Why a Legendary Hedge Fund Manager Is Pivoting From Expensive AI Platform to Tesla's Long-Term Bet

The Strategic Shift Behind Millennium Management’s Q3 Moves

Billionaire Israel Englander, whose hedge fund Millennium Management has generated substantial returns and ranked among the most successful in history, made a significant portfolio adjustment in the third quarter. The fund’s decision to reduce its Palantir Technologies stake by 91% while quadrupling its Tesla position reveals a deeper investment philosophy: rotating from a richly valued near-term winner toward a fundamentally transforming technology story with multi-decade potential.

This move is particularly striking given the performance divergence between these two companies over the past year. While Palantir has outperformed the broader market, Tesla lagged behind market indices. Yet Englander’s portfolio decisions suggest he’s less concerned with recent winners and more focused on where the real opportunity lies.

Palantir’s Valuation Problem: When Excellence Becomes Expensive

Palantir Technologies delivers tangible value. The company develops sophisticated analytics and AI software that helps organizations across government and commercial sectors process complex information and optimize operations. Forrester Research has acknowledged Palantir as a market leader in AI platforms and AI decisioning capabilities, noting that the company is quietly becoming one of the largest participants in this expanding category.

The Financial Story Looks Attractive

From a purely operational perspective, Palantir’s business momentum is undeniable. Customer count expanded 45% year-over-year, and revenue per customer climbed 34%. Total revenue surged 63% to $1.1 billion—marking the ninth consecutive quarter of accelerating growth. Non-GAAP profitability is particularly impressive, with net income doubling to $0.21 per diluted share.

Management claims Palantir’s core strength lies in operationalizing AI at scale, meaning the company excels at moving AI initiatives from prototype stages into full production environments. This operational competency is supported by positive independent research and strong financial metrics.

But the Price Tag Is Unjustifiable by Historical Standards

Here’s where the investment case breaks down: Palantir trades at 110 times sales—a valuation multiple that makes the stock the single most expensive holding in the S&P 500 by a significant margin. The second priciest stock in the index, AppLovin, trades at just 38 times sales. This means Palantir could decline 65% and remain the most expensive stock in the S&P 500.

Throughout market history, software companies achieving valuations exceeding 100 times sales are vanishingly rare, and none have ever sustained such premium multiples indefinitely. The mathematical reality is simple: no growth rate, however impressive, can justify paying 110 times annual sales forever. Mean reversion is inevitable, and Englander’s team clearly recognizes this risk.

Tesla: The Underperformer That Might Have the Last Laugh

Tesla’s electric vehicle business faces genuine headwinds. Market share erosion of approximately 5 percentage points occurred over the past year as competition intensified and consumer sentiment shifted. Chinese automaker BYD has overtaken Tesla as the global leader in EV sales—a stunning reversal from just a few years ago.

Physical AI Represents the Real Prize

Yet the evolving investment thesis centers on Tesla’s evolution beyond electric vehicles. The company is rapidly positioning itself as a “physical AI” enterprise—a term encompassing autonomous vehicles and autonomous robotics systems.

While Alphabet’s Waymo has launched commercial robotaxi services in more cities, Tesla possesses structural advantages that could prove decisive. Tesla’s camera-only approach to autonomous driving dramatically reduces hardware costs compared to competitors relying on lidar and radar sensors. Additionally, Tesla’s computer vision system doesn’t require pre-mapped, high-definition road data, eliminating expensive city-by-city mapping requirements. Most compellingly, Tesla operates approximately 8 million vehicles globally—a fleet it plans to transform into a distributed robotaxi network by enabling owners to add their cars to its autonomous platform.

Beyond robotaxis, Tesla is developing Optimus, an autonomous humanoid robot designed to perform tasks across manufacturing, healthcare, and logistics. Musk has suggested the robot could generate over $10 trillion in eventual revenue—and while that figure sounds hyperbolic, the underlying opportunity in robot economics is genuinely transformative.

The Growth Opportunities Are Staggering

Market projections indicate the robotaxi sector will expand at 74% annually through 2030. The humanoid robot market is projected to grow at 54% annually through 2035. These aren’t speculative fantasies—major technology and automotive companies worldwide are investing heavily in these categories.

The critical caveat: neither robotaxis nor humanoid robots generate meaningful revenue today. This creates massive valuation uncertainty. Investors must accept that a meaningful portion of Tesla’s bull case requires technological breakthroughs and market adoption that remain unproven.

The Investment Verdict: Risk Tolerance Matters

For conservative investors focused on near-term returns, Israel Englander’s pivot away from Palantir makes intuitive sense. The stock’s valuation is fundamentally unsustainable, and even modest growth deceleration could trigger severe price corrections.

For risk-tolerant investors maintaining a minimum five-year time horizon, a modest Tesla position warrants consideration. The company’s near-term EV market share losses are real, but the long-term physical AI opportunity could generate returns that dwarf current expectations. Now represents a reasonable entry point for those comfortable with substantial volatility.

Ultimately, Englander’s portfolio reshuffling reflects a sophisticated investment approach: recognizing that yesterday’s winners become tomorrow’s value traps, while overlooked challenges can obscure genuine transformational opportunities.