Billionaire Stanley Druckenmiller Sold Palantir Stock and Is Piling Into This Specialized AI Chipmaker Instead

Wall Street investors are often seen as possessing a sage-like insight that sets them apart from everyday participants. While many institutional traders do employ advanced algorithmic strategies, their moves are not entirely hidden from the public.

The Securities and Exchange Commission (SEC) requires firms managing $100 million or more in stocks to file a form 13F at the end of each quarter. These filings reveal which stocks were bought and sold, offering investors a rare window into where "smart money" is moving. One investor I follow closely is Stanley Druckenmiller of the Duquesne Family Office.

Earlier this year, Druckenmiller exited Duquesne's stake in data analytics specialist Palantir Technologies. Meanwhile, over the past four quarters, he has been steadily building a position in Taiwan Semiconductor Manufacturing (TSM 0.24%).

Let's examine why trimming exposure to Palantir could prove a timely decision -- and how reallocating capital into Taiwan Semi could generate stronger returns in the long run.

Does Selling Palantir stock make sense right now?

Palantir has been a dominant force in the AI revolution over the past three years. The launch of its Artificial Intelligence Platform (AIP) has ignited unprecedented demand for the company's Apollo, Gotham, and Foundry applications -- each of which are deeply integrated across major corporations and government agencies. The company's meteoric rise has been remarkable, giving investors a compelling narrative outside of the traditional "Magnificent Seven."

PLTR PS Ratio data by YCharts

That said, I see Palantir's valuation as its most glaring concern. With a price-to-sales (P/S) ratio of 126, the stock trades at levels not only well above its software peers, but also beyond the extremes that were witnessed during the dot-com bubble.

While Palantir remains a company with meaningful upside potential in the long run, the stock has become frothy at the moment. Druckenmiller's decision to reduce exposure to Palantir reflects prudent risk management -- something he has demonstrated with Palantir stock previously, too.

What might Druckenmiller like about TSMC stock?

For years, investors have heard about big tech pouring hundreds of billions of dollars into chips and network equipment to power the next generation of data centers. The obvious takeaway is that rising capital expenditures (capex) create a powerful tailwind for Nvidia and Advanced Micro Devices, given their role in supplying the GPUs that make generative AI a reality.

AMZN Capital Expenditures (TTM) data by YCharts

What is discussed far less, however, is that designs from Nvidia, AMD, and many others ultimately depend on the foundry services of Taiwan Semiconductor. Put simply, TSMC (as it is also known) is the company actually assembling the chips. The metaphor that I like to use is that Taiwan Semi is selling the shovels during the AI gold rush.

This story doesn't end with generative AI, either. New classes of applications across autonomous systems, robotics, and quantum computing are only just beginning to emerge. As they scale toward commercial viability, TSMC's unrivaled foundry capabilities should once again serve as a critical backbone to ongoing AI infrastructure investment.

I suspect that these secular tailwinds are precisely what Druckenmiller is trying to capitalize on: a company positioned not just to participate in the AI movement, but ultimately remain an indispensable foundation to its evolution.

Is Taiwan Semi stock a buy right now?

At first glance, it's difficult to argue that Taiwan Semi stock is "cheap" with a forward price-to-earnings (P/E) multiple of 26. Valuation expansion is clearly happening at the moment, fueled by a bullish macro backdrop in the technology landscape.

TSM PE Ratio (Forward) data by YCharts

Yet beneath the surface, investors like Druckenmiller seem to recognize TSMC's role in the AI value chain. Despite this, the company remains overshadowed by flashier peers. Some investors are also likely hesitating over investing in Taiwan Semi due to potential geopolitical tensions with China.

While these concerns are valid, I think the perception around Taiwan Semi's long-term potential has become distorted. In other words, some of these factors as well as hype concentrated in other chip stocks are undermining what is otherwise a clear investment case.

To me, TSMC may be the single most critical variable in the broader AI equation. For long-term investors, Taiwan Semi stock looks like a no-brainer opportunity to buy and hold as the AI narrative continues to unfold.