Less than two weeks ago, Wall Street and investors were privy to one of the most important data releases of the fourth quarter -- and no, I'm not talking about the October inflation report.
No later than 45 days following the end to a quarter, institutional investors with at least $100 million in assets under management (AUM) are required to file Form 13F with the Securities and Exchange Commission. A 13F offers a way for everyday investors to track which stocks Wall Street's leading money managers have been purchasing and selling during the previous quarter (in this instance, the September-ended quarter).
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While the highlight of 13F filing season tends to be Warren Buffett's Berkshire Hathaway, there is no shortage of billionaire investors who've dazzled Wall Street over the years. Billionaire Israel Englander of Millennium Management, who oversees close to $211 billion in AUM spread across thousands of securities (common stock and options), is a perfect example.
Among the thousands of transactions made by Englander and his top advisors, two contrarian trades stand out. In one respect, Englander has been a decisive seller of Wall Street's premier artificial intelligence (AI) stock, Nvidia(NASDAQ: NVDA). Comparatively, he's been piling into a struggling healthcare stock whose dividend yield is approaching a scorching-hot 12%!
Englander's Millennium rings the register on over two-thirds of its Nvidia stock
Since the page turned to 2023, AI colossus Nvidia has been virtually unstoppable. Shares are up 871%, as of the closing bell on Nov. 22, with the company's market value climbing by north of $3.1 trillion. Wall Street has never witnessed a market-leading business increase in value so quickly before. Perhaps this has been the impetus behind Millennium's selling spree.
Based on 13F filings, Englander's fund has sold 26,371,575 split-adjusted shares of Nvidia over the trailing year, ended Sept. 30. The "split-adjusted" aspect pertains to Nvidia conducting a historic 10-for-1 forward stock split following the close of trading on June 7. Millennium's remaining 11.15 million shares of Nvidia means its position has been slashed by 70% in a year.
The wind in Nvidia's sails has been fueled by its dominance in AI-accelerated data centers. Demand for the company's H100 graphics processing unit (GPU) and next-generation Blackwell chip has overwhelmed supply, leading to exceptional pricing power and a jaw-dropping gross margin of 74.6%, as of the end of the fiscal third quarter (Oct. 27, 2024).
What's more, Nvidia's GPUs have proven collectively superior to competing hardware in terms of computing capacity. Between Nvidia's CUDA software platform keeping customers loyal to its ecosystem and its GPUs outperforming on a computing basis, it's had little trouble outpacing Wall Street's already lofty consensus growth forecasts.
But there may be a perfect storm brewing for Nvidia, which might explain Englander's persistent selling activity in Wall Street's AI darling.
One of the biggest clues that Nvidia's stock has topped is its gross margin. While AI-GPU scarcity and higher price points for its H100 sent the company's gross margin soaring to more than 78% in the fiscal first quarter, it's subsequently retraced to 75.1% in the second quarter and 74.6% in the latest quarter. Nvidia's forecast for the fiscal fourth quarter pegs its gross margin between 73% and 73.5%, +/- 50 basis points. This steady decline in gross margin would imply that AI-GPU scarcity is waning, along with Nvidia's pricing power.
Competition is also coming at Nvidia from all angles. Though direct competitors, such as Advanced Micro Devices, garner most of the attention, the greater threat to Nvidia's data center "real estate" arguably comes from within. Many of its top customers by net sales, which are members of the "Magnificent Seven," are internally developing AI-GPUs to use in their data centers. Even with Nvidia's chips possessing computing advantages, these internally developed chips are cheaper and more easily accessible.
History might be the other catalyst that's encouraged Englander to cash in his chips. At no point over the last three decades have we witnessed a potentially game-changing technology avoid an early stage bubble. The internet, genome decoding, 3D printing, and the metaverse are just some of the examples of highly touted advancements where investors overestimated their early stage utility and adoption. If history were to rhyme and the artificial intelligence bubble bursts, no company would take it on the chin more than Nvidia.
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Englander just 10X'd his fund's stake in this nearly 12%-yielding healthcare stock
But while Israel Englander has been sending shares of the hottest AI stock on the planet to the chopping block, he's been busy purchasing shares of pharmacy chain Walgreens Boots Alliance(NASDAQ: WBA), which is trading at levels last observed in the late 20th century and yielding more than 11.5%!
During the September-ended quarter, Englander's fund bought 5,138,342 shares of Walgreens, which increased its position by a whopping 953% in just three months! It should be noted that Millennium commonly hedges its common-stock holdings with put and call options, which is the case with both Nvidia and Walgreens Boots Alliance.
To say that things have been challenging for Walgreens would be nothing short of an understatement. It's facing growing online pharmacy pressure from the likes of Amazon, has endured complications (i.e., sizable writedowns) in its efforts to become a healthcare-services company, and has even had its operating results negatively impacted in select markets by theft.
Despite these challenges, which have slashed Walgreens Boots Alliance's share price by more than 90% since it hit an all-time high, Englander and his team have piled in.
One of the primary catalysts for Walgreens was the appointment of Tim Wentworth as CEO in October 2023. Whereas prior CEO Rosalind Brewer was a seasoned retail leader but lacked healthcare experience, Wentworth brings decades of healthcare leadership to the table. While his rip-off-the-Band-Aid approach has been a bit of a shock to Wall Street and investors, he's not been shy about laying out his long-term vision for Walgreens.
For the moment, the company is focused on bringing down costs, as well as promoting higher-margin initiatives. The plan is to close 1,200 of its roughly 8,500 U.S. stores over the next three fiscal years, which will lower its operating expenses and focus the company's efforts on areas of higher opportunity.
Furthermore, Wentworth intends to keep promoting its healthcare-services transition. Even though its partnership with and investment in VillageMD has led to sizable writedowns, Walgreens' chief believes the company is moving toward recurring profitability from its co-located primary care clinics.
As of this writing, Walgreens Boots Alliance is yielding an almost unfathomable 11.5%. However, with Walgreens in cost-cutting mode and the company attempting a multiyear turnaround, it wouldn't be surprising if this payout was cut again or shelved entirely to preserve cash.
While I do believe Walgreens Boots Alliance has the tools to effect a turnaround, it's going to be a slow process filled with plenty of potholes and speed bumps.
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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. Sean Williams has positions in Amazon and Walgreens Boots Alliance. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Berkshire Hathaway, and Nvidia. The Motley Fool has a disclosure policy.
