What Stanley Druckenmiller's Exit From Palantir Says About His Investment Strategy and Why It Matters

Key Points

• Stanley Druckenmiller is one of the best investors of all time.

• He recently sold out of his stake in Palantir just a year after he bought it.

• Valuation may have contributed to the decision to sell.

• 10 stocks we like better than Palantir Technologies ›

Stanley Druckenmiller is one of the best investors of all time. From 1981 to 2010, Druckenmiller never had a losing year, achieving an average annual return of 30% with his hedge fund Duquesne Capital Management, a phenomenal track record.

These days, Druckenmiller still invests through the Duquesne Family Office, and his moves are closely watched by investors looking for insights into the market from the top money manager.

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In the first quarter, one trade was particularly intriguing. Druckenmiller sold out of all of his shares of Palantir Technologies (NASDAQ: PLTR), the high-flying artificial intelligence (AI) software stock that has been the best performer in the S&P 500 this year. Palantir was not a big holding of his, worth around $5 million at the time of the sale, or 41,710 shares.

It's not clear why Druckenmiller sold out of Palantir, but we can speculate as to the reasoning. Let's take a look at a couple of possible reasons.

Image source: Getty Images.

1. Valuation

Valuation is the most logical reason that Druckenmiller would exit the Palantir stake. The AI stock has stretched what's typically considered a reasonable price to pay for a stock.

At this writing, Palantir was trading at a price-to-sales ratio of 111, a valuation typically reserved for a development-stage stock in biotech or another emerging industry. It will be difficult for Palantir to maintain that multiple as any flaws with its results are likely to drive a sell-off in the stock.

This isn't the first time that Duquesne sold Palantir. It dumped most of its stake in the third quarter of 2024, selling 728,255 shares worth about $30 million at the time as that sale came before Palantir stock soared in the fourth quarter and into this year.

Druckenmiller bought the stock in the first quarter of 2024, but he didn't hold it for long. Concerns about valuation also seem the most likely cause for the sale as he made a similar decision with Nvidia, selling out of the stock in 2024, though he later acknowledged that was a mistake as the stock continued to rise. Explaining the decision to sell Nvidia, Druckenmiller said that the market had come to recognize what he recognized earlier when he bought the stock in 2022.

Notably, Duquesne bought nearly 500,000 shares of Taiwan Semiconductor Manufacturing in the first quarter, worth around $100 million, showing that the chip manufacturing leader may be his preferred AI play.

2. Diversifying away from the U.S.

Like other investors who may be responding to the simmering trade war, Druckenmiller seems to have diversified his portfolio away from the U.S. Five of Duquesne's top nine holdings are based in foreign countries or do most of their business in foreign countries, including Teva Pharmaceuticals, Coupang, Philip Morris International, MercadoLibre, and Taiwan Semiconductor.

Out of those five, Druckenmiller added to three of them (Teva, Coupang, and TSMC) in the first quarter, and he sold shares of Philip Morris. He made no changes to MercadoLibre.

Of course, there are reasons to own these stocks besides their international exposure, but it's a notable change for Duquesne. A year ago, the portfolio was much more weighted to the U.S.

Not only is Palantir an American company, but it also makes most of its money from the U.S. and is seeing faster growth in the U.S. than international markets. Its biggest customer is the U.S. government. CEO Alex Karp has also denigrated Europe for refusing to evolve its approach to AI and embrace Palantir's technology.

What it says about Druckenmiller's strategy

Based on Druckenmiller's decision to sell out of Palantir just a year after buying the stock and the similar decision to sell Nvidia, we can conclude a few things about his style.

First, the Duquesne boss isn't a long-term buy-and-hold investor. He spots opportunities based on valuation and trends and attempts to capitalize on them. Once he has achieved significant gains, he typically sells. Most of the stocks in his portfolio have only been there a year or two.

Similarly, he stays active. Of the 90 positions he held at the end of the fourth quarter of 2024, only eight were unchanged, and he sold out of nearly half of his holdings.

There's more than one strategy that can work in investing, of course, and Druckenmiller prefers an active trading style in which he's likely to sell positions after a substantial gain.

His decision to sell Palantir doesn't necessarily bode poorly for the stock, but investors should be mindful of the valuation. Booking some profits in the high-flying stock doesn't seem like a bad idea given the high price tag.

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Jeremy Bowman has positions in MercadoLibre, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends MercadoLibre, Nvidia, Palantir Technologies, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Coupang and Philip Morris International. The Motley Fool has a disclosure policy.