Philippe Laffont's Shift from AI Giants to Stock-Split Success

You could rightly say that Coatue Management's 13F filing revealed some significant moves made by billionaire Philippe Laffont during the third quarter. As the investment world pays close attention to these filings, it became clear that Laffont has shifted his focus in a notable way.

November was a month filled with key financial news, notably the impending Election Day and the busy earnings season, which typically sees a flood of quarterly results from major companies. Amid this flurry of information, some important filings, such as the Form 13F from institutional investors overseeing at least $100 million, may have flown under the radar.

Coatue Management, founded by Laffont in 1999, specializes in investments in high-growth and innovative technology companies. As of the end of September, the firm managed close to $27 billion in assets, featuring a concentrated portfolio with only 81 holdings. Recent trading activities from Laffont have drawn particular attention.

Laffont Reduces Exposure to AI Leaders Nvidia and AMD

For the past two years, artificial intelligence (AI) has emerged as a major trend on Wall Street, with research suggesting it could add $15.7 trillion to the global economy by 2030. However, despite this promising outlook, Laffont's strategy has involved selling significant portions of his stakes in two prominent players in the AI sector: Nvidia and Advanced Micro Devices (AMD).

Specifically, Coatue has reduced its position in Nvidia by approximately 80%, selling over 39 million shares since March 2023, including its significant stock split in June. Similarly, Laffont has cut his holding in AMD by about 50%, selling roughly 4.25 million shares in the same timeframe.

This retreat from prominent AI stocks may reflect broader concerns. Historically, many transformative technologies have experienced early-stage bubbles, leading to over-inflation of stock prices. It's worth noting that AI is still in its infancy, and if a bubble forms, Nvidia and AMD could face substantial downturns.

In addition to potential market bubbles, Laffont might be monitoring the gross margins at both companies. Nvidia's margins have surged due to high demand for its AI-specific graphics processing units (GPUs), but as AMD ramps up its own production, the balance of supply and demand may shift. This could present challenges for both companies moving forward.

There are also concerns regarding the lack of insider purchases at these companies. Nvidia hasn't seen an insider buy in nearly four years, while AMD executives have not bought shares in over five years. This lack of confidence from management can affect investor sentiment.

Laffont Invests in Chipotle after AI Sales

While Laffont has been selling shares in major AI companies, he is also taking a substantial interest in a fast-casual restaurant chain that recently underwent a significant stock split: Chipotle Mexican Grill. During the third quarter, Coatue acquired more than 4.5 million shares, making it a key position within Laffont's portfolio.

Since its initial public offering in 2006, Chipotle's shares have skyrocketed by nearly 13,900%. The company has built this success on a foundation of trust, quality, and innovation. Chipotle emphasizes the use of responsibly raised meats and locally sourced vegetables whenever possible. Their commitment to high-quality food has earned them a loyal customer base.

Moreover, Chipotle's management has recognized that consumers are willing to pay more for superior products. Like many grocery stores that benefited from the organic food trend, Chipotle has successfully passed along price hikes, offering fresh dishes while avoiding frozen ingredients.

Chipotle's growth strategy also involves innovation, such as the introduction of its "Chipotlane" drive-thru concept, enhancing its digital ordering capabilities. This adaptation became especially relevant during the COVID-19 pandemic.

However, Chipotle faces some uncertainties ahead. The recent departure of its CEO to Starbucks raises questions about leadership continuity. Additionally, Chipotle's high valuation—trading at around 47 times forward earnings—may make it challenging for the company to achieve significant growth in the short term, especially given the rising competition.

While Laffont's strategic pivot has drawn attention, only time will tell if his investments in Chipotle will yield the kind of returns he has traditionally achieved with tech investments. It will also be interesting to see how the performance of Nvidia and AMD unfolds amidst the changing landscape of the AI sector.

Laffont, Nvidia, AMD