Palantir Technologies(NASDAQ: PLTR) has been one of the hottest stocks on the market this year. However, Arista Networks(NYSE: ANET), a company that conducted a 4-for-1 stock split on Dec. 4, has been the better performer over the last four years. Palantir shares jumped 190% during that period, while Arista shares soared 525%.
The billionaire-led hedge funds below sold shares of Palantir and bought Arista stock in the third quarter:
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Cliff Asness’ AQR Capital Management sold 99,140 shares of Palantir, reducing its stake by 16%. The hedge fund added 248,090 shares of Arista, increasing its position by 46%.
Israel Englander’s Millennium Management sold 4.4 million shares of Palantir, reducing its stake by 90%. The hedge fund also bought 23,292 shares of Arista, increasing its position by 5%.
David Shaw’s D.E. Shaw Investment Management sold 1.7 million shares of Palantir, reducing its stake by 35%. The hedge fund also added 28,765 shares of Arista, increasing its position by 612%.
The trades made by Millennium Management and D.E. Shaw are particularly noteworthy because they’re tied as the second-most-successful hedge funds of all time in terms of net gains since inception, according to LCH Investments. But the trades listed above were made in the third quarter, which ended two months ago.
Here’s what investors need to know about Palantir and Arista today.
Palantir specializes in data analytics. It began building software for the U.S. intelligence community over two decades ago and has since expanded into the commercial sector.
Its core products, Gotham and Foundry, let customers turn complex information into actionable insights. For instance, semiconductor manufacturers can use Palantir’s software to manage supply chains and improve production yields.
Last year, the company expanded its portfolio with the launch of AIP, an artificial intelligence (AI) platform that integrates large language models into Gotham and Foundry. This enables clients to apply generative AI to their operations. For instance, a semiconductor manufacturer using Foundry for supply chain management could prompt the platform in natural language to suggest resolutions as problems arise.
AIP has garnered praise from several industry experts and supercharged Palantir’s business. Forrester Research analysts, led by Mike Gualtieri, recently ranked AIP as the best AI platform on the market. And Palantir has reported an acceleration in sales growth for the last five quarters, driven by what CEO Alex Karp describes as “unwavering demand” for AIP.
Unfortunately, Palantir has a valuation problem. Wall Street expects adjusted earnings to grow at 24% annually through 2026.
That consensus estimate could be a bit low, given that AI platform spending will increase at 40% annually through 2028, according to IDC. Even so, Palantir currently trades at 200 times adjusted earnings, an absurd valuation even if earnings were projected to increase at 50% annually in the next few years.
Investors who chase Palantir right here could wind up in trouble. The valuation will fall at some point, and there are only two ways that can happen — either earnings grow much faster than anticipated or the stock eventually suffers a correction. The most prudent chioce for prospective investors is to avoid the stock right now, and current shareholders should consider trimming large positions.
Arista specializes in networking solutions for enterprise and cloud data centers. The company complements its hardware (switches and routers) with adjacent software for network automation, monitoring, and security. Arista is the leader in high-speed verticals of the Ethernet switching market (i.e., 100+ Gigabit), with more than twice as much market share as the closest contender, Cisco Systems.
Arista says two key innovations let it disrupt the market. First, it provides a single version of its Extensible Operating System (EOS) that runs across all its hardware, which simplifies network management. Second, it relies entirely on merchant silicon (chips built by third parties), rather than designing its own chips. That lets Arista focus research and development (R&D) spending on software development, and affords customers flexibility in selecting chips.
Arista checked all the right boxes with its third-quarter financial report. The company beat expectations, raised full-year guidance, and provided upbeat insight into 2025.
Specifically, revenue increased 20% to $1.8 billion and non-GAAP net income rose 31% to $0.60 per diluted share. Management now expects revenue to increase 22% in the fourth quarter, and the company anticipates 16% growth in 2025.
Going forward, data centers will need to modernize their network infrastructure to keep up with advancements in artificial intelligence. Arista is ideally positioned to benefit from that trend, given its leadership in the 100+ Gigabit market verticals. But Wall Street expects the company’s adjusted earnings to increase at 14% annually through 2026, which makes the current valuation of 49 times adjusted earnings look expensive.
Arista is a great company with compelling growth prospects, but the current price tag is a problem. I think this stock is best relegated to a watchlist for the time being — and I say that as a current shareholder. I would feel more comfortable adding to my position in the event of a 20% pullback.
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Trevor Jennewine has positions in Arista Networks and Palantir Technologies. The Motley Fool has positions in and recommends Arista Networks, Cisco Systems, and Palantir Technologies. The Motley Fool has a disclosure policy.
Billionaires Are Selling Palantir Stock and Buying a Stock-Split AI Stock Up 525% in 4 Years was originally published by The Motley Fool
