Investors are never at a loss for data on Wall Street. With thousands of publicly traded companies reporting their operating results every three months, and economic data rolling out with regularity, it can be easy for something important to slip through the cracks.
On Aug. 14, arguably the most important data dump of the entire third quarter occurred -- and there's a possibility you missed it. This was the filing deadline for institutional investors with at least $100 million in assets under management (AUM) to file Form 13F with the Securities and Exchange Commission. A 13F provides an easy-to-understand snapshot of which stocks Wall Street's most-successful asset managers purchased and sold in the latest quarter (in this case, the June-ended quarter).
Although Berkshire Hathaway CEO Warren Buffett is probably the most closely tracked money manager, billionaire Steven Cohen of Point72 Asset Management tends to generate a lot of buzz.
Perhaps the most surprising aspect of Cohen's hedge fund, which contains thousands of positions and has more than $38 billion in AUM, has been his and his team's approach to Wall Street's artificial intelligence (AI) darling, Nvidia (NASDAQ: NVDA).
Cohen has dumped almost the entirety of Point72's stake in Nvidia
At the end of September 2023, Cohen's fund held 16,457,320 shares of Nvidia, which made it Point72's fifth-largest stock holding by market value (excluding options). I should also mention that this share count has been adjusted for Nvidia's historic 10-for-1 stock split, which was carried out in June 2024.
But over the next nine months, through June 30, Cohen oversaw an 87% reduction of this position to 2,115,018 shares.
With Nvidia's stock catapulting by 822% since the start of 2023, as of the closing bell on Oct. 11, Cohen's aggressive selling might represent nothing more than profit-taking and asset reallocation. Then again, there may be more to this story than meets the eye.
For example, it's a given that Nvidia is set to face growing competition. External competitors will be bringing new AI-graphics processing units (GPUs) to market with the hope that their hardware can dethrone Nvidia's ultra-popular H100 and successor AI-GPU architecture, Blackwell.
But the bigger issue for Nvidia might be internal competition. The company's four-largest customers by net sales -- Microsoft, Meta Platforms, Amazon, and Alphabet -- are all internally developing AI-GPUs for their data centers. Nvidia maintaining its computing advantage superiority won't matter much if ease of access to AI-GPUs and cost are more advantageous for these internally developed chips. In other words, this suggests Nvidia will lose out on future orders from its top customers.
History is another factor that might be making Point72's brightest investment minds, including Steven Cohen, skittish about Nvidia. Every game-changing technology for the last three decades, including the internet, went through a bubble-bursting event early in its existence. Investors have a terrible habit of overestimating the uptake of new technologies, thus leading to eventual disappointment.
No market-leading business has benefited from the AI revolution more directly than Nvidia. If the AI bubble were to burst, Nvidia's stock would logically be hit harder than its peers.
The regulatory landscape hasn't done Nvidia any favors, either. In each of the previous two years, U.S. regulators restricted the export of Nvidia's high-powered AI-GPUs to China. Without access to the world's No. 2 economy, Nvidia could be missing out on billions of dollars in sales each quarter.
But while billionaire Steven Cohen and his team have been busy sending shares of Nvidia to the chopping block, they've absolutely piled into a high-flying stock-split stock with undeniable competitive advantages.
Cohen's Point72 takes a big bite out of this outperforming stock-split stock
Among the numerous holdings that Cohen oversaw the addition to in the June-ended quarter, arguably none stands out more than fast-casual restaurant chain Chipotle Mexican Grill (NYSE: CMG). Chipotle completed its first-ever split after the close of trading on June 25. The magnitude of this split, 50-for-1, was one of the largest in the history of the New York Stock Exchange.
During the second quarter, Cohen's fund purchased 1,458,700 shares of Chipotle, which increased its March-ended stake by a whopping 446% to 1,785,950 shares. Similar to Nvidia, this share count has been adjusted to account for the company's split.
The lure that likely attracted Point72's brightest investment minds to take a big bite out of Chipotle's stock is its many well-defined competitive edges.
Differentiation has been a big reason Chipotle Mexican Grill has been able to stand out in the highly competitive restaurant landscape. Its pledge to use responsibly raised meats that are free of unnecessary antibiotics, as well as source vegetables locally, when possible, has resonated with consumers.
Just as grocery stores capitalized on the organic/natural food trend two decades ago, Chipotle's management team quickly realized that its customers would gladly pay more for higher-quality food. Given that food costs have notably risen over the last couple of years, this pricing power has come in especially handy.
The company's limited menu also helps it stand out from the crowd. By keeping its menu relatively small, Chipotle ensures that its staff can quickly prep food and prepare meals to keep the lines in its stores moving. Further, a small menu leads to a bigger buzz when new items are introduced.
The lift Chipotle's business has enjoyed from the introduction of Chipotlanes -- drive-thru lanes devoted to fulfilling mobile orders -- needs to be recognized, too. Mobile ordering has added a new dimension to the company's sales channels, as well as helped introduce the brand to Generation Z.
While there's no denying that Chipotle Mexican Grill has handily outperformed expectations since becoming a public company in January 2006, the one aspect that might leave a bad taste in the mouth of investors, including Steven Cohen, is its valuation. Though Chipotle is worthy of a premium to its peers, the company's forward price-to-earnings (P/E) ratio of 45, as of Oct. 11, is a bit excessive for a restaurant chain.
With some of its organic growth being driven by higher prices and not additional orders, it makes the company's outsized forward P/E ratio even more egregious. There is, after all, only so much innovation that can be expected from a restaurant chain.
Although billionaire Steven Cohen has invested in a truly supercharged stock-split stock, its near-term upside looks to be limited.
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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. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Sean Williams has positions in Alphabet, Amazon, and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Amazon, Berkshire Hathaway, Chipotle Mexican Grill, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft, short December 2024 $54 puts on Chipotle Mexican Grill, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Billionaire Steven Cohen Sold 87% of Point72's Stake in Nvidia and Is Piling Into This Supercharged Stock-Split Stock was originally published by The Motley Fool