Artificial intelligence (AI) stocks have surged in recent years as the AI boom picked up speed — investors eagerly piled into these players with the hope that AI would become the next game-changing technology, much like the Internet, or moving much farther back in history, the steam engine. This is very possible, considering AI’s ability to help companies gain in efficiency, problem solve, and even develop better products faster.
This investing theme hasn’t only appealed to small retail investors but also to billionaires. In fact, many got in on some of the top players early and have already locked in profit. A great example is Stanley Druckenmiller, who for 30 years at the helm of Duquesne Capital delivered an average annual gain of 30% and never had a money-losing year. So Druckenmiller has proved his ability to choose winning stocks over time.
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Last year, now at the head of the Duquesne Family office, the billionaire made a shocking move, selling all of his shares of AI chip leader Nvidia (NASDAQ: NVDA) as the stock soared. He originally bought the stock in the fourth quarter of 2022, so he scored a win on the investment, but at the time of Druckenmiller’s sale, it was clear Nvidia still had a bright earnings growth story ahead. Even Druckenmiller expressed some disappointment at his own move, saying Nvidia stock had gotten expensive, but he believes in the company’s potential and would consider buying the stock again.
Now, in the first quarter of this year, Druckenmiller has made another bold move — this time concerning a market-beating AI stock that’s soared 1,500% over the past three years. Let’s take a closer look at this latest billionaire bet.
Image source: Getty Images.
Nvidia’s performance since Druckenmiller sold it
First, a quick note about what’s happened with Nvidia stock since Druckenmiller sold it. The billionaire could have gained a bit more if he held on an extra quarter — he sold Nvidia in the third quarter, and it went on to climb another 14% in the fourth quarter. But if he’d held on to it through the first quarter of this year, he would have accompanied Nvidia through its 29% loss from the start of the year through its lowest point last month.
All of this shows it’s impossible to time the market and buy at the absolute lowest and sell at the highest — but if you hold on for a matter of years, you don’t have to do that. Long-term investing offers us plenty of time to score a very satisfactory win.
Now, let’s consider Druckenmiller’s latest move. In the first quarter of this year, the billionaire sold all of his shares of Palantir Technologies (NASDAQ: PLTR), a software company that’s generated explosive revenue growth amid demand from government and commercial customers. Palantir offers them AI-driven software to aggregate their data and make better use of it — and the technology has produced game-changing results that have kept the company’s momentum going.
An expensive stock
In fact, even as analysts warn that Palantir shares have become too expensive, trading for a mind-blowing 222 times forward earnings estimates, the stock has continued to rise.
Druckenmiller originally bought Palantir stock in the first quarter of last year, so he held on to it for about a year. Last year, the shares surged 340%, then continued to march higher, advancing more than 70% from the start of this year through today. Druckenmiller, after winning on his Nvidia investment, scored a win on Palantir too.
In both cases, Druckenmiller accomplished this by holding on for only a year or two because leading AI stocks have delivered gains very quickly — this happens from time to time in an industry that’s particularly in favor during a given period.
Should you follow Druckenmiller’s moves?
Now, the question is, should you follow Druckenmiller and sell names like Nvidia and Palantir and move on? The answer depends on your investment strategy. It’s important to remember that Druckenmiller is a professional and has the time and resources to quickly enter and exit positions — and benefit from gains over a relatively short time period. And when Druckenmiller closes a position, it doesn’t necessarily mean he no longer believes in the long-term story — as he said regarding Nvidia last year. The billionaire may simply be allocating funds into other players that he believes could gain more quickly in the months to come.
But smaller non-professional investors may find that by staying invested in a particular player — such as Nvidia or Palantir — yes, they may accompany the stocks through a low period or two, but over the years to come they might score an additional win. So, it’s often worth holding on for a number of years, as long as the companies’ long-term growth prospects remain compelling. Today, Nvidia and Palantir both offer bright outlooks thanks to their solid technology, their strong market positions, and general forecasts for AI growth this decade — and that means holding on to these players for a number of years also could be a great move.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.
