In this article, we will take a detailed look at the 10 AI News and Analyst Ratings You Should Not Miss.
While everyone is talking about rate cuts, some analysts are questioning whether it was necessary even to start cutting rates at this time. Latest data released on Tuesday showed retail sales in the US rose while Wall Street analysts were expecting to see a decline. Oksana Aronov, JPMorgan Asset Management head of market strategy for alternative fixed income, said while talking to CNBC that rate cuts are not even warranted as she thinks there are no signs of broader weakening except for the labor market.
Aronov said cutting rates would “loosen” the financial conditions further. The analyst said that about 14 months ago, everyone was looking at the CPI that was clocking in at 3% and expected the metric to fall to 2%. But even after all these months, CPI year over year is at 2.9%. She said that the Fed should move carefully and the 2% inflation target would be “elusive” because fiscal spending will continue to rise.
AI investors are however looking beyond this debate and already positioning to pile into more growth stocks amid the beginning of the rate-cut cycle.
For this article, we picked 10 buzzing AI stocks and discussed the latest news around them.
With each stock we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Photo by Mohamed Hadji on Unsplash
10. C3.ai Inc (NYSE:AI)
Number of Hedge Fund Investors: 18
Jim Cramer said while talking in a program on CNBC that at one time C3.ai Inc (NYSE:AI) had become a “meme stock.” Cramer said people once believed C3.ai was “the best way to play AI” but now they are having second thoughts.
Cramer said that C3.ai Inc (NYSE:AI) subscription business had “lumpy numbers” in the latest quarterly report.
Cramer highlighted C3.ai’s billings declined quarter over quarter.
“You can’t have a sequential, quarter over quarter decline in billings and expect people to buy into all your positive rhetoric,” Cramer added.
The decline in C3.ai Inc (NYSE:AI) share price was more or less expected amid high valuation and expectations. Investors were paying about 7 times forward sales for the company which is expected, in the best case, to burn through $80 million in free cash flow over the next few years, with projected non-GAAP operating margins of around 17%.
That makes it lag behind its peers in the SaaS world. For example, SentinelOne (S), according to some analysts, is expected to generate $100 million in free cash flow within the next year.
C3.ai Inc’s (NYSE:AI) shift to a consumption-based pricing model, which has lowered the average contract value, is also making the company’s long-term revenue growth less predictable. Companies moving to consumption models often put themselves at odds with their customers.
Wall Street analysts have a mixed opinion about the stock.
BofA Securities reiterated its Underperform rating, citing the company’s unfavorable growth and margin profile. The firm adjusted its estimates to match C3.ai’s guidance and lowered its price target from $24 to $20, highlighting limited visibility for accelerated revenue growth, margin expansion, and a rebound in its backlog.
Analysts, led by Brad Sills, pointed out that while C3.ai reported modest subscription revenue growth of 19.7% year-over-year (just above BofA’s estimate of 19%), its unchanged fiscal 2025 outlook suggests the company isn’t significantly benefiting from the broader AI adoption trend. C3.ai Inc (NYSE:AI) did see an increase in pilot deals, up to 52 in Q1 from 34 in the previous quarter, but these have not yet translated into meaningful subscription revenue growth.
Sills and his team also noted that C3.ai Inc (NYSE:AI) is still transitioning from a subscription model to a consumption-based model, which has been weighing on its remaining performance obligation (RPO). RPO dropped by a record 16% quarter-over-quarter, further clouding the timing of a potential bottom in this metric. Despite this, the company continues to invest in growth.
9. Digital Realty Trust Inc (NYSE:DLR)
Number of Hedge Fund Investors: 44
Victoria Greene, founding partner & chief investment officer at G Squared Private Wealth, said while talking to CNBC in a latest program that Digital Realty Trust Inc (NYSE:DLR) has a strong backlog and runway.
The analyst said the company is positioned to rise in the market that is growing because of AI and secular growth catalysts like hyper-scaler Cloud.
Citi Research recently published a list of stocks that it believes are suitable for a barbell strategy to balance exposure to Mag. 7 stocks. Digital Realty is part of the list.
These are buy-rated, mid-cap stocks with at least 15% expected total return and positive 2024 EPS per consensus estimates.
What makes Digital Realty Trust Inc (NYSE:DLR) a promising AI and data center stock?
Digital Realty Trust Inc (NYSE:DLR) is a data center REIT with about 300 data centers across 25 countries. With the demand for data centers off the charts, DLR is positioned well to benefit from the boom. It has over 20 years of experience, a customer base of large cloud providers, and a well-established supply chain. Its long-term partnership with a utility provider in Northern Virginia has allowed it to navigate energy bottlenecks, with potential backup options like natural gas turbines.
AI-related hosting has seen a significant price jump, with costs rising from $80-$90 per kilowatt per month to $150-$160 per kilowatt per month—an 82% increase. This should lead to higher profits, contributing to improved net income and funds from operations (FFO).
However, Digital Realty Trust Inc (NYSE:DLR) is running a highly capital-intensive business that is burning a lot of cash. Digital Realty’s operating expenses jumped to $1.35 billion during the second quarter from $1.18 billion in the previous quarter and $1.21 billion in the prior-year quarter.
As investors flock to data center stocks, Digital Realty Trust Inc (NYSE:DLR) has become overvalued. The stock is trading at a forward P/E of 123, compared with the industry median of about 40. It trades 106 times 2025 earnings estimates set by Wall Street analysts.
Baron Real Estate Fund stated the following regarding Digital Realty Trust, Inc. (NYSE:DLR) in its Q2 2024 investor letter:
“In the most recent quarter, the shares of data center REIT Digital Realty Trust, Inc. (NYSE:DLR) continued to appreciate due to record quarterly new leasing results, strong pricing power on new and renewal leases, an improved capital structure, and an evolving AI demand growth opportunity for its data center facilities.
Digital Realty is a global provider of data center services to enterprises, cloud service providers, network providers, financial services, media, and other customers. Our team traveled to Digital Realty’s headquarters in Texas earlier this year to meet with CEO Andy Power. We remain optimistic about Digital Realty’s continued ability to perform well due to improving growth and pricing power, the company’s existing and newly developed data center capacity in supply constrained markets, its fully secured future pipeline of power and key infrastructure components, and management’s greater focus on delivering bottom-line growth while balancing investing for the future…” (Click here to read the full text)
8. Intel Corp (NASDAQ:INTC)
Number of Hedge Fund Investors: 75
New Street Research has said in a latest report that the AI PC demand companies like Intel Corp (NASDAQ:INTC) are counting on may not be that strong after all.
The report said that in the second quarter of 2024, PC shipments rose just 3% year-on-year. For the full year, PC shipments are now expected to remain flat compared to last year. Even with an upcoming PC refresh cycle, the International Data Corporation only forecasts a 5% increase in 2025.
“In notebooks, AMD gained 1pt of unit share with the continued ramp of Ryzen 7000-8000 (4nm), while Alder Lake (Intel 7) and older SKUs declined, as inventories built up during 1Q flushed, offsetting the Meteor Lake (Intel 4) ramp,” said New Street analysts, led by Pierre Ferragu. “Intel ASPs were down 2% QoQ vs. up 13% at AMD, resulting in AMD revenue share up 3pts.”
“Inventory movements could explain some of it, but the reality is that Intel Corp (NASDAQ:INTC) is still losing share despite being back at the leading edge in notebooks.”
The report said most of the demand is driven by the enterprise customers and consumer-related demand is slow.
New Street Research notes that inventories for PC CPUs are again high, and further increases could result in weaker demand heading into 2025.
The firm also sees little evidence of AI PCs driving demand higher. “The supply chain wants to believe in an AI-driven refresh cycle, but we see no evidence of it,” Ferragu said. “Gen AI will revolutionize the user experience for PCs and personal devices more broadly, but the revolution won’t be hardware-driven and won’t create a near-term product cycle, in our view. Killer use cases are still quite remote and will gain adoption through software.”
Despite this, New Street believes AMD is well-positioned to benefit from AI growth in 2025, particularly due to its MI300 GPU series.
Ariel Global Fund stated the following regarding Intel Corporation (NASDAQ:INTC) in its Q2 2024 investor letter:
“Alternatively, several positions weighed on performance. One of the world’s largest semiconductor chip manufacturers by revenue, Intel Corporation (NASDAQ:INTC), underperformed in the period on news of a longer than expected turnaround in profitability within the Foundry business. This was exacerbated by disappointing near-term guidance due to a weakening demand environment signaling an extended replacement cycle. We view the quarter as a temporary trough that should dissipate as we see signs of a cyclical recovery for personal computers (PCs) and central processing units (CPUs), driven by the Windows 11 upgrade. In our view, the market is overlooking the progress Intel is making to advance its manufacturing process. Not to mention, the company’s efforts to serve as a viable second source foundry partner of leading-edge silicon. We believe the separation of the design and manufacturing businesses will be a key catalyst in unlocking improved financial performance while also enhancing the competitiveness of the foundry business.”
7. Lam Research Corporation (NASDAQ:LRCX)
Number of Hedge Fund Investors: 84
Jim Cramer was asked about Lam Research Corporation (NASDAQ:LRCX) in a latest program. He said the stock has gone down “too much.”
“It’s a dangerous thing to say but when you have a phenomenal company like Lam Research Corporation (NASDAQ:LRCX) and it is down from $1130 to $730, I am sorry that’s an overreaction and I’d rather be a buyer but buy it slowly do not buy it at once that’d only lead to pain,” Cramer said.
Lam Research Corporation (NASDAQ:LRCX) is one of the largest providers of etching equipment for the semiconductor industry. Etching refers to any technology that will selectively remove material from a thin film on a substrate.
China-related concerns have weighed on the stock but the bulls believe that’s an overreaction and the stock has secular growth catalysts, especially due to AI.
As the third-largest semiconductor equipment supplier globally, Lam dominates the etching process. Over the past decade, Lam’s market share has averaged between 45% and 55%. The semiconductor equipment market has consolidated among a few major players, creating an oligopoly. Similar to how ASML dominates lithography, AMAT and Tokyo Electron control deposition, and KLAC leads in process control, Lam benefits from high switching costs, large R&D investments, and experience-driven improvements. These factors contribute to its strong EBIT margins and return on capital.
Lam’s largest customers are memory manufacturers, who have increased their use of Memory Wafer Fabrication Equipment (WFE). From 2010 to 2023, memory WFE consumption accounted for 64% of total WFE, up from 46% during 2001-2009. Additionally, as semiconductor designs have evolved from 2D to 3D, more etching steps are required in the manufacturing process, further driving demand for Lam’s equipment.
Artisan Select Equity Fund stated the following regarding Lam Research Corporation (NASDAQ:LRCX) in its Q2 2024 investor letter:
“The top contributors to performance for the quarter were Alphabet, Lam Research Corporation (NASDAQ:LRCX) and Elevance. Lam Research shares rose 10% during the quarter and are up 67% over the past year, primarily due to optimism around the pending investment cycle in semiconductor capital expenditures. Lam is one of the largest equipment manufacturers used to make semiconductor chips. This equipment, commonly referred to as WFE (wafer fabrication equipment), is expected to experience significant growth due to a combination of a cyclical rebound in memory chips and growing demand for new AI-related chips. Lam’s product portfolio is particularly well positioned to benefit from both trends and should grow even faster than the overall market. Its shares now trade at ~30X prior peak earnings, which suggests this dynamic is well understood by the market and is mostly priced in.”
6. Dell Technologies Inc (NYSE:DELL)
Number of Hedge Fund Investors: 88
Amit Daryanani, Evercore ISI senior managing director, said in a latest interview with CNBC that he’d want to own Dell Technologies Inc (NYSE:DELL) shares on the back of an expected PC upgrade cycle in 2025.
Bill Baruch, founder and president at Blue Line Capital, said in an interview with CNBC that there were margin concerns in the previous quarter report but in the latest results we saw “significant” margin improvement in the infrastructure solutions group which holds the AI server subsegment. This subsegment saw about 80% year-over-year growth.
“This was a great report. It’s everything we wanted to see.”
The analyst said that the stock could reach $134 by the end of this year.
Dell Technologies Inc (NYSE:DELL) got attention when Elon Musk said on Twitter that the company, along with Super Micro Computer, would make servers for his AI startup xAI. But Dell is expanding its partnerships with other companies, too. In just a few quarters, AI servers have surged to account for 12.4% of total revenue, up from 2.2% three quarters ago. Dell Technologies Inc (NYSE:DELL) closed the quarter with a record $3.8 billion backlog, which is impressive. In May 2024, Dell expanded their AI factory with Nvidia to include the new PowerEdge XE9680L server, as well as storage, edge, and workstation solutions.
Carillon Scout Mid Cap Fund stated the following regarding Dell Technologies Inc. (NYSE:DELL) in its Q2 2024 investor letter:
“Dell Technologies Inc. (NYSE:DELL) was a top contributor despite reporting disappointing first-quarter earnings results, because investors looked through the near-term disappointment and expected strong growth from AI-related servers and personal computers. We expect Dell to participate in the growth of artificial intelligence hardware, especially as enterprises invest more aggressively. We like the company’s depth and breadth of products and services, as well as its focus on keeping costs low.”
5. Oracle Corp (NYSE:ORCL)
Number of Hedge Fund Investors: 93
Tony Wang, T. Rowe Price portfolio manager, said in a latest interview with CNBC that Oracle Corp (NYSE:ORCL) is emerging as the fourth biggest Cloud company.
The analyst praised the company’s tech stack and networking technologies and said he sees “a lot of traction” for Oracle Corp (NYSE:ORCL).
Oracle Corp (NYSE:ORCL) is rising after the company’s latest quarterly results. Oracle’s Cloud services segment remains in strong growth mode. Revenue in the segment rose 21.3% year over year as Oracle Corp’s (NYSE:ORCL) Cloud is becoming a crucial player for firms developing AI, providing essential database systems for major players like OpenAI, AWS, and Google Cloud.
Oracle Corp’s (NYSE:ORCL) technology is critical for AI development, serving as a key foundation much like GPUs are for AI processes. Oracle says it has built large data centers with ultra-fast RDMA networks and massive 32,000-node NVIDIA GPU clusters, boosting its presence in AI training.
Oracle Corp (NYSE:ORCL) has increased its revenue outlook for fiscal 2026 to $66 billion from a prior target of $65 billion. It expects its revenue to reach a towering $104B by fiscal 2029. The Street expects Oracle’s EPS to grow at a compounded rate of 13.4% for fiscal 2025, rising to 14.41% in 2026, and continuing at a low double-digit pace in the following years. The company’s remaining performance obligations (RPO) jumped 53% year-over-year to $99 billion by the end of the first fiscal quarter, outpacing revenue growth.
Oracle Corp’s (NYSE:ORCL) forward P/E is about 25, slightly above the sector median of 23.17. Given the strong growth catalysts Oracle has, the stock is currently undervalued.
Carillon Eagle Growth & Income Fund stated the following regarding Oracle Corporation (NYSE:ORCL) in its Q2 2024 investor letter:
“Oracle Corporation (NYSE:ORCL) stock rose to all-time highs after the company announced better than expected cloud infrastructure revenue. Oracle signed dozens of new customers, including two leaders in generative artificial intelligence. The backlog remains, and strong growth appears poised to accelerate.”
