Billionaire Ken Griffin Offloads Broadcom Shares and Acquires an AI Stock That Has Surged 2,700% Since 2023

Billionaire Ken Griffin is widely regarded as one of the top money managers on Wall Street. He leads Citadel Advisors, which LCH Investments recognizes as the most successful hedge fund ever based on total net gains. Over the past three years, Citadel has surpassed the S&P 500 ( ^GSPC 0.53%) by 20 percentage points, making it a noteworthy example for investors.

With that in mind, Griffin and his team executed thousands of trades in the second quarter, but two moves stood out: they sold nearly all of their shares in Broadcom ( AVGO -1.24%) and initiated a modest position in Palantir ( PLTR 0.11%).

Why is this significant? Broadcom is the second biggest provider of AI accelerators after Nvidia, and stands to gain as more businesses seek savings through custom chips. On the other hand, most analysts believe Palantir is overvalued. Its stock has soared 2,700% since January 2023, yet the median price target of $165 per share suggests an 8% drop from its current price of $180.

Here’s what investors need to know about Broadcom and Palantir.

Broadcom: The stock Ken Griffin exited in Q2

Broadcom produces infrastructure software, Ethernet networking chips, and application-specific integrated circuits (ASICs). The company holds strong positions in several sectors. Forrester Research recently named its subsidiary VMware a leader in distributed hybrid cloud infrastructure, which combines computing, storage, and networking across both public and private clouds for a unified experience.

Broadcom is also the top supplier of Ethernet switching and routing chips for artificial intelligence (AI) applications, a sector expected to expand at a 34% annual rate through 2029. The company recently launched the industry's first 800G network interface card (NIC), capable of linking thousands of accelerators to power advanced AI systems. The Ethernet NIC market is projected to grow 40% per year through 2029.

Additionally, Broadcom leads in providing custom AI accelerators—ASICs that offer an alternative to Nvidia GPUs for AI training and inference. The company is currently developing custom accelerators for four major clients: Alphabet's Google, Meta Platforms, ByteDance, and OpenAI. Last quarter, Broadcom also revealed a $10 billion order from a fifth, undisclosed customer. The AI accelerator market is anticipated to grow at 29% annually through 2030.

In summary, Broadcom is a well-diversified tech firm with a significant role in the AI sector. So why did Ken Griffin divest in the second quarter? While I can only speculate, he may be concerned that the excitement around the company is outpacing its actual progress. Although ASICs are likely to be important as AI technology advances, they are less adaptable and lack the robust software ecosystem that supports Nvidia GPUs.

Analysts predict Broadcom’s adjusted earnings will climb 36% annually through the fiscal year ending October 2026. That makes its current price-to-earnings ratio of 55 seem fair, but this outlook assumes a sharp acceleration from the 15% earnings growth Broadcom posted last year. The market may be too optimistic.

Palantir Technologies: The stock Ken Griffin added in Q2

Palantir creates analytics software for both commercial and government organizations. Its solutions are distinctive because they combine data and machine learning (ML) models within a decision-making framework known as an ontology. This ontology acts as a digital twin, enabling clients from various industries to analyze and address complex challenges.

Earlier this year, Mark Giarelli from Morningstar highlighted the value of Palantir’s ontology-driven software in a client note: "It delivers actionable insights that go beyond standard analytics by establishing a closed read-write loop, engaging all stakeholders and data sources within an organization for a dynamic understanding of any issue."

Because Palantir structures information within a decision-making system, its platforms are inherently more practical than analytics tools that merely aggregate and process data. Its ontology-based software is especially beneficial for companies aiming to boost efficiency and productivity by integrating AI into their operations.

Forrester Research recently recognized Palantir as a leader in AI/ML platforms. Demand for its core analytics offerings has remained strong since the company introduced an additional AI platform in early 2023. Palantir’s customer base has doubled over the past two years, and its revenue growth has accelerated for eight consecutive quarters.

However, just because Palantir offers unique software in a vast market doesn’t mean investors should buy at any price. The company currently trades at 340 times its adjusted earnings, which is a steep valuation for a business expected to grow earnings at 37% annually through 2026.

So why did Ken Griffin purchase Palantir in the second quarter? The stock was significantly cheaper in early April, having dropped 40% from its peak and trading below $75 per share. Griffin may have taken advantage of this dip. Nevertheless, Citadel’s position in Palantir is extremely small—it doesn’t even make the firm’s top 1,000 holdings. Investors should be cautious before following suit today.