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Billionaire Philippe Laffont Sells a Popular AI Stock and Buys the S&P 500's Worst Stock. Does He Know Something Wall Street Doesn't?
Key Points
Billionaire Philippe Laffont runs the highly successful hedge fund Coatue Management, which nearly tripled the S&P 500's returns during the last three years.
Meta Platforms reported accelerating sales growth in the second quarter as investments in artificial intelligence boosted engagement with its social media properties.
The Trade Desk beat estimates in the second quarter, but the stock has fallen sharply this year due to concerns about increased competitive pressure from Amazon.
Billionaire Philippe Laffont is the founder and portfolio manager at Coatue Management, a hedge fund that nearly tripled the returns of the S&P 500 (SNPINDEX: ^GSPC) in the last three years. That makes him a good role model for individual investors.
Laffont made some interesting trades during the second
quarter. He sold 76,900 shares of Meta Platforms (NASDAQ: META), a
popular artificial intelligence stock that has beat the S&P 500 by 16
percentage points this year. He also added 998,900 shares of The Trade
Desk (NASDAQ: TTD), the worst-performing stock in the S&P 500 year to
date.
Does Laffont know something Wall Street doesn't?
Meta Platforms: The stock Philippe Laffont sold in the
second quarter
Meta Platforms owns three of the four most popular social media networks in the world as measured by
monthly active users: Facebook, Instagram, and WhatsApp. In total, those web
properties draw 3.4 billion people daily, which makes Meta an indispensable
advertising partner for countless brands. Indeed, it is the second largest ad
tech company in the world.
Meta is successfully using artificial intelligence (AI) to
deepen user engagement across its social media sites. "Advancements in our
recommendation systems have improve[d] quality so much that it has led to a 5%
increase in time spent on Facebook and 6% on Instagram," CEO Mark
Zuckerberg told analysts on the Q2 conference call.
Meta Platforms reported strong Q2 financial results that
beat estimates on the top and bottom lines. Revenue increased 22% to $47.5
billion, an acceleration from 16% growth in the prior quarter. Operating margin
expanded 5 points, and generally accepted accounting principles (GAAP) earnings
jumped 38% to $7.14 per diluted share. Investors have good reason to think that
momentum will continue.
Morningstar analyst Malik Ahmed Khan earlier this year
wrote, "Meta is a digital advertising juggernaut poised to increase its
market share." His conviction not only reflects success with AI but also
that Meta recently introduced advertising on WhatsApp and Threads, creating
incremental sources of revenue.
Looking ahead, Grand View Research estimates ad tech
spending will grow at 14% annually through 2030. And Wall Street expects Meta's
earnings to increase at 17% annually during the next three years. That
consensus makes the current valuation of 27 times earnings look very reasonable
So, why did Laffont sell Meta stock in Q2? Odds are he was
rebalancing his portfolio because shares jumped 26% during the first half of
the year. I doubt his decision reflects a lack of conviction. Meta is still the
second-largest holding in his hedge fund. So, patient investors should feel
comfortable buying a small position today.
The Trade Desk: The stock Philippe Laffont bought in the
second quarter
The Trade Desk is the largest demand-side platform (DSP) for
the open internet. A DSP is a type of ad tech software that helps brands run
campaigns across digital channels, and the open internet refers to the network
of websites and applications not controlled by tech giants like Meta Platforms
and Alphabet's Google.
The Trade Desk dominates connected TV (CTV) advertising, the
fastest-growing category of the broader digital advertising market. But
investors are worried about competitive pressure from Amazon, which
recently struck deals to bring ad inventory from Roku and Netflix to
its DSP. Amazon also added AI tools to its DSP that could help it take share in
other areas of the open internet.
The Trade Desk reported somewhat disappointing financial
results in Q2 despite exceeding estimates on the top and bottom lines. Revenue
rose 19% to $694 million, down from 25% growth in the prior quarter, and
non-GAAP earnings jumped 5% to $0.41 per diluted share. The stock sold off sharply following the report, partly
because sales slowed while rivals Meta and Amazon saw sales accelerate.
So, why did Laffont buy The Trade Desk in Q2? Odds are he
simply wanted to start a position after the stock dropped more than 50% in Q1.
However, the position is very small, less than 0.5% of his portfolio, so
investors should not interpret his purchase as a sign of high conviction.
Wall Street estimates The Trade Desk's earnings will
increase at 20% annually during the next three years. The current valuation of
55 times earnings is still somewhat expensive, but it's also the cheapest
price-to-earnings (P/E) multiple in five years. Patient investors interested in
owning the stock should start with a small position.
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