Billionaire Stanley Druckenmiller has sold 95% of Duquesne’s shares in Palantir and is instead investing in this trillion-dollar artificial intelligence (AI) stock.

The fourth quarter was packed with important data releases. In November, investors received hundreds of earnings reports from Wall Street’s most influential companies, the highly anticipated election results and scores of economic data releases that offer clues about what moves the country’s central bank might take next.

But perhaps the most relevant data dump of all came on November 14th. This was the deadline for institutional investors with assets under management (AUM) of at least $100 million to file Form 13F with the Securities and Exchange Commission. A 13F provides an easy-to-understand overview of what stocks Wall Street’s smartest money managers bought and sold during the most recent quarter (in this case, the quarter ended September 30).

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However, no asset manager is more closely watched than Berkshire Hathaway CEO Warren Buffett is far from the only billionaire known for his investing expertise. Billionaire Stanley Druckenmiller, who has nearly $3 billion in assets under management at the Duquesne Family Office, is also attracting some attention.

Druckenmiller is known for a balanced investment approach that includes multiple asset classes (stocks, bonds, stock options and currencies) as well as long and short positions. Note that short positions do not appear on a quarterly filed 13F.

What’s particularly notable about Druckenmiller’s trading activity in the third quarter is his work in artificial intelligence (AI). Specifically, he dumped one of Wall Street’s hottest AI stocks with a seemingly impenetrable moat in favor of another red-hot AI company.

Druckenmiller’s Duquesne sent almost all of its Palantir shares to the chopping block

Stanley Druckenmiller and his team tend to be quite active from quarter to quarter. Duquesne’s top 10 positions were held for an average of just two quarters, while all 75 positions (as of the end of September) were held, an average of just 2.33 quarters.

But among the more than three dozen stocks that were completely sold or discounted in the third quarter, perhaps none stands out more than the AI ​​data mining specialist Palantir Technologies (NASDAQ:PLTR). Duquesne entered the quarter with nearly 770,000 shares of Palantir and crossed the proverbial finish line with just 41,710 shares, a decline of around 95%!

At least some of this selling activity may be due to harmless profit-taking. Palantir shares are up 335% year to date as of the closing bell on Dec. 17, and Druckenmiller’s fund initiated its nearly 770,000-share stake in Palantir sometime in the fourth quarter of 2023. Market-leading companies rarely quadruple in less than a year, so this is the perfect opportunity to pocket some chips.

This stunning rally in Palantir stock was fueled by the company’s pivotal shift to recurring profitability as well as strong demand for its Gotham and Foundry AI and machine learning platforms. The former is used by federal governments to collect data and plan/execute missions. Foundry is now a tool that companies use to make sensible use of their data. The multi-year contracts Palantir receives from federal governments through Gotham are its main profit driver for now.

But there may be more to Druckenmiller’s sale than just the cash register ringing.

For one thing, history hasn’t been kind to the next big innovations over three decades. While artificial intelligence has the potential to be a game-changer in the long term, any leap in innovation takes time to mature – and AI is likely to be no exception. If an AI bubble were to actually form, Palantir stock would likely go into decline.

Druckenmiller and his team may also be focusing on the tangible cap for Gotham. Although this segment is highly profitable, the solutions it offers are only available to the US and its closest allies. This means that the customer base for Gotham is limited in the long run.

Finally, Palantir’s valuation is concerning. While some market-leading companies peaked at around 40 times trailing 12-month sales during previous bubbles, Palantir is valued at around 69 times trailing 12-month sales. Despite its competitive advantage, this appears to be an unsustainable valuation premium.

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Druckenmiller is into Wall Street’s newest trillion-dollar AI stock

But just because the Duquesne Family Office boss is eclipsing one of Wall Street’s best-performing AI stocks doesn’t mean all artificial intelligence stocks are off-limits.

In the September quarter, Druckenmiller’s fund added 33 new holdings, one of which became Wall Street’s newest trillion-dollar stock last week. This red-hot stock, of which Duquesne added 239,980 shares in the third quarter, is none other than an AI network solutions specialist Broadcom (NASDAQ:AVGO).

As well NvidiaAs Broadcom’s graphics processing units (GPUs) have become the clear choice as the “brains” in enterprise data centers, Broadcom’s AI networking solutions are preferred when it comes to connecting GPUs and minimizing tail latency. This is particularly important for AI-driven software and systems that require split-second decision making.

In fiscal 2024 (Broadcom’s fiscal year ended November 3), the company reported AI revenue of $12.2 billion, representing 220% year-over-year growth. More importantly, CEO Hock Tan expects the company’s three largest customers could spend between $60 billion and $90 billion on customized AI application-specific integrated circuits (ASIC) over the next three years. It seems that Broadcom’s AI journey has just begun.

Consider that more than $39 billion of Broadcom’s fiscal 2024 revenue came from outside of AI networking solutions. The company is one of the world’s leading suppliers of wireless chips and accessories for next-generation smartphones. Broadcom also offers cybersecurity solutions as well as optical sensors for various industries. The point is that Broadcom is a diversified technology company that could theoretically handle a potential AI bubble better than most AI stocks.

Druckenmiller and his top advisers could also be attracted to Broadcom’s favorable return on capital program. Since paying its first-ever quarterly dividend in 2010, Broadcom’s payout has increased a whopping 8,329% on a split-adjusted basis.

The only concern for Broadcom stock is whether the stock has risen too far, too fast. At 22 times trailing 12-month sales, Broadcom trades at a 166% premium to its five-year average price-to-sales ratio. Expected mid- to high-teens revenue growth in fiscal 2025 and 2026 may simply not be enough to support this level of valuation premium.

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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Nvidia and Palantir Technologies. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.