These outsized gains in Palantir’s stock have been fueled by its AI and machine learning-driven platforms being irreplaceable at scale. The company’s Gotham platform is used by the U.S. government and immediate allies to oversee and execute missions, as well as gather data. Meanwhile, Foundry is a platform businesses rely on to make sense of their data. This can aid everything from supply chain management to data analytics.

Although Gotham has been Palantir’s profit driver — government contracts often extend four or five years and lead to highly predictable operating cash flow — this segment has a built-in ceiling. In other words, only very select government entities are allowed access to Palantir’s AI platform. In theory, this is going to limit the long-term growth potential of Gotham.

On the other hand, Foundry is just beginning to stretch its proverbial legs, with Palantir’s commercial customer count rocketing higher by 51% to 498 during the third quarter from the prior-year period. Though there’s an exceptionally long growth runway attached to Foundry, it’s not yet proven it can be the moneymaker that Gotham is.

This leads to the other reason Stanley Druckenmiller and his crew at Duquesne may have dumped shares of Palantir Technologies: its valuation. Shares of the company are valued at north of 43 times forecast sales for next year, along with a multiple of 143 times estimated earnings per share (EPS) in 2025. These are levels that are historically consistent with tech stocks that are in a bubble.

But it’s not all about ringing the register at Duquesne Family Office. The fund’s brightest investment minds, led by Druckenmiller, have done some big-time buying this year. While most asset managers are focused on AI stocks and Wall Street’s hottest new trends, Druckenmiller chose to pile into a boring stock that’s delivering a supercharged dividend yield.

Since the end of March, Duquesne’s 13Fs show that Druckenmiller has overseen the purchase of 1,134,635 shares of tobacco stock Philip Morris International (NYSE: PM). I’d be remiss if I didn’t also mention that Duquesne has purchased call options in Philip Morris, which suggests there may be a hedge in place, and we’re not seeing the complete picture. As a reminder, options held short aren’t going to be reported in a 13F.

Tobacco stocks have certainly faced their fair share of challenges. In particular, regulatory agencies have clamped on down on their ability to advertise in a number of developed markets. What’s more, people have become aware of the potential long-term health hazards of using tobacco products. For instance, the adult cigarette smoking rate in the U.S. has declined from around 42% in the mid-1960s to just 11.5%, as of 2021.

Despite these challenges, Philip Morris International has outperformed, with its stock reaching multiple all-time highs this year.

One factor working in the favor of tobacco stocks like Philip Morris is its exceptional pricing power. Tobacco contains nicotine, which is an addictive chemical. This addictive quality, coupled with Philip Morris marketing the well-known premium brand Marlboro outside the U.S., affords the company plenty of opportunity to raise its prices to offset any reduction in cigarette shipments to developed markets.

Secondly, Philip Morris enjoys virtually unparalleled geographic revenue diversity among tobacco stocks, with operations in more than 180 countries. If regulators are making life difficult in one or more developed markets, chances are that Philip Morris can rely on growing demand in emerging market regions to pick up the slack.

However, the most exciting of all developments has been the company’s push toward smokeless tobacco products. During the third quarter, smoke-free products (SFP) accounted for 38% of the company’s net sales, with revenue from this segment jumping by 16.8% on an organic basis (i.e., excluding currency movements). Philip Morris’s IQOS heated tobacco system continues to gain global market share, while oral SFP revenue has soared thanks to growth in Zyn nicotine pouches.

Although Philip Morris International is no longer the screaming bargain it was when the year began, it’s still yielding north of 4% and has seen its earnings growth rate reaccelerate thanks to its smokeless products.

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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Palantir Technologies. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.

Billionaire Stanley Druckenmiller Sold 95% of Duquesne’s Stake in Palantir and Is Piling Into This High-Yield Dividend Stock Instead was originally published by The Motley Fool