaurant sales growth of 5.4%, below its historical average, potentially indicating the effect of inflation. Furthermore, Chipotle’s valuation is another concern. Its forward price-to-earnings (P/E) ratio of 33 is aggressive, especially as half of its sales growth comes from new store openings. With organic growth from existing stores around 5% to 7% and limited innovation scope in the restaurant sector, a forward P/E of 33 suggests an optimistic expectation for Chipotle stock.
