Duquesne Family Office’s chief is cashing in his chips on two leading artificial intelligence (AI) stocks in favor of a drugmaker whose shares are up by 112% for the year.
Over the last two years, there hasn’t been a hotter trend on Wall Street than the rise of artificial intelligence (AI). The ability for AI-powered software and systems to become more proficient at their existing tasks, as well as evolve to learn new jobs over time without human intervention, gives this technology a virtually limitless ceiling and broad-based utility in most industries.
Based on one aggressive estimate from the analysts at PwC, the AI revolution can 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. Though quite a few billionaire money managers have profited handsomely from the surge in artificial intelligence stocks over the last two years, some are locking in their gains and heading for the sideline, including Stanley Druckenmiller.
As of the end of September, Druckenmiller was overseeing almost $3 billion in assets under management at Duquesne Family Office, which was spread across 75 holdings. While there are a select few AI stocks Druckenmiller still fancies, he’s been sending Wall Street’s two most-popular artificial intelligence juggernauts, Nvidia (NVDA 3.69%) and Palantir Technologies (PLTR 0.17%), to the grinder.
Druckenmiller’s Duquesne has dumped shares of Nvidia and Palantir
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 following the close of trading on June 7. As of Sept. 30, every share had been sold.
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 roughly 95%.
If you’re looking for a viable reason why one of Wall Street’s most-prominent billionaire investors is dumping shares of two hot AI stocks, simple profit-taking makes sense. Shares of Nvidia and Palantir have respectively gained 172% and 369% year-to-date, as of the closing bell on Dec. 20. These are outsized gains that typically encourage money managers to take some or all of their chips off the table.
The worry for Wall Street and investors is there may be reasons beyond simple profit-taking that have encouraged Druckenmiller and his advisors to abandon ship.
Perhaps the primary concern is that every next-big-thing innovation over the last three decades has followed the same course. Specifically, a period of hype and euphoria followed by a bubble-bursting event. Every big-time innovation since (and including) the advent of the internet in the mid-1990s has needed time to mature.
Despite this same process playing out in a number of next-big-thing trends, including genome decoding, 3D printing, blockchain technology, and the metaverse, investors consistently overestimate how quickly a new technology or innovation will be adopted and gain widespread utility. Even with aggressive investments in data center infrastructure by businesses, most lack well-defined plans to generate a positive return on their AI investment. This likely signals that AI is Wall Street’s next bubble waiting to burst.
Valuation is another front-and-center concern for Nvidia and Palantir. In late June and early July, Nvidia’s trailing-12-month (TTM) price-to-sales (P/S) ratio surpassed 40, which is a level consistent with peaks of market-leading businesses prior to the bursting of the dot-com bubble. Palantir’s valuation is even more of an eyesore, with the company currently trading at an all-time high multiple of 73 times TTM P/S. History tells us these are not sustainable levels.
Even with Nvidia expected to maintain its market share lead in AI-GPUs and Palantir having no large-scale competition, retracements appear likely for both stocks.
Image source: Getty Images.
Druckenmiller is scooping up shares of this red-hot pharmaceutical stock
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 Wall Street’s top-performing pharmaceutical stocks of 2024: Teva Pharmaceutical Industries (TEVA 0.54%). Shares of Teva are higher by 112% for the year, with Druckenmiller’s fund adding 1,427,950 shares during the September-ended quarter.
The previous eight years for Teva weren’t the easiest, to say the least. It racked up a lot of debt by overpaying for generic drugmaker Actavis in 2016, and faced litigation from pretty much every U.S. state regarding its role in the opioid crisis. The potential for an unknown/large legal settlement, coupled with the subpar pricing power and sales performance of generic drugs in recent years, heavily weighed on Teva’s share price.
The good news is that a number of strategic changes and legal resolutions have made Teva one of Wall Street’s most sought-after drug stocks to own ahead of 2025.
Arguably the most important upside catalyst has been putting its opioid litigation in the rearview mirror. Last year, the company entered into a $4.25 billion settlement with 48 states, which’ll be spread over 13 years. Some of this settlement value includes supplying up to $1.2 billion of generic overdose reversal drug Narcan to states.
One of the key strategic moves made by Teva’s management team has been to shift its focus to brand-name therapies. Even though novel drugs have a finite period of sales exclusivity, they possess better margins and juicier growth potential than generic drugs. Two of the company’s top-selling brand-name drugs, Austedo for tardive dyskinesia and Ajovy for migraine prevention, grew sales by more than 20% in the September-ended quarter (on a constant-currency basis) from the prior-year period.
Teva’s novel-drug pipeline is showing 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, which was developed in collaboration with Sanofi, met 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 noncore assets, lowering operating expenses, and steadily improving the company’s financial flexibility. Whereas Teva Pharmaceutical had north of $35 billion in net debt following its acquisition of Actavis in 2016, 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 inexpensive at less than 8 times forecast earnings per share (EPS) for 2025.