Tom Hainlin, national investment strategist at US Bank Asset Management Group, states that the two things to look for in the earnings season are consumer spending and companies’ spending on technology, particularly artificial intelligence. Recent reports from the financial sector and retailers suggest that consumers are in good financial shape, setting the stage for a promising holiday season as well as providing a solid opportunity for growth in the fourth quarter. He further states how third-quarter earnings reports show that AI-focused companies, from software to hardware and even the energy providers that power their data centers, are receiving an inordinate amount of CapEx and continue to benefit from it.
READ ALSO: 15 AI News Investors Should Not Miss and Top 10 Trending AI Stocks in Q4
Sometimes, these AI-related names are a bit overvalued and there is volatility; but the long-term thesis remains strong. In fact, these “down days” can provide a significant point of entry for investors. According to BofA Securities market analysts Ohsung Kwon and Savita Subramanian, a major “AI arms race” is happening amongst major tech companies. According to their calculations, the capital spending this year from the four major mega caps making AI bets will total $206 billion, up 40% over 2023. Meanwhile, the capital spending by the other 496 companies in the S&P 500 Index is projected to dip slightly, as per their findings.
Just like the long-term outlook for AI stocks remains strong, so is the market enthusiasm for these names. Even though it is unclear which companies are going to emerge as the long-term winners, exchange-traded funds focused on AI continue to flood the market. According to data from Morningstar, more than one-third of the ETFs that included artificial intelligence or AI in their name have launched this year alone. Several ETFs have been added to the list recently, with one that has rebranded and shifted focus from cloud computing to specifically AI. Senior analyst Daniel Sotiroff states how he isn’t surprised by recent market developments. It’s a fast-moving and fast-growing industry, he claims, and it is “easy to hope” that one could end up making a lot of money in a short period of time. The 200% plus stock gain by Nvidia over the past year, “reaffirms that confidence”.
With that said, artificial intelligence has been making its mark everywhere it goes. In its most recent development, AI startup Sierra, co-founded by Bret Taylor, Chairperson of OpenAI, has increased its valuation to $4.5 billion after a new $175 million funding round led by Greenoaks Capital. Sierra specializes in helping companies personalize and implement AI-driven customer service agents.
“We think every company in the world, whether it’s a technology company or a 150-year-old company like ADT, can benefit from AI, and the technology is ready right now. We want to enable Sierra to address that market, and that means expanding internationally and to other industries.”
-Taylor told CNBC in an interview.
In other news, Osmo, a digital olfaction company, has launched three new scent molecules through its proprietary artificial intelligence technology. While captive molecules play a significant role in fragrance development, traditional methods of captive discovery have been time-consuming and expensive. Osmo’s AI-driven approach strives to overcome these challenges, reduce costs, and speed up the process both.
“Our AI technology enables us to screen billions of molecules at a rate that would be impossible for humans. This not only speeds up the discovery process but also allows us to identify captives with desirable performance and ‘special effects’, regulatory compliance, and consumer safety.”
– Christophe Laudamiel, The Company’s Master Perfumer
Advancements such as these are, no doubt, leading us to bridge the gap towards achieving AGI- or artificial general intelligence. AGI is a type of artificial intelligence that can match or even surpass human cognitive capabilities across a wide range of cognitive tasks. However, some experts are cautious about AGI. This is what Miles Brundage, former senior advisor for OpenAI’s AGI Readiness, has to say about achieving AGI, alongside his departure from the company:
“Neither OpenAI nor any other frontier lab is ready, and the world is also not ready”.
With that, let’s take a look at the latest AI stocks that are making headlines right now.
Photo by Possessed Photography on Unsplash
Our Methodology
For this article, we selected AI stocks by combing through news articles, stock analysis, and press releases. These stocks are also popular among hedge funds.
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).
10 AI News Investors Should Not Miss
10. DigitalBridge Group, Inc. (NYSE:DBRG)
Number of Hedge Fund Holders: 24
DigitalBridge Group, Inc. (NYSE:DBRG) is an infrastructure investment firm dedicated to investing in next-generation digital infrastructure and GenerativeAI. One of the primary areas of focus for the company is data centers, which play a crucial role in the AI industry.
On October 28, Business Wire reported that DigitalBridge Group, Inc. (NYSE:DBRG) has reached an agreement to acquire Yondr Group (“Yondr”), a global developer and operator of hyperscale data centers, through “DigitalBridge Fund” (its managed investment fund). Being a key player in the digital infrastructure sector, Yondr is fully capable of meeting the demand for advanced data processing capabilities fueled by the ongoing digital transformation, as well as the shift to cloud solutions and the rise of AI. This strategic investment by Digital Bridge will promote the development of advanced and sustainable data centers, supported by reliable revenue streams from investment-grade clients.
“Yondr’s assets and strong relationships with leading hyperscale clients align with DigitalBridge’s vision to support the future of digital infrastructure. Yondr enhances our existing data center portfolio and strengthens our ability to support hyperscalers. Together, we are well-positioned to capitalize on the increasing demand for hyperscale data centers – fueled by AI, cloud computing, and the ongoing digital transformation across industries.”
– Jon Mauck, Senior Managing Director at DigitalBridge.
Yondr will maintain its status as an independent entity within DigitalBridge’s portfolio, leveraging its resources, knowledge, and expertise. The deal is expected to close in early 2025, contingent upon standard closing conditions.
9. Baidu, Inc. (NASDAQ:BIDU)
Number of Hedge Fund Holders: 42
Baidu, Inc. (NASDAQ:BIDU) is a Chinese multinational technology company offering search engine services, artificial intelligence, and cloud computing in China. The company provides robotaxis and AI-powered tools, including an Ernie Bot similar to ChatGPT.
Baidu, Inc. (NASDAQ:BIDU) stock may be down 28% this year, it has attracted investor interest amid the country’s broader market rally following government stimulus measures. However, there are bears that believe Baidu’s AI-related prospects are not looking good. Jason Hsu, founder and chief investment officer of Rayliant Global Advisors, told CNBC’s Pro Talks last week that the stock may have a short-term rally, and since Baidu is a technology stock, it is naturally more volatile. Hsu is skeptical about Baidu stock as he states the search engine is a “one trick pony”.
It “doesn’t have the diversified appeal of Google which is why the two command such different price-to-earnings ratios,” he explained. Baidu is trading at 8.2 times forward price-to-earnings while Alphabet is at 21.2 times. He also believes that the company has “largely faded away from its AI capabilities,” and that many of its AI-powered services are not translating to profit streams for the company.
“Baidu was riding high for a short while but … the AI story may have sunset on Baidu and it will go back to being a one-trick pony…There’s probably a deeper issue which is, they’re in a niche space, and they really haven’t deepened capabilities beyond the search space which they dominate, and everything else is sort of based on their brand, rather than on a capability that they already have, and that brand extension without real capability supported really hasn’t panned out much”.