Against that backdrop, Wall Street expects Nvidia’s earnings to increase at 38% annually over the next three years. That makes its current valuation of 54.4 times earnings look very reasonable. That begs the question: Why did Israel Englander sell the stock in the third quarter? I can only speculate about his reasoning, but one possibility is that Nvidia shares looked less attractive at the time.

Specifically, in the third quarter, Wall Street’s three-year earnings forecast called for annual growth of 35%, and the stock traded at an average valuation of 60 times earnings. Put differently, analysts anticipated slower earnings growth and the stock traded at a higher earnings multiple. Both figures have since improved, so Englander may be buying Nvidia stock in the current quarter.

AppLovin provides ad tech software that lets mobile app developers market and monetize their applications. The company also provides software tools that serve the same purpose for connected TV (CTV) publishers. Additionally, AppLovin recently debuted an e-commerce marketing product that lets brands reach consumers through mobile advertising.

AppLovin has distinguished itself with Axon, a constellation of predictive machine learning algorithms that target advertising content with high precision. Last year, the company introduced a more sophisticated model called Axon 2.0, and its improved recommendation capabilities have boosted ad spending on the platform.

Consequently, AppLovin reported excellent financial results in the third quarter, beating estimates on the top and bottom lines. Revenue rose 39% to $1.2 billion, and GAAP net income more than quadrupled to reach $1.25 per diluted share. Management attributed the strong quarter to enhancements in its Axon models.

Importantly, AppLovin earlier this year introduced a pilot of its new e-commerce advertising product. CEO Adam Foroughi on the third-quarter earnings call said it was best and fastest-growing product in company history. He expects sales across the core mobile gaming business to grow at 20% to 30% annually, and says the e-commerce advertising product adds upside to that estimate.

Wall Street expects AppLovin’s earnings to increase at 25% annually over the next three years. That makes the current valuation of 102 times earnings look expensive. So, why was Israel Englander buying the stock in the third quarter? My guess here is the exact opposite of what I speculated about Nvidia: AppLovin shares looked more attractive in the third quarter.

Specifically, Wall Street’s three-year earnings forecast called for annual growth of 28%, and the stock traded at an average valuation of 39 time earnings. In other words, analysts expected AppLovin’s earnings to increase faster and the valuation was cheaper. To that end, while I think AppLovin has a bright future, Englander may be selling shares in the fourth quarter.

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Trevor Jennewine has positions in Nvidia. The Motley Fool has positions in and recommends AppLovin and Nvidia. The Motley Fool has a disclosure policy.

Does Billionaire Israel Englander Know Something Wall Street Missed? He Sells Nvidia Stock and Buys an AI Stock Up 2,260% Since 2022 was originally published by The Motley Fool