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.”
4. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Number of Hedge Fund Investors: 108
New Street Research has said in a latest report that the AI PC demand companies like Advanced Micro Devices, Inc. (NASDAQ:AMD) 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, Advanced Micro Devices, Inc. (NASDAQ: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 Advanced Micro Devices, Inc. (NASDAQ:AMD) revenue share up 3pts.”
“Inventory movements could explain some of it, but the reality is that Intel is still losing share despite being back at the leading edge in notebooks.”
The report said most of the demand is driven by 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 Advanced Micro Devices, Inc. (NASDAQ:AMD) is well-positioned to benefit from AI growth in 2025, particularly due to its MI300 GPU series.
Baron Technology Fund stated the following regarding Advanced Micro Devices, Inc. (NASDAQ:AMD) in its Q2 2024 investor letter:
“Advanced Micro Devices, Inc. (NASDAQ:AMD) is a global fabless semiconductor company focusing on high performance computing technology, software, and products including CPUs,9 GPUs, FPGAs,10 and others. Shares of AMD remain volatile, and after a strong run earlier in the year, the stock fell during the quarter as investors continue to wrestle with AMD’s competitive positioning in the AI compute market relative to NVIDIA, who continues to strengthen its full-system solution offerings at a rapid pace. AMD also updated its MI300 GPU chip revenue expectations for the full year to “greater than $4 billion” vs. prior $3.5 billion, which disappointed the market a bit relative to high expectations. Over the long-term, we believe AMD, with its unique chiplet-based architecture and open-source software ecosystem, will play a meaningful role in the rapidly growing AI compute market, where customers don’t want to be locked into a single vendor and AMD offers a compelling total-cost-of-ownership proposition, especially in inferencing workloads. Simultaneously, we believe AMD will continue to take share from Intel within traditional data center CPUs, which, while now a slower growth market, is likely to see a near-term refresh as data centers look for ways to improve energy efficiency and optimize existing footprints.”
3. NVIDIA Corp (NASDAQ:NVDA)
Number of Hedge Fund Investors: 179
Dan Niles, founder and portfolio manager at Niles Investment Management, said in a latest interview with CNBC that despite his belief that NVIDIA Corp (NASDAQ:NVDA) is going through a “digestion” phase as investors fear a slowdown in spending and want to see a return on their investments, the chipmaker’s shares and revenue could double.
“I firmly believe in the next several years that NVIDIA Corp (NASDAQ:NVDA) revenues will again be able to double from current levels and the stock will be able to double as well.”
Niles yet again mentioned the Cisco analogy, saying the company saw several years of revenue growth before hitting its peak.
Nvidia’s declines after the latest quarterly results were more or less expected amid Blackwell delay reports confirmed by management. However, the delays were mainly due to a change in Blackwell GPU mask. That does not affect the main functional logic or design of the chip, according to analysts. While Blackwell has been delayed for a few months, it does not change the core growth thesis for Nvidia.
Nvidia is set to see huge growth on the back of the data center boom amid the AI wave.
At Nvidia’s GPU Technology Conference in March 2024, CEO Jensen Huang estimated annual spending on data center infrastructure at about $250 billion. Over the next decade, this could total between $1 trillion and $2 trillion, depending on how long this level of investment continues. During the same Q&A session, Bank of America’s Vivek Arya echoed this estimate, suggesting the total addressable market would fall in the $1-2 trillion range, particularly as countries invest in their own AI infrastructure. By the end of the decade, spending could be at the high end of that range.
Of course, Nvidia won’t dominate the entire $2 trillion opportunity, as it faces competition from companies like AMD and internally developed AI accelerators from Google, Amazon, and even Apple. Some analysts believe Nvidia’s data center market share between 2025 to 2029 will be over $950 billion—less than half of the total market—but still enough to make it the leader in the sector.
Ithaka US Growth Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2024 investor letter:
“NVIDIA Corporation (NASDAQ:NVDA) is the market leader in visual computing through the production of high-performance graphics processing units (GPUs). The company targets four large and growing markets: Gaming, Professional Visualization, Data Center, and Automotive. NVIDIA’s products have the potential to lead and disrupt some of the most exciting areas of computing, including: data center acceleration, artifi cial intelligence (AI), machine learning, and autonomous driving. The reason for the stock’s appreciation in the quarter was twofold: First, the stock benefi ted from tremendous excitement surrounding the further development of generative AI and the likelihood this would necessitate the purchase of a large number of Nvidia’s products far into the future; Second, Nvidia posted another strong beat[1]and-raise quarter, where the company upped its F2Q25 revenue guidance above Street estimates, showcasing its dominant position in the buildout of today’s accelerated computing infrastructure.”
2. Apple Inc (NASDAQ:AAPL)
Number of Hedge Fund Investors: 184
Erik Woodring, Morgan Stanley equity research executive director, said while talking to CNBC that he believes we are entering a “seasonal period” of relative underperformance for Apple Inc (NASDAQ:AAPL).
Woodring said that the stock underperformance of Apple after the latest iPhone event was a result of a “relatively measured, slow and staggered rollout” of the key feature, Apple Inc (NASDAQ:AAPL) Intelligence.
The analyst said in the first few days of the event, data regarding pre-orders is very “noisy” and lead times data points come in from the supply and demand side.
The analyst said that lead times are important on a per-model basis. He said day-one lead times are a bit lower than past cycles.
Apple Inc’s (NASDAQ:AAPL) iPhone event went more or less as expected and all eyes are now on pre-order data and actual numbers on the new iPhone. A survey by US AlphaWise showed about 60% of customers planning to upgrade their iPhone said Apple Intelligence is a key part of the rationale behind the upgrade.
Almost all bull cases around Apple Inc (NASDAQ:AAPL) are based on the assumption that millions of people would upgrade their iPhones mainly due to AI. However, Apple Inc (NASDAQ:AAPL) has been seeing a long-term decline in mobile carrier upgrade rates, especially postpaid, for several years. This suggests that people are holding onto their devices longer, likely due to economic factors, satisfaction with current technology, or a lack of exciting new features in recent models. This trend isn’t great for Apple Inc (NASDAQ:AAPL). Can Apple Intelligence break this trend? We’ll find out soon.
However, the assumption that we will see a huge upgrade cycle of iPhone just because of AI is big and comes with a lot of risks. Apple Inc (NASDAQ:AAPL) trades at a forward PE multiple of around 35x, well above its 5-year average of nearly 27x. Its expected EPS forward long-term growth rate of 10.39% does not justify its valuation, especially with the iPhone upgrade cycle assumption. Adjusting for this growth results in a forward PEG ratio of 3.33, significantly higher than its 5-year average of 2.38.
Baron Technology Fund stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q2 2024 investor letter:
“The Fund’s chief relative detractor was Apple Inc. (NASDAQ:AAPL), even though it was a meaningful contributor to absolute performance, as we added to our Apple position significantly during the period. We bought Apple well, but in 20/20 hindsight we didn’t buy enough. Because Apple has an oversized weight in the Benchmark (its average weight was 15.7% for the period), when Apple’s stock outperforms (it appreciated 23.0%), it has generally been a headwind to relative performance. Our Apple underweight accounted for 33% of our relative underperformance for the period.
This quarter we increased the size of our position in Apple Inc., a leading technology company known for its innovative consumer electronics products like the iPhone, MacBook, iPad, and Apple Watch. Apple is a leader across its categories and geographies, with a growing installed base that now exceeds 2 billion devices globally. The company’s attached services – including the App Store, iCloud, Apple TV+, Apple Music, and Apple Pay – provide a higher margin, recurring revenue stream that both enhances the value proposition for its hardware products and improves the financial profile. Apple now has well over 1 billion subscribers paying for these services, more than double the number it had just 4 years ago. The increasing services mix has led to healthy operating margin improvement, providing more free cash flow for Apple to reinvest in the business and to distribute to shareholders. Throughout its 48-year history, Apple has successfully navigated and capitalized on major technological shifts, from PCs to mobile to cloud computing. We believe the company’s leading brand and device ecosystem position it to do equally well in the AI age, and this was the driver of our decision to re-invest. “Apple Intelligence” – the AI strategy unveiled at Apple’s recent Worldwide Developer Conference – leverages on-device AI and integrations with tools like ChatGPT to enhance user experiences across its ecosystem. The AI suite enables users to create new images, summarize and generate text, and use Siri to perform actions across their mobile applications, all while maintaining user privacy and security. We think Apple Intelligence can drive accelerated product upgrade cycles and higher demand for Apple services. The combination of growth re-acceleration, increasing services contribution, and thoughtful capital allocation should continue driving long-term shareholder value.”
1. Microsoft Corp (NASDAQ:MSFT)
Number of Hedge Fund Investors: 279
Wedbush analyst Dan Ives said in a latest note that tech stocks tied to AI can move higher amid rate cuts.
“In a nutshell we believe the stage is set for tech stocks to move higher into year-end and 2025 in our opinion as the Fed and Powell kick off its rate cutting cycle this week, macro soft landing remains the path, and tech spending on AI remains a generational spending cycle just starting to hit the shores of the tech sector,” Ives said. The analyst mentioned MSFT as one of the stocks that can benefit from rate cuts.
In a separate note, Ives recently talked about his bullish thesis on MSFT.
Microsoft Corp (NASDAQ:MSFT) is one of the top stocks Ives believes can benefit from the AI wave.
“While investors may fret about this massive spending wave and frustrated that top-line growth/margins from these investments could take time to materialize, this ultimately speaks to our view this is a 1995 (almost 1996) start of the Internet Moment, and not a 1999 Tech Bubble-like moment despite bears getting louder during some of these head for the elevators tech sell-offs,” Ives added.
Microsoft Corp (NASDAQ:MSFT) shares recently fell following its latest quarterly results which showed the company’s Cloud business growth was lower than expected. For the ongoing quarter, Microsoft Corp (NASDAQ:MSFT) expects revenue in the range of $63.8B and $64.8B, compared to the $65.07B estimate. Microsoft Corp (NASDAQ:MSFT) Azure revenue is expected to grow by 28% and 29% year over year.
But what about AI? While Microsoft does not mention specific AI numbers, analysts believe Copilot is already playing a key role in growth at several segments of the company. Microsoft Corp (NASDAQ:MSFT) Office’s commercial customer sales soared to $48 billion, significantly up from last year’s 10% growth, likely driven by Copilot Pro subscriptions. Office for individual users also saw a boost, with sales reaching $6.2 billion, a 4% increase compared to last year’s 2% growth, indicating accelerating growth from Copilot integration. Dynamics ERP and CRM software sales hit $6.3 billion, up 19%, surpassing last year’s 16% growth. This uptick is likely due to customers switching to Dynamics for the Copilot integration in the Dynamics Contact Center platform, which provides automated customer service chatbots and significant cost reductions. Bing sales jumped 3% year over year as more users switched to the search engine from Google Search, thanks to AI features.
While Microsoft Corp (NASDAQ:MSFT) expenses are expected to remain elevated, its investments are working and would bear fruit in the long term. The stock is down about 11% over the past month. It trades 26x next fiscal year’s earnings. MSFT could be an attractive buy on the dip for long-term investors.
Alger Spectra Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:
“Microsoft Corporation (NASDAQ:MSFT) is a beneficiary of corporate America’s transformative digitization. The company operates through three segments: Productivity and Business Processes (Office, LinkedIn, and Dynamics), Intelligent Cloud (Server Products and Cloud Services, Azure, and Enterprise Services), and More Personal Computing (Windows, Devices, Gaming, and Search). During the quarter, shares contributed to performance after the company reported strong fiscal third quarter results, underscoring its leadership position in the cloud and highlighted its role as a primary facilitator and beneficiary of AI adoption. Company revenue growth, operating margin, and earnings growth surpassed consensus expectations. The utility scale Azure cloud business grew 31% in constant currency of which 7% was AI related versus 3% two quarters ago. Further, management noted most of the AI revenue continues to stem from inference rather than training indicating high quality AI applications by Microsoft’s clients. Management also indicated that the significant cost-cutting programs in corporate America are done, suggesting that the cost optimization headwinds previously impacting Azure’s growth are over. Separately, management provided color on their new AI-productivity tool, Copilot, noting that approximately 60% of Fortune 500 companies are already using Copilot, and that the quarter witnessed a 50% increase in Copilot assistance integration within Teams. We continue to believe that Microsoft has the potential to hold a leading position in AI, given its innovative approach and demonstrated high unit volume growth opportunity.”
While we acknowledge the potential of Microsoft Corporation (NASDAQ:MSFT), our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MSFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.
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