Investors are rarely ever at a loss for important data releases on Wall Street. Earnings season provides an onslaught of operating results for many of America’s most-important businesses, while economic data releases occur on an almost everyday basis from Monday through Friday. But every so often, one of these meaningful data dumps can slip through the cracks.
For instance, Aug. 14 marked the deadline for institutional investors with at least $100 million in assets under management to file Form 13F with the Securities and Exchange Commission — and there’s a chance you missed it. A 13F offers an under-the-hood look at which stocks Wall Street’s top-tier money managers purchased and sold in the latest quarter (in this instance, the Aug. 14 filings detailed trading activity for the June-ended quarter).
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Although Berkshire Hathaway’s Warren Buffett is a favorite of investors, there are other billionaire money managers who make waves. One of these highly tracked billionaires is Israel Englander of Millennium Management, who as of the end of June was overseeing a nearly $216 billion investment portfolio spread across thousands of securities, including put and call options.
Despite running a very active hedge fund, a handful of trades stand out for Englander, including dumping an outperforming ultra-high-yield dividend stock, as well as piling into a troubled artificial intelligence (AI) company.
Among the thousands of positions Englander and his team have reduced, perhaps the one that raises the most eyebrows is the selling activity we’ve witnessed through the first six months of 2024 in telecom titan AT&T (NYSE: T). Despite shares of the company rallying by 49% on a total return basis (including its juicy 5% yield) over the trailing year, Englander has sent roughly 40% of his fund’s stake in AT&T (8,979,263 shares) to the chopping block this year.
Profit-taking represents one reason Millennium’s brightest investment minds have been pressing the sell button. It’s not often that AT&T delivers a nearly 50% total return on a trailing-12-month basis. While its forward price-to-earnings (P/E) ratio of 10 is still well below that of the benchmark S&P 500, it’s currently trading at a 24% premium to its average forward P/E multiple over the trailing-five-year period.
It’s also possible Englander and his advisors are concerned about an increase in legal expenses for AT&T. In July 2023, an investigative report from the Wall Street Journal suggested AT&T and other legacy telecom companies might incur financial liabilities tied to their use of lead-sheathed cables. Despite AT&T refuting these findings, there may be some degree of overhang or uncertainty that still exists.
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But as a shareholder of AT&T, I find Millennium’s actions to be a bit of a head-scratcher. Although AT&T’s growth heyday is long gone, the shift to 5G download speeds has led to a modest but steady growth cycle in most facets of the company’s business. Wireless service revenue is increasing by a low-to-mid single-digit percentage, while churn rate remains at or near a historic low. Over time, access to wireless services and broadband has become a basic necessity.
Speaking of broadband, it’s quickly become a key source of operating cash flow for AT&T. Upgrading its broadband services to support 5G download speeds might allow the company to report its seventh consecutive year with at least 1 million net broadband customers gained.
Additionally, AT&T has made substantial progress with its balance sheet since spinning off its content arm WarnerMedia in April 2022. When WarnerMedia merged with Discovery to create the media goliath we now know as Warner Bros. Discovery, this new entity was responsible for taking on debt lots and making payments to AT&T to the collective tune of $40.4 billion. Since March 31, 2022, AT&T’s net debt has declined from $169 billion to $125.8 billion, as of Sept. 30, 2024.
Although I wouldn’t count on AT&T outperforming the S&P 500 on a regular basis, my suspicion is that Millennium will, eventually, regret paring down its stake.
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On the other end of the spectrum, perhaps the most, in hindsight, puzzling big-time purchase made by Englander and his team at Millennium Management during the June-ended quarter is customizable rack server and storage solutions company Super Micro Computer (NASDAQ: SMCI).
Millennium’s 13F shows that 5,533,230 shares were purchased, which increased the fund’s stake in Super Micro by more than 800%. Keep in mind this share data has been adjusted for Super Micro Computer’s first-ever split (10-for-1) following the close of trading on Sept. 30.
On paper, Super Micro looks like nothing short of a no-brainer buy. Businesses that are eager to take advantage of the artificial intelligence revolution are spending big bucks on the infrastructure needed to make that happen. Super Micro has been a clear beneficiary, as its fiscal 2024 operating results (ended June 30, 2024) and guidance demonstrate. Sales jumped 110% to $14.94 billion in its most recent fiscal year, with a range of $26 billion to $30 billion in revenue forecast for the current year.
Another factor that’s made Super Micro Computer especially popular among enterprises wanting to be on the cutting edge of the innovative curve is its incorporation of Nvidia’s ultra-popular H100 graphics processing units into its customizable rack servers.
But there are two sides to every story. Although the company is using Nvidia’s top-notch hardware, it’s also at the mercy of its suppliers. With orders for the H100 backlogged, Super Micro may not be able to satisfy all of the demand for its products.
However, the bigger issue looks to be the alleged trustworthiness of the company’s financial statements. In late August, noted short seller Hindenburg Research released a report that, among things, alleged “accounting manipulation, sibling self-dealing, and sanctions evasion” on Super Micro’s part. Despite the company denying these claims, it nevertheless delayed the filing of its annual report.
Things have somewhat snowballed since Hindenburg released its short-seller report. According to the WSJ, the U.S. Justice Department is conducting an early stage probe of Super Micro’s accounting practices. What’s more, accounting firm Ernst & Young recently resigned, which raises additional question marks about the company’s financial statements.
Though Super Micro’s potential is plain to see, there’s no reason for investors to consider dipping their toes into the water until this widening grey cloud over the company’s accounting practices is resolved.
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Sean Williams has positions in AT&T and Warner Bros. Discovery. The Motley Fool has positions in and recommends Berkshire Hathaway, Nvidia, and Warner Bros. Discovery. The Motley Fool has a disclosure policy.
Billionaire Israel Englander Sold 40% of Millennium’s Stake in AT&T and Is Piling Into This Troubled Artificial Intelligence (AI) Stock Instead was originally published by The Motley Fool
