Is Palantir Technologies Inc. (PLTR) the Next AI Leader? Hedge Fund Investment Surges
We recently published a list of Renaissance Technologies Portfolio: 10 Best Stocks To Buy. In this article, we are going to take a look at where Palantir Technologies Inc. (NYSE:PLTR) stands against the other best stocks to buy which are part of the Renaissance Technologies portfolio.
Renaissance Technologies is an American hedge fund that specializes in systematic trading and employs statistical and mathematical tools to drive its investment programs. As of March 2024, the fund managed discretionary assets over $89 billion, according to their Form ADV. It was founded in 1982 by Jim Simons, a mathematician who worked as a code breaker for the US National Security Agency during the Cold War.
Simons is considered among the pioneers of quantitative investing. At the time of his death in May 2024, he had an estimated net worth of $31.4 billion, making him the 51st richest person in the world. His use of mathematical models and algorithms to drive long-term investment returns earned him a legacy that rivaled the likes of Warren Buffet and George Soros.
His signature Medallion generated average annual returns of 66% for three decades between 1988 and 2018, earning more than $100 billion in profits during the period. The fund started with charging a 5% fixed fee and also had performance charges of 20%, which were later increased to 44% in 2002. Despite those cuts, Medallion earned annual returns of around 39% on average.
The fund was closed to outside investors in 1993 and has since then only been available to past and current employees, and their families. Renaissance Technologies does have other funds that are open to outsiders, such as Renaissance Institutional Equities Fund (RIEF) and Renaissance Institutional Diversified Alpha (RIDA).
Simons stepped down from active management of Renaissance Technologies in 2010 and resigned as its executive chairman in 2021. Peter Brown is the current CEO of the capital market company. He graduated with a B.A. in Mathematics from Harvard University and also holds a Ph.D. in Computer Science from Carnegie Mellon University. Brown’s father, Henry B.R. Brown, invented the Reserve Primary Fund in 1970, which was the first money market fund to be set up.
Brown is committed to the use of mathematical models to discover and unlock the value of stocks in the market. However, Renaissance hedge funds that are open to outside investors have been shrinking for some while. According to a recent report in the Financial Times, RIEF currently manages around $19.6 billion, significantly down from $35.8 billion in 2020. The collapse of RIDA and Renaissance Institutional Diversified Global Equities (RIDGE) has been even worse. The two funds were merged this year. In 2019, RIDA managed about $15 billion, while RIDGE had a portfolio of $14.3 billion. Today, the combined fund manages only $3.6 billion.
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As a result, Renaissance’s external assets under management have declined from $65.1 billion in 2019 to $23.2 billion today. Much of the exodus happened following the coronavirus pandemic and was driven by a shock performance by the hedge fund as the stock market rattled. In contrast, the Medallion Fund, which is limited to past and current employees, gained 76% in 2020 despite Covid-19. This is because the fund indulges in high-frequency trading with a lower capacity, a strategy that is strikingly different from those applied for external funds.
However, the performance of external funds is beginning to stabilize after the lows over the last few years. RIEF is up 19.8% this year, while RIDA has also gained 17.4%. Though financial experts believe the improvement is owed more to the fund’s performance, rather than flows.
Methodology
We scanned Renaissance Technologies’ 13F portfolio, as of June 30, 2024 and picked the top 10 stocks according to their stake value. The figures were sourced from Insider Monkey Database.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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Palantir Technologies Inc. (NYSE:PLTR)
Stake Value as of Q2 2024: $1,000,922,777
Palantir Technologies Inc. (NYSE:PLTR) is an American technology company, headquartered in Denver, Colorado, that specializes in software platforms for data analytics. Its platforms are widely used by government agencies, financial institutions, and several large corporations. It is one of the best stocks to buy from the Renaissance Technologies portfolio, with the hedge fund having a stake of over $1 billion in the company.
The company delivered a robust show during Q2 2024, driven by remarkable strength in US commercial and government businesses. Revenue for the quarter soared to $678 million, registering a 27% year-over-year increase. Operating margin was recorded at 37%. Net income totaled a record $134 million, resulting in an EPS of $0.09, which beat analysts’ expectations of $0.06 per share. This was the sixth consecutive quarter of GAAP profitability for the company. It also ended the quarter with $4 billion in cash.
Palantir Technologies Inc. (NYSE:PLTR) closed 27 deals worth over $10 million or more during the quarter, which amounted to a total contract value in excess of $1 billion. Some notable deals included Tampa signing a seven-year expansion to deploy AIP for care coordination. Panasonic also entered into a three-year deal for AIP usage across its finance, manufacturing, and quality control operations. The company is also growing in international markets, which augurs well for its future trajectory. In 2023, NHS England awarded a £480m contract to Palantir for its federated data platform (FDP).
After a solid Q2, the company raised its guidance for the full year and now expects revenue in the range of $2.74 billion and $2.75 billion for 2024. The strong show this year so far has resulted in a bullish sentiment among investors about the stock. Carillon Scout Mid Cap Fund stated the following regarding Palantir Technologies Inc. (NYSE:PLTR) in its first quarter 2024 investor letter:
The top contributor to return for the quarter was Palantir Technologies Inc. (NYSE:PLTR). Sentiment improved on Palantir after it reported stronger than expected commercial customer revenue and free cash flow. U.S. commercial growth was especially encouraging, as U.S. commercial revenue was up by a large percentage year over year for the fourth quarter and U.S. commercial customer count grew nearly as much. We expect Palantir to become one of the premier artificial intelligence (AI) software providers, built on its Foundry and AIP platforms.
Having said that, a major chunk of Palantir’s revenue comes from government contracts. For perspective, it was 55% in Q2 2024. Some experts have raised concern over the company’s dependence on government revenue as it can be unpredictable and can change over time due to political climate and budget constraints.
Overall, PLTR ranks 2nd among the Renaissance Technologies Portfolio: 10 Best Stocks To Buy. While we acknowledge the potential of PLTR as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PLTR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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