Nicknamed “the world’s smartest billionaire” by the Financial Times, Jim Simons founded the highly successful $63 billion Renaissance Technologies fund. According to recently-released 13F forms filed with the SEC, we can see that in Q4 the fund upped its Advanced Micro Devices, Inc. (NASDAQ:AMD) and Gilead Sciences, Inc. (NASDAQ:GILD) positions but cut back its exposure to NVIDIA Corporation (NASDAQ:NVDA).
With a personal wealth of $18 billion, Simons is an award-winning mathematician and professor who started his career cracking Cold War codes. Last year he described how these same mathematical skills helped him reach investing gold: “In looking at the data, after a while I realized: it looks like there’s some structure here. And I hired a few mathematicians, and we started making some models — just the kind of thing we did back at IDA [Institute for Defense Analyses]. You design an algorithm — you test it out on a computer. Does it work? Doesn’t it work? And so on.”
The quantitative trading fund, which continues to strictly adhere to mathematical and statistical methods, is now followed closely by investors keen to replicate its returns. In particular, Renaissance’s highly-secretive employee-only Medallion Fund has made a profit of about $55 billion over the last 28 years, which, according to Bloomberg, makes it about $10 billion more profitable than funds run by big-name hedge fund managers such as Ray Dalio and George Soros.
Now let’s dig down into three of the fund’s latest- and most interesting- moves:
Advanced Micro Devices, Inc.
in Q4 Renaissance increased its AMD holding dramatically. The 254% increase means the fund now holds 11.5 million shares worth $130.7 million. AMD released its much-anticipated Ryzen 7 processor to the market at the beginning of the month. Ryzen puts pressure on AMD’s larger rival Intel’s processor offerings both in terms of price and performance. For example, the company’s high-end 95W TDP Ryzen 7 1800X is only $499 – while its equivalent Intel silicon chip, the 140W TDP i7-6900K, costs $1050.
However, some Ryzen reviews commented on inefficiencies particularly in gaming workloads with the Windows 10 scheduler named as one potential culprit for the bottleneck. Now, just two weeks from the launch date, AMD has released a statement that there will be no major changes to the processors. AMD are concentrating on “many small changes that can improve Ryzen performance in certain applications”. In particular, AMD referred to “targeted optimizations” for software that “can better utilize the topology and capabilities of [AMD’s] new CPU” as well as “simple changes that can improve a game’s understanding of the ‘Zen’ core/cache topology.”
According to financial accountability engine TipRanks, the stock has a moderate buy analyst consensus rating with 9 buy, 10 hold and 2 sell ratings. Due to the recent peak in prices, the average analyst price target of $11.03 now represents a 22.76% downside from the current share price of $14.28.
Gilead Sciences, Inc.
The fund displayed a bullish attitude towards this healthcare stock. With a 171% increase, Renaissance now holds 5.2 million Gilead shares worth $377.7 million. While there are positive catalysts on the stock such as Gilead’s HIV drug Bictegravir, the market is frustrated that Gilead has not made more strategic acquisitions to counteract declining prices and demand for its key hepatitis C franchise. Indeed, Barclays analyst Geoff Meacham decided to voice his frustration in an open letter to Gilead Sciences to “help [the company pro-actively] carve a roadmap to a re-rating”.
Meacham made five key suggestions for GILD: consider transformational M&A deals outside of core business areas including antivirals; cut costs in the hepatitis C unit if the market continues to decline; clarify potential impact of the HIV franchise by providing guidance; take a more aggressive approach to in-licensing/business development; and focus on reinvesting via M&A and other growth measures instead of capital return.
One possible acquisition for Gilead is Incyte, a small molecule hematology-oncology platform, which could cost Gilead around $35 billion. Shares in Incyte have been rising on this speculation- with Credit Suisse analyst Kennen MacKay raising his price target for Incyte to $174 from $136.
Like AMD, the analyst consensus rating on Gilead Sciences on TipRanks is moderate buy with 13 buy and 6 hold ratings. The average analyst price target however reveals a considerable 22% upside from the current share price of $68.10.
The fund cuts its Nvidia holding by 4% to 3 million shares worth $330.3 million. The market has been encouraged by the announcement of Intel’s $15 billion acquisition of Nvidia competitor Mobileye on 13 March- which works out at a 40% premium on Mobileye’s share price before the deal.
What does this mean for GPR and chip maker Nvidia? First of all it supports the current valuation of Nvidia shares at $101, given that Nvidia is trading at 8×2016 sales vs the 43-2016 sales paid for MBLY by Intel. While Nvidia’s large size means that it would be very difficult to achieve the same upside Mobileye, it is worth remembering that Nvidia is the leader in the GPU industry, and its Drive PX2 and Tesla P100 cards are key players in the autonomous industry. This is crucial because the Mobileye deal- and its timing- represent the fact that the market is taking driverless technology and its power to transform the auto market very seriously indeed.
With 14 by, 9 hold and 4 sell ratings, the stock has a moderate buy analyst consensus rating on TipRanks while the price target of $108.95 suggests 12-month upside potential of close to 7%.