The U.S. stock market may look pricey compared with history, but billionaire investor Cliff Asness argues it isn’t alarmingly overvalued. In a recent interview, the AQR Capital Management co-founder – whose net worth is estimated at $2.9 billion – noted that the valuation gap between the priciest stocks and the cheapest ones currently sits around the 75th–80th percentile. That’s elevated, but not extreme, and it’s a metric Asness often treats as a key gauge for his value-focused approach.
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Asness, however, is also a proponent of momentum investing and has argued that the two styles are complementary rather than contradictory. Right now, he sees investors “paying a lot for the stocks they like, more than they usually do,” a dynamic that would typically create fertile ground for value strategies – even if that hasn’t fully shown up in performance yet. And while sentiment may feel stretched in certain areas of the market, Asness added that today’s backdrop still falls short of what he would consider a bubble.
That said, Asness acknowledged that the Shiller cyclically adjusted price-earnings ratio remains elevated, a level that, in his words, “gives me some nerves.”
Maybe to assuage those nerves, Asness has been shaking up his investment portfolio, making a move on one AI stock while dialing back exposure to another. In this case, it’s Palantir (NASDAQ:PLTR), known for its AI-driven data software, and Marvell (NASDAQ:MRVL), a semiconductor player providing networking and custom chips for AI infrastructure.
So what did he buy, and what did he trim? Let’s dive in to find out – and see how the broader market views both names using the TipRanks database.
Palantir
Asness might be a big proponent of value, but right now, Palantir is regarded by many Street watchers as anything but. The big data AI company has become famous for its lofty valuation, one attained by being one of the AI-driven market’s biggest winners. To wit, over the past 3 years, PLTR shares have gained a massive 2,427%.
The company got its start helping defense and intelligence agencies interpret huge, complex data sets through software that integrates information from multiple sources and highlights actionable insights. It later expanded into the commercial sector, gaining a foothold in industries like healthcare, energy, and finance with tools for operations, risk management, and efficiency.
That said, the major turning point came in April 2023 with the launch of AIP, Palantir’s artificial intelligence platform. AIP lets organizations integrate large language models into their workflows in a secure way, bringing AI-supported decision-making to practical, real-world use cases.
That set the scene for some hugely impressive quarterly readouts that have underpinned the massive market gains. The latest Q3 results were another display of strength. Revenue came in at $1.18 billion, up 62.6% year-over-year, and ahead of expectations by $90 million. Adj. EPS reaching $0.21, topping estimates by $0.04. For Q4, the company expects revenue between $1.327 billion and $1.331 billion, compared with the $1.18 billion the Street was looking for.
Asness clearly likes the momentum on display here. During Q3, his fund bought 2,224,328 shares – currently worth over $395 million – boosting its position by 84%.
The company also has a big fan in Bank of America’s Mariana Perez Mora, an analyst ranked among the top 2% on Wall Street.
“We continue to view Palantir as the best-in-class AI enabler, integrator, architect, and developer across peers,” the 5-star analyst said. “We see this demonstrated in PLTR’s accelerating growth, customer upselling, and new wins… We anticipate the acceleration will continue as PLTR benefits from a larger network effect of its customers. Along with the revenue expansion from the growing user base, we see significant margin growth. We anticipate margins to benefit from increased internal use of AI FDEs, AIP bootcamps, existing use-cases utilization, and a growing partnership network.”
To this end, Perez Mora rates PLTR shares a Buy, while her Street-high $255 price objective points toward one-year gains of 40%. (To watch Perez Mora’s track record, click here)
2 other analysts join BofA in the PLTR bull camp, yet with an additional 11 Holds and 2 Sells, the stock claims a Hold (i.e., Neutral) consensus rating. Going by the $183.07 average price target, shares will stay rangebound for the time being. (See PLTR stock forecast)
Marvell
Next up is Marvell, a chipmaker gaining traction in AI thanks to its ASIC (application-specific integrated circuit) and optical businesses. The company designs custom accelerators for major cloud providers, giving it a role in powering large-scale AI training and inference workloads. Its strength in high-speed connectivity – including cutting-edge optical interconnects – positions it well as data centers shift toward architectures that require far greater bandwidth and energy efficiency. That combination has made Marvell an enabler of the infrastructure behind today’s AI-driven paradigm.
Beyond AI, Marvell also deals in networking, carrier infrastructure, and storage, giving it a solid base underpinning its faster-growing AI segments. The company expects sustained demand for custom silicon and optical components as cloud providers expand their data center capacity, and it’s leaning on its specialized tech and close customer relationships to capture more of that spend.
That backdrop helps explain why MRVL shares surged last week following its fiscal third-quarter results. Revenue climbed to a record $2.08 billion, up 37% year-over-year and $10 million ahead of Street expectations. On the bottom line, adj. EPS of $0.76 also beat estimates by $0.02.
At the same time, Marvell moved to boost its AI strategy by announcing a deal to buy Celestial AI for at least $3.25 billion in cash and stock. Celestial AI develops optical interconnect technology called “photonic fabric,” which uses light to move data between AI system components more efficiently.
It’s tempting to wonder if all of that made Asness regret his Q3 move here. During the quarter, his fund sold more than half its MRVL stake, offloading 480,331 shares.
That move might not seem so outlandish to HSBC analyst Frank Lee, who takes a balanced view of the company’s prospects.
“We believe that the ASIC revenue opportunity is overvalued amidst a lack of growth drivers,” the analyst explained. “We also believe that there is downside to ASIC revenue as we expect Marvell to lose share in Amazon Trainium and have concerns about a possible delay in the ramp of new ASIC projects. However, we believe the ASIC headwinds could be offset by strength in AI optical revenue on the back of overall TAM expansion. Therefore, despite limited upside growth drivers for the ASIC business, which is a key driver for share price movement, we believe there is limited earnings downside due to strength in optical business which should offset the ASIC weakness. Hence, we rate it a Hold.”
That Hold (i.e., Neutral) rating is backed by an $85 price target, suggesting the stock is overvalued by 14%. (To watch Lee’s track record, click here)
On Wall Street broadly, opinions lean more optimistic. While 6 other analysts are also on the sidelines, another 22 rate MRVL a Buy, giving the stock a Strong Buy consensus rating. And based on the $121.04 average price target, the Street sees potential gains of 22% over the next year. (See MRVL stock forecast)
To find good ideas for AI stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.