Over the past two years, there has not been a hotter trend on Wall Street than progress artificial intelligence (AI). The ability for AI-powered software and systems to become more proficient at their current tasks, as well as evolve to learn new jobs over time without human intervention, gives this technology an almost limitless ceiling and utility widespread in most industries.
Based on one aggressive estimate from the analysts at PwC, the AI revolution may add $15.7 trillion to the global economy by the turn of the decade. This otherworldly, addressable market is precisely why AI stocks have soared since the start of 2023.
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However, not everyone is sold on the idea that AI stocks are still a bargain. While quite a few billionaire money managers have benefited significantly from the surge in artificial intelligence stocks over the past two years, some are locking in their gains and heading for the sidelines, including Stanley Druckenmiller.
As of late September, Druckenmiller oversaw nearly $3 billion in assets under management in the Duquesne Family Office, which was spread across 75 holdings. While a pick a few AI stocks Druckenmiller still fancieshe has been sending two of Wall Street's most popular artificial intelligence juggers, Nvidia(NASDAQ: NVDA) a Palantir Technologies(NASDAQ: PLTR)to the grinder.
When 2024 began, Duquesne held 6,174,940 shares of AI graphics processing unit (GPU) company Nvidia, which takes into account its historic 10-for-1 stock split completed after the close of trading on June 7. As of September 30, each share has sell it.
Meanwhile, Druckenmiller's fund sold 728,255 shares of AI-driven data mining specialist Palantir during the third quarter, which reduced Duquesne Family Office's stake in the company by about 95%.
If you're looking for a practical reason why one of Wall Street's most prominent billionaire investors is dumping shares of two hot AI stocks, simple profit making makes sense. Nvidia and Palantir shares have respectively gained 172% and 369% year to date, as of the close on December 20. These are outsized gains that usually prompt money managers to pull some or all their chips off the table.
The concern for Wall Street and investors is that there could be reasons beyond simple profit making that have encouraged Druckenmiller and his advisers to abandon ship.
Perhaps the main concern is that every next big innovation over the past three decades has followed the same path. Specifically, a period of hype and euphoria followed by a bubble-filled event. Every major innovation since (and including) the advent of the internet in the mid-1990s needs time to mature.
Although this same process is emerging in a number of next-big trends, including genome decoding, 3D printing, blockchain technology, and the metaverse, investors consistently overestimate how quickly a new technology or innovation is adopted and gains widespread utility. Even with aggressive investments in data center infrastructure by businesses, most do not have defined plans to generate a positive return on their AI investment. This likely indicates that AI is the next Wall Street bubble waiting to burst.
Pricing is another front and center concern for Nvidia and Palantir. In late June and early July, Nvidia's trailing price-to-sales (P/S) ratio was more than 40, a level consistent with the peaks of market-leading businesses before the burst dot. bubble com. Palantir's valuation is even more of an eyesore, with the company currently trading at a record multiple of 73 times TTM P/S. History tells us that these are not sustainable levels.
Even with Nvidia expected to continue to lead its market share in AI-GPUs and Palantir without any large-scale competition, it seems likely that both stocks will be hit.
Image source: Getty Images.
But while Stanley Druckenmiller was busy overseeing the sale of high-profile AI stocks in Duquesne's investment portfolio, he was piling into one of the best-performing pharmaceutical stocks on Wall Street in 2024: Teva Pharmaceutical Industries(NYSE: TEVA). Teva shares are up 112% for the year, with the Druckenmiller fund adding 1,427,950 shares during the quarter ended in September.
The previous eight years for Teva were not the easiest, to say the least. He racked up a lot of debt by overpaying for generic drugmaker Actavis in 2016, and was facing litigation from nearly every US state over his role in the opioid crisis. The potential for an unknown/large legal settlement, along with subpar pricing power and generic drug sales performance in recent years, weighed heavily on Teva's share price.
The good news is that a number of strategic changes and legal decisions have made Teva one of Wall Street's most popular drug stocks to own before 2025.
Arguably the most important about-face catalyst has been putting his opioid litigation in the rearview mirror. Last year, the company entered into a $4.25 billion settlement with 48 states, which will be spread over 13 years. Some of the value of this settlement includes supplying states with up to $1.2 billion of the generic overdose reversal drug Narcan.
One of the key strategic moves made by Teva's management team has been to shift its focus to brand name therapies. Although new drugs have a limited period of limited sales, they have better margins and juicier growth potential than generic drugs. Two of the company's best-selling brand-name drugs, Austedo for tardive dyskinesia and Ajovy for preventing migraines, increased sales by more than 20% in the quarter ended September (on a constant currency basis) from r previous year period.
Teva's novel drug pipeline shows plenty of promise as well. The reason shares are on fire in December has to do with the reporting of positive phase 2b data for experimental drug duvakitug as a treatment for patients with moderate to severe inflammatory bowel disease. The drug, developed in collaboration with Sanofimet its primary endpoints and achieved clinical remission in more patients with ulcerative colitis and Crohn's disease than the placebo. If approved, duvakitug could blow past $1 billion in peak annual sales.
Furthermore, Teva's leadership has done a standup job of selling non-core assets, lowering operating costs, and gradually improving the company's financial flexibility. While Teva Pharmaceutical had net debt north of $35 billion following the 2016 acquisition of Actavis, it now has less than $15.7 billion in net debt on its balance sheet.
With Teva's long-awaited turnaround finally here, shares remain cheap at less than 8 times projected 2025 earnings per share (EPS).
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Sean Williams holds positions at Teva Pharmaceutical Industries. The Motley Fool has and recommends positions in Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.
