Billionaire Ken Griffin Sells Broadcom Stock and Buys an AI Stock Up 2,700% Since 2023

Billionaire Ken Griffin is one of Wall Street's most esteemed money managers. He runs Citadel Advisors, the best performing hedge fund in history in terms on cumulative net gains, according to LCH Investments. Citadel also outperformed the S&P 500 (SNPINDEX: ^GSPC) by 20 percentage points over the last three years, making the hedge fund a great source of inspiration.

On that note, Griffin and his team made thousands of trades in the second quarter, but the decisions to sell 99% of their stake in Broadcom (NASDAQ: AVGO) and start a small position in Palantir (NASDAQ: PLTR) stand out.

Why? Broadcom is the second largest supplier of artificial intelligence accelerators behind Nvidia, and it will benefit as more companies look for cost savings in custom chips. Meanwhile, Palantir is considered too expensive by most analysts. The stock has advanced 2,700% since January 2023, but the median target price of $165 per share implies 8% downside from its current share price of $180.

Here's what investors should know about Broadcom and Palantir.

Image source: Getty Images.

Broadcom: The stock Ken Griffin sold in the second quarter

Broadcom develops infrastructure software, Ethernet networking chips, and application-specific integrated circuits (ASICs). The company has a strong presence in several markets. Forrester Research recently ranked its subsidiary VMware as a leader in distributed hybrid cloud infrastructure, an architecture that blends compute, storage, and networking across public and private clouds to create a seamless environment.

Broadcom is also the leading supplier of Ethernet switching and routing chips for artificial intelligence (AI) workloads, a market forecast to grow at 34% annually through 2029. The company recently introduced the industry's first 800G network interface card (NIC), which can connect thousands of accelerators to support the most demanding AI. The Ethernet NIC market is projected to grow at 40% annually through 2029.

Finally, Broadcom is the leading supplier of custom AI accelerators, ASICs that serve as an alternative to Nvidia GPUs for AI training and inference workloads. Broadcom is currently building custom accelerators for four major customers, including Alphabet's Google, Meta Platforms, ByteDance, and OpenAI. The company also announced a $10 billion order from an unnamed fifth customer in the last quarter. The AI accelerator market is forecast to grow at 29% annually through 2030.

In short, Broadcom is a diversified technology company that plays an important role in the AI economy. So, why did Ken Griffin sell the stock in the second quarter? I can only guess, but he may be worried the narrative is more hype than substance. While ASICs will likely play a role as the AI landscape evolves, they are far less flexible and lack the supporting software ecosystem that back Nvidia GPUs.

Wall Street expects Broadcom's adjusted earnings to increase at 36% annually through the fiscal year ending in October 2026. That makes the current valuation of 55 times earnings look reasonable, but the consensus implies a material acceleration versus the 15% growth in adjusted earnings Broadcom reported last year. Wall Street may be overly optimistic.

Palantir Technologies: The stock Ken Griffin bought in the second quarter

Palantir develops analytics software for commercial and government clients. Its products are unique because they integrate data and machine learning (ML) models into a decision-making framework called an ontology. The ontology is essentially a digital twin that helps clients across a broad range of industries understand and solve complex problems.

Mark Giarelli at Morningstar explained the importance of Palantir's ontology-based software in a note to clients earlier this year. "It derives actionable insights beyond traditional analytics because it creates a closed read-write loop where it engages with all stakeholders and data sources in an organization for a dynamic understanding of any problem."

That Palantir organizes information into a decision-making framework means its platforms are inherently more useful than analytics tools that simply consolidate and parse data. Its ontology-based software is particularly valuable for enterprises that want to drive efficiency and productivity by applying AI to business processes.

Forrester Research recently ranked Palantir as a technology leader in AI/ML platforms. Indeed, demand for its core analytics products has been unrelenting since the company added an adjunct AI platform in early 2023. Palantir's customer count has doubled in the last two years, and revenue growth has accelerated in eight consecutive quarters.

However, just because Palantir has differentiated software that taps into a massive market, that does not mean investors should pay any price to own the stock. Palantir trades at 340 times adjusted earnings, an absurd valuation for a company whose earnings are forecast to grow at 37% annually through 2026.

So, why did Ken Griffin buy Palantir in the second quarter? The stock was much cheaper in early April. It was down 40% from its high and traded under $75 per share. Griffin may have opportunistically bought the dip. Even so, Citadel has a microscopic stake in Palantir -- it doesn't even rank among its top 1,000 holdings. Investors should think twice before making the same trade today.

Trevor Jennewine has positions in Nvidia and Palantir Technologies. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Nvidia, and Palantir Technologies. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.