In this article, we discuss the 10 best beginner stocks to buy now. We also discuss the general principles of investing in the US market for beginners.
While investing in the stock market carries risk, the US stock market is generally considered a safe place to invest. It has a long history of growth and has consistently recovered from downturns, including major recessions and financial crises.
Over the last four to five years, the market has been hit by several unexpected downturns, due to a global pandemic and the Russia-Ukraine war, among other things, that crippled the global economy. However, the US broader market recovered swiftly and has been performing well since 2023. It is nearly 19% up year-to-date, as of August 23.
Nevertheless, it is still a complicated place for beginners and they should consider investing in shares of well-established companies with a history of stable performance and reliability. These stocks typically belong to large, financially sound companies that operate in diverse industries, such as technology, consumer goods, and healthcare.
Additionally, beginners can also look into index funds or exchange-traded funds (ETFs) that track major market indices like the S&P 500. These options offer diversification, which reduces the risk associated with investing in individual stocks while still providing exposure to the broader market’s potential gains. Investing in such well-established and diversified assets can help beginners build confidence and knowledge in the stock market. For such ETFs, you can check out our article on the best large-cap growth ETFs.
Opportunities and Caution for New Investors Due to Consumer Behaviour
On August 16, Melissa Minkow, director of retail strategy at CI&T, discussed the latest trends in U.S. consumer spending in a CNBC interview. Despite concerns about a potential recession, Minkow believes we might have avoided one. She pointed out that although consumers may feel like they are in a recession, their spending habits show otherwise. They continue to spend, especially when presented with discounts. Retailers have adapted by offering more targeted promotions this year, which has helped maintain consumer spending despite previous challenges like the pandemic and supply chain issues.
Minkow also noted that the effectiveness of promotions can vary across sectors. For example, quick-service restaurants like McDonald’s and Starbucks haven’t seen the same benefits from discounts as other retailers, partly because consumers may opt for more cost-effective alternatives like home-cooked meals. Additionally, brands that are already positioned as discount options might not see as much impact from promotions. However, retailers who offer significant discounts on desirable items can attract cost-conscious shoppers and increase sales volume, potentially offsetting the impact on profit margins.
For beginner investors in the stock market, the current retail sector dynamics offer both opportunities and challenges. The resilience of consumer spending, even in the face of economic uncertainty, suggests that certain sectors and companies could continue to perform well, especially those that effectively use promotions to drive sales. Retailers offering targeted discounts on popular items may attract more customers, boosting their sales volumes, which could lead to positive stock performance.
However, beginner investors should also be cautious. Not all companies benefit equally from promotions, as seen with the restaurant and food segment, where discounts haven’t significantly improved earnings. This highlights the importance of understanding the specific business models and market positioning of companies before investing.
The Market is Healthy but Caution is Advised
The U.S. stocks have seen a significant surge over the last few quarters, which are mainly driven by strong economic data and optimism about a potential soft landing for the U.S. economy. However, experts remain cautious as we discussed in our best defensive stocks article.
In the article, we discussed the J.P. Morgan report that noted the market’s heavy reliance on large, high-quality tech and AI companies, and it warned that maintaining this momentum could be challenging due to high valuations and potential market volatility. Here is an excerpt from the article:
“According to a July report by J.P Morgan, recent market trends have benefited large, high-quality companies, especially in tech and AI, which have resulted in high market concentration. However, maintaining this momentum in the second half of 2024 could be difficult due to high valuations and investor positioning. The report says that while U.S. market volatility is currently low, it could rise if conditions change.
According to Bruce Kasman, global growth is steady at 2.4%, with improved recoveries in Western Europe and emerging markets, along with a rebound in the manufacturing sector. Despite this, core global inflation is projected to remain around 3% in 2024, which could limit the potential for policy easing. Kasman warned that achieving inflation control and rate normalization might weaken demand and could interact with political factors to cause further inflation and central bank tightening.”
With that in mind, we discuss the 10 best beginner stocks to buy now.
10 Best Beginner Stocks To Buy Now
Our Methodology
For this article, we used stock screeners to identify large to mega-cap stocks with a revenue compound annual growth rate of at least 5% over the last 10 years. The companies we chose are well-known, well-established, fundamentally strong, and some also pay regular dividends. We listed the companies in ascending order of their hedge fund sentiment as of the second quarter of 2024.
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 Best Beginner Stocks To Buy Now
10. FedEx Corporation (NYSE:FDX)
Number of Hedge Fund Holders: 59
10-year Revenue CAGR: 6.77%
FedEx Corporation (NYSE:FDX) is a Tennessee-based multinational logistics and transportation company. Over time, the company has broadened its scope to offer a wide range of transportation, e-commerce, and business services, which has established it as a vital component of global supply chain management. The company operates in over 220 countries and territories.
The company runs through several major segments, each concentrating on different aspects of logistics and transportation. The FedEx Express segment is its core service, providing time-critical air and ground express delivery for packages and freight. The FedEx Ground segment focuses on small-package ground shipping, while the FedEx Freight segment specializes in less-than-truckload (LTL) freight services, catering to businesses that need to transport heavy or bulky goods.
Additionally, the FedEx Services segment supports the company’s various divisions by offering sales, marketing, information technology, and customer service functions. The company also provides a range of supplementary services, including supply chain management, customs brokerage, business solutions, and more.
In Q2, 59 hedge funds held stakes in FedEx (NYSE:FDX), with positions worth $2.18 billion. As of the second quarter, the Bill & Melinda Gates Foundation Trust is the most significant shareholder in the company and has a position worth $460.063 billion. It is one of the best beginner stocks to buy now.
FedEx (NYSE:FDX) has demonstrated strong financial performance and operational efficiency, establishing a solid case for its future growth. In the fiscal fourth quarter, the company reported earnings of $5.41 per share on revenue of $22.1 billion, surpassing Wall Street’s expectations. Looking ahead, the company’s management is optimistic about continuing this positive trend into fiscal 2025. They anticipate revenue growth in the low- to mid-single-digit range, driven partly by an uptick in package delivery volumes. The company’s earnings guidance for the upcoming fiscal year ranges between $20 and $22 per share, which indicates confidence in maintaining strong performance.
The company has also been effective in managing costs, which has supported its profitability even during slow demand growth. It reduced structural costs by $1.8 billion in 2024, leading to improved adjusted operating margins, which rose from 6% in 2023 to 7.1% in 2024. Additionally, full-year adjusted operating income increased from $5.37 billion to $6.24 billion.
The company’s focus on improving its network flexibility and efficiency, alongside a substantial $5 billion share buyback plan announced in March, highlights its commitment to delivering value to shareholders. It is also evaluating its FedEx Freight division, the largest less-than-truckload operation in the U.S., which could further optimize its operations. With these efforts, the company is well-positioned to continue its performance and navigate future market conditions successfully.
Longleaf Partners, managed by Southeastern Asset Management, stated the following regarding FedEx Corporation (NYSE:FDX) in its Q2 2024 investor letter:
“FedEx Corporation (NYSE:FDX) – Global logistics company FedEx was the top contributor for the quarter. Late in the quarter, FedEx reported strong fiscal year results, highlighting a year of strong cost management in a challenging revenue environment. Earnings per share (EPS) increased by 19%, and reduced capital expenditures narrowed the gap between EPS and FCF per share. With the increase in FCF, the company has become a significant share repurchaser, which is a welcome change. The company also announced a strategic review of their Freight segment. Our appraisal has long accounted for the underappreciated value in FedEx’s less-than-truckload operations. A potential spin-off or sale could unlock substantial value, as comparable companies like Old Dominion trade at significantly higher multiples on revenue, cash flow, and earnings than those applied to FedEx Freight by the market and our appraisal today.”
9. Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Holders: 71
10-year Revenue CAGR: 8.75%
Costco Wholesale Corporation (NASDAQ:COST) operates as a membership-only big-box warehouse club. It is one of the largest and most influential retailers in the world, which makes it one of the best beginner stocks to buy. As of August 2024, Costco manages 884 warehouses worldwide, with a substantial presence in the United States and Canada, among other international locations.
Costco’s (NASDAQ:COST) business model is unique as it focuses on low pricing, limited selection, and high-volume sales. The company operates with a lean cost structure, and its profitability is largely dependent on membership fees. The strict markup policy, where no regular item is marked up more than 14% to 15%, reinforces its commitment to delivering value to its members. This model has proven successful and allows the company to generate significant revenue and maintain a loyal customer base, which reached 132 million members in 2024.
Despite competition from other membership-based retailers like Sam’s Club and BJ’s Wholesale Club, Costco’s (NASDAQ:COST) emphasis on quality, price, and customer satisfaction has positioned it as a leader in the retail industry.
In the second quarter, Costco’s (NASDAQ:COST) shares were held by 71 hedge funds at a combined value of $5.95 billion. This is up from 65 hedge funds with shares worth $4.6 billion in the previous quarter. Fisher Asset Management is the most prominent shareholder of the company with nearly 3 million shares worth $2.5 billion.
ClearBridge Investments stated the following regarding Costco Wholesale Corporation (NASDAQ:COST) in its Q2 2024 investor letter:
“Consumer staples holdings were also standouts in the quarter, such as Costco Wholesale Corporation (NASDAQ:COST), which continues to execute well and delivered better than expected earnings, helped by strong traffic driving better expense leverage. Customers also looked to be shifting toward more discretionary purchases.”
8. Thermo Fisher Scientific Inc. (NYSE:TMO)
Number of Hedge Fund Holders: 108
10-year Revenue CAGR: 11.02%
Thermo Fisher Scientific Inc. (NYSE:TMO) is a global leader in life sciences and clinical research. The company was established in 2006 through the merger of Thermo Electron and Fisher Scientific, two well-respected names in the scientific community.
Since its formation, the company has grown significantly, largely through a series of strategic acquisitions, including Life Technologies, Affymetrix, and PPD, among others. These acquisitions have broadened its capabilities, which allow the company to offer a wide range of products and services that support the pharmaceutical, biotechnology, healthcare, and industrial sectors.
Thermo Fisher’s (NYSE:TMO) extensive portfolio includes advanced analytical instruments, laboratory equipment, specialty diagnostics, and clinical development solutions. The company also provides critical services in the pharmaceutical and biotechnology industries, such as contract research and manufacturing.
As one of the best beginner stocks, Thermo Fisher (NYSE:TMO) is already one of the well-established names in the market. The company management’s statement at its latest earnings call makes a compelling case for it. Despite challenges in the pharma and biotech sector due to the runoff in vaccine and therapy revenues, other areas like biosciences, clinical research, electron microscopy, and transplant diagnostics saw strong performance.
Thermo Fisher (NYSE:TMO) launched several innovative products in the quarter, including the Thermo Scientific Stellar Mass Spectrometer and the Thermo Scientific Orbitrap Ascend Tribrid Mass Spectrometer, which further strengthened the company’s leadership in analytical instruments. Mass spectrometers are analytical instruments used to measure the mass-to-charge ratio of ions.
As of the second quarter, 108 hedge funds had stakes worth $8.56 billion in Thermo Fisher (NYSE:TMO). Cryder Capital is the most prominent shareholder of the company with 290,353 shares worth $160.565 million, as of June 30.
7. UnitedHealth Group Incorporated (NYSE:UNH)
Number of Hedge Fund Holders: 114
10-year Revenue CAGR: 11.83%
One of the best beginner stocks to buy now, UnitedHealth Group Incorporated (NYSE:UNH) is a Minnesota-based multinational company specializing in health insurance and services. The company operates through four key segments, UnitedHealthcare, Optum Health, Optum Insight, and Optum Rx. The UnitedHealthcare segment focuses on providing a broad range of health plans and services, including coverage for large employers, Medicare, and retirement-related services.
The Optum segment is divided into several areas. Optum Health delivers a variety of technology-enabled services that focus on improving patient care and supporting healthcare providers across various settings, whether in person, at home, or through virtual channels.
Optum Insight offers data analytics and insights to enhance clinical operations and drive efficiency. Meanwhile, Optum Rx manages a comprehensive network of medical, pharmacy, and behavioral care services, which includes specialty pharmacies.
UnitedHealth (NYSE:UNH) stands as a leading force in the managed care sector, serving a large membership base both domestically and internationally. As the largest provider of Medicare Advantage plans and one of the biggest health insurers in the U.S., the company’s diversified approach spans various product lines, geographical regions, and customer types.
In the second quarter, it reported revenue of $98.9 billion, a 6.5% increase from the previous year. The company saw strong growth in its Optum divisions, with Optum Rx and Optum Health both achieving revenue increases of 13%, reaching $32 billion and $27 billion, respectively. The healthcare benefits segment also expanded, adding 2.3 million members to reach a total of 29.6 million.
Additionally, the company’s strong financial position is strong as evidenced by its cash flows from operations, which were $6.7 billion for the quarter. The company ended the period with over $31 billion in cash and short-term investments.
On July 17, Argus analyst David Toung raised the price target on UnitedHealth (NYSE:UNH) to $600 from $570 and kept a Buy rating. The analyst mentioned that despite facing challenges such as a temporary cyberattack affecting its claims processing network, the company continues to show resilience.
UnitedHealth (NYSE:UNH) was held by 114 hedge funds in the second quarter and the stakes amounted to $12.535 billion. Fisher Asset Management is the biggest shareholder of the company and has a position worth $1.57 billion as of Q2.
Invesco Growth and Income Fund stated the following regarding UnitedHealth Group Incorporated (NYSE:UNH) in its Q2 2024 investor letter:
“UnitedHealth Group Incorporated (NYSE:UNH): Like many managed care providers, United Health has come under pressure from rising medical costs and higher-than-expected utilization. The stock is currently undervalued based on our analysis. We view the company as a high-quality compounder with secular growth opportunities in the managed care segment. The US Presidential election may cause additional near-term uncertainty, but we believe United Health will be able to rebound once pricing and utilization issues normalize.”
6. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 179
10-year Revenue CAGR: 34%
NVIDIA Corporation (NASDAQ:NVDA) is a tale of innovation, resilience, and strategic evolution which is why it is one of the best beginner stocks to buy. Founded in 1993 by Jensen Huang, Chris Malachowsky, and Curtis Priem in a meeting at Denny’s diner in San Jose, the company started with a vision to revolutionize computing through graphics-based processing. Despite early struggles, including the failure of its first graphics accelerator and a near brush with bankruptcy, the company persevered. As of 2024, it is the most dominant player in the GPU market.
The company’s strategic decisions to diversify into areas like AI, data centers, and autonomous vehicles have paid off immensely. Nvidia’s CUDA software platform, introduced in the mid-2000s, played a pivotal role in establishing the company as a leader in high-performance computing and AI.
Despite some setbacks, NVIDIA’s (NASDAQ:NVDA) growth trajectory has been remarkable, especially after the Gen AI trend that started with the launch of ChatGPT. The company reached a valuation of over $3 trillion in 2024 and briefly became the most valuable publicly traded company.
On August 22, The Fly reported that Citi maintained a Buy rating on NVIDIA (NASDAQ:NVDA) with a price target of $150 in anticipation of the company’s earnings report for the July quarter, scheduled for August 28. Citi analysts believe that the company could exceed Wall Street’s revenue projections by about $1 billion, though this would be less than the $2 billion revenue beat it achieved in the previous four quarters. This lower-than-expected beat is attributed to concerns about supply chain issues and delays related to the company’s Blackwell chip series.
Citi expects that after the earnings report, analysts will likely revise their revenue forecasts upward for NVIDIA’s (NASDAQ:NVDA) upcoming quarters. The firm also anticipates that the company will address Blackwell-related concerns, providing a positive outlook for 2025. This reassurance is expected to boost investor confidence and potentially push the company’s stock to reach a new 52-week high.
As of the second quarter, 179 hedge funds held NVIDIA (NASDAQ:NVDA) shares worth $53.67 billion. Fisher Asset Management is the company’s most significant shareholder with 93.437 million shares worth $11.54 billion, as of June 30.
Aoris International Fund stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2024 investor letter:
“If Information Technology was the dominant sector for the quarter, NVIDIA Corporation (NASDAQ:NVDA), which is the largest supplier of microprocessors used for generative AI applications, was the dominant company. NVIDIA’s share price rose by a third in the quarter and has increased by 255% so far this year. Since the beginning of 2023, its market value has risen by 8.3x, or $4.3 trillion, making NVIDIA the third largest company in the world by this measure.
As a result of the unusually strong stock price performance from NVIDIA and a few other large companies, equity markets have become increasingly concentrated. You can see this in the chart below, which shows that on 30 June, 27% of the market value of the 500 largest US companies was attributable to just five companies, more than twice the average of the last 20 years.
The composition of the Aoris International Fund will always be very different to that of the broader equity market. There will be periods, such as the most recent quarter, where this contributes to our performance lagging that of our benchmark. When it comes to NVIDIA and other AI-centric companies, rapid growth is exciting, but it makes it difficult for us to judge what is normal. Our preference is to own established leading companies where we can make a more confident, evidence-based judgement about their growth and profitability.”
5. Visa Inc. (NYSE:V)
Number of Hedge Fund Holders: 163
10-year Revenue CAGR: 10.87%
Visa Inc. (NYSE:V) is a California-based leading American multinational payment technology company. It has established itself as one of the largest card payment organizations worldwide, and it enables electronic funds transfers across the globe through its vast network. VisaNet, the company’s global transaction processing network, plays an important role in authorizing, clearing, and settling payment transactions, which provides secure and efficient handling of millions of transactions each day.
In addition to VisaNet, the company operates the Plus ATM network and the Interlink EFTPOS network, which provide smooth access to funds and payment processing for both consumers and businesses. It also provides a range of additional services, including fraud prevention and risk management, data analytics, and loyalty programs, among others. It is among our best beginner stocks to buy now.
According to our database, 163 hedge funds held stakes in Visa (NYSE:V) in the second quarter, with positions worth $24.9 billion. With 16.8 million shares of the company, valued at $4.4 billion, TCI Fund Management is the largest shareholder of the company, as of June 30.
Visa (NYSE:V) is a prominent player in the global payment processing sector, distinguished by its extensive network and significant market presence. Despite common misconceptions, the company does not issue credit cards directly. It partners with banks and financial institutions that issue Visa-branded cards. These institutions manage credit risk and collect any unpaid balances, while the company focuses solely on facilitating the payment process through its vast network.
The company’s business model involves routing payments and charging merchants a fee for each transaction. The company then shares this fee with the card issuer and retains a portion as revenue. This setup positions Visa (NYSE:V) as a key beneficiary of the shift away from cash transactions, thanks to its established scale and brand recognition. According to Global Market Insights Inc., the payment processing solutions market, valued at $61.1 billion in 2023, is expected to grow at an annual rate of 10.5% through 2032.
With over 4 billion cardholders and more than 130 million merchants accepting Visa, the company has created a strong barrier to entry. This dominance ensures that even if the company adjusts its fees, it typically does not lose customers, as consumers prefer the convenience of Visa payments.
On July 24, Jefferies lowered the price target on Visa (NYSE:V) to $300 from $325 but maintained a Buy rating. The downgrade was influenced by a rare top-line miss and slower trends in July, coupled with challenges such as cross-border transaction slowdowns and ongoing merchant litigation. Despite these short-term hurdles, Jefferies believes that the company’s current valuation represents a solid entry point for investors. The company’s enduring strength in payment processing and its ability to navigate market fluctuations continue to make it one of the best beginner stocks to buy now.
Wedgewood Partners stated the following regarding Visa Inc. (NYSE:V) in its Q2 2024 investor letter:
“Visa Inc. (NYSE:V) detracted from performance despite healthy corporate results. The Company grew earnings per share +12% as payment volume growth was up +8% and cross-border payment grew +16%, adjusted for currency. There are over 4.4 billion Visa debit and credit cards in circulation generating over $15 trillion in volume over the past 12 months. There is another estimated $10 trillion in cash and check volume, globally, which we think Visa can continue to move over to its electronic payment rails. In addition, the Company has spent the past several years extending its payment capabilities into new flows of commerce, particularly for business-to-business transactions. This is another, extremely large (+$200 trillion) long-term growth opportunity for Visa that we believe investors are ignoring.”
4. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 184
10-year Revenue CAGR: 8.03%
Apple Inc. (NASDAQ:AAPL) is a prominent American multinational technology company and is known for its groundbreaking consumer electronics, software, and services. The company first gained recognition with the launch of its Apple I personal computer.
Over the years, the company has transformed into one of the world’s most valuable brands, renowned for its flagship products such as the iPhone, iPad, Mac, Apple Watch, and Apple TV. In addition to its hardware, it offers a range of digital services, including the App Store, Apple Music, Apple TV+, iCloud, Apple Pay, and AppleCare. It is fourth on our list of the best beginner stocks to buy now.
Apple (NASDAQ:AAPL) has long been a significant player in the technology sector, and it is set to build on its position with an ambitious push into generative AI. While AI has been part of the company’s ecosystem for years, through the Siri virtual assistant, it is ready to better its AI capabilities with the upcoming launch of Apple Intelligence.
The new suite of features, expected within the year, will introduce a refreshed Siri interface and offer functionalities such as email summarization, content rewriting in various tones, and phone call transcriptions. Future updates will include integration with OpenAI’s ChatGPT, which further expands its AI capabilities.
Apple (NASDAQ:AAPL) has been integrating AI accelerators into its M-series processors from the start, which positions the company uniquely in the tech landscape. By making Apple Intelligence compatible with all Apple Silicon Macs, iPads with M-series processors, Vision Pro, iPhone 15 Pro, and future iPhones, the company will likely possess the largest base of AI-capable devices. Its devices, powered by the M-series and A17 Pro processors, will possibly be able to handle complex AI tasks directly on the device rather than relying on cloud computing.
In addition to these advancements, the company remains a high-margin leader in the tech industry. In the third quarter, it saw a 5% increase in net sales, reaching $85.8 billion. This growth was fueled by a 14% rise in services revenue and substantial iPhone sales, which totaled $39.3 billion.
With its continued innovation in AI and robust financial performance, the company is well-positioned for sustained growth and market leadership. The expansion of AI functionalities across its product lineup and impressive sales figures highlight the company’s ongoing potential and strategic direction.
In the second quarter, 184 hedge funds had stakes in Apple (NASDAQ:AAPL), with total positions worth $124.175 billion. With 400 million shares worth $84.248 billion, Warren Buffett’s Berkshire Hathaway is the most prominent shareholder in the company, as of June 30.
Baron Opportunity Fund stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q2 2024 investor letter:
“This quarter we re-initiated a position in Apple Inc. (NASDAQ:AAPL), 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[1]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.”
3. Alphabet Inc. (NASDAQ:GOOGL)
Number of Hedge Fund Holders: 216
10-year Revenue CAGR: 18.36%
Alphabet Inc. (NASDAQ:GOOGL) is a California-based global technology conglomerate engaged in different sectors and offers a range of products, including internet technologies, advertising, hardware, and research and development. The company operates through three main segments, Google Services, Google Cloud, and Other Bets.
The Google Services segment has a broad range of products, including Google Search, YouTube, Android, Chrome, Google Play, Google Maps, and Google Ads. This segment also features popular applications such as Gmail and Google Drive, which are designed to enhance productivity and connectivity for users.
The Google Cloud segment provides enterprise-grade cloud computing solutions, which allow businesses to develop, test, and deploy applications on an infrastructure. It includes Google Cloud Platform services, tools for data storage, machine learning, AI, and analytics.
The Other Bets segment focuses on healthcare and internet services. It includes Waymo, which is advancing autonomous driving technology, Verily, which is focused on life sciences; and Nest, known for its smart home innovations.
At a stake value of $35.3 billion, 216 hedge funds held positions in Alphabet (NASDAQ:GOOGL) in the second quarter. As of Q2, Fisher Asset Management is the top shareholder in the company and has a position worth $8.856 billion.
Alphabet (NASDAQ:GOOGL) is a well-known name in the digital world and has made significant strides in both advertising and cloud computing. Google Cloud, while smaller compared to Amazon Web Services and Microsoft Azure, has made progress over the past year, largely due to the rising interest in AI products. The introduction of the Gemini family of models has contributed to this growth, helping the company gain market share.
In the second quarter, Google Cloud saw a remarkable 29% increase in revenue and achieved a profit margin of 11%, a significant marker of its profitability. Forrester Research has recognized Google as a leader in AI infrastructure and large language models, which reinforces its position in this rapidly growing sector.
CEO Sundar Pichai has highlighted that the company’s AI infrastructure and generative AI solutions have already generated substantial revenue, with over 2 million developers using these tools. Pichai views AI as a major growth driver for the future. The company has embedded AI across its diverse range of products, including Maps, YouTube, Gmail, and Google Cloud, which is a sign of its commitment to integrating advanced technology into its offerings.
According to Stat Counter, Google has dominance in the online search market as it controls around 90% of it. This strong position is supported by its expertise in search algorithms and AI. In the advertising sector, the company leads with six products, each boasting over 2 billion monthly users. This extensive user base enhances the company’s ability to gather data and deliver targeted ads, which makes it a crucial partner for many brands.
Pichai has noted that generative AI enhancements are not only increasing the use of Google Search but also improving user satisfaction, especially among younger demographics. With the initial success of its AI initiatives, the company is ramping up its investments in this area, with plans to allocate nearly $50 billion in capital expenditures for 2024, reflecting a more than 50% increase from the previous year.
Patient Capital Management stated the following regarding Alphabet Inc. (NASDAQ:GOOGL) in its Q2 2024 investor letter:
“Alphabet Inc. (NASDAQ:GOOGL) was a top contributor in the second quarter, finally catching up to its peers in the Magnificent 7. The company gained 20.8% in the period following strong first quarter earnings, a new $70B repurchase program (3% of shares outstanding) and the initiation of a cash dividend ($0.20 per share; 0.42% yield). We continue to believe the market underappreciates Google’s exposure to AI with its Gemini model being integrated into search results, YouTube advertising and its cloud offering. We continue to think that the cloud players will be the AI winners in the long-term, with Google being well positioned to take advantage. While the company trades at 24x 2024 earnings, if you remove the money-losing and under-earning businesses, you realize that you are paying below a market multiple for the core Google business. We do not believe there are many other AI winners trading at such an attractive multiple.”
2. Meta Platforms, Inc. (NASDAQ:META)
Number of Hedge Fund Holders: 219
10-year Revenue CAGR: 31.07%
Meta Platforms, Inc. (NASDAQ:META), previously known as Facebook, Inc., is a prominent American multinational technology company. It operates through two primary business divisions, Family of Apps and Reality Labs.
The Family of Apps segment features platforms like Facebook, Instagram, Messenger, and WhatsApp, generating revenue mainly through advertising sales. This division enables users to connect, share content, and interact with various communities while offering secure messaging tools for personal and group communications.
On the other hand, the Reality Labs segment focuses on augmented and virtual reality, encompassing consumer hardware, software, and content. This includes products such as the Oculus VR headsets and Facebook Reality Labs, which spearheads the company’s AR/VR research and development efforts.
Additionally, the company has been expanding the offerings of Metaverse, utilizing artificial intelligence and immersive technologies to craft unique experiences. The company is actively promoting several AI-driven products, including Meta AI, a virtual assistant powered by AI, and smart devices like Meta Smart Glasses and Meta Quest, which use AI to deliver advanced computational capabilities directly to users.
Meta (NASDAQ:META) has positioned itself as a dominant force in the digital landscape, owing to its vast user base and advanced technological infrastructure. With 3.27 billion daily active users across Facebook, Instagram, WhatsApp, and Threads, it holds an impressive amount of first-party data. This extensive user engagement provides a critical advantage in developing and refining AI models, which is essential for maintaining a competitive edge.
The company’s investment in technology is substantial. It has acquired nearly 600,000 of Nvidia’s H100 GPUs, a top-tier component for AI computing, and is also developing its own custom chip to further improve its capabilities.
On top of this, the company has introduced its own AI models, such as Llama, which is integrated into its apps and made available to external developers. This positions it as a significant player in the AI ecosystem, which allows control over its development and application across its platforms.
The impact of these advancements is evident in Meta’s (NASDAQ:META) financial performance. In the second quarter, the company saw a 7% increase in daily active users while achieving a 58% boost in operating income. The company’s dominance in digital advertising is reinforced by its AI-driven tools that enhance ad effectiveness by matching ads more precisely with target audiences. This has contributed to a 22% year-over-year revenue growth and a remarkable 73% increase in earnings per share. The company’s revenue surge is supported by a 10% increase in both the number of ads served and the cost per ad.
In addition to advertising, Meta (NASDAQ:META) is expanding its footprint in the video segment. Engagement with Reels is growing, and the new unified video player for Facebook has shown promising results. The company’s efforts to enhance its text-based platforms are also showing potential for further user base expansion and revenue growth.
WhatsApp remains the world’s leading messenger app with over 2 billion users, including more than 100 million monthly active users in the United States. Threads is rapidly gaining traction, with nearly 200 million monthly active users, and could become a significant revenue contributor if the company decides to monetize it.
Meta (NASDAQ:META) combines its extensive user base, cutting-edge AI technology, and advanced advertising capabilities to drive growth and drive its market position. As it continues to innovate and expand, the company appears well-positioned to capitalize on its strengths and achieve further success.
In Q2, 219 hedge funds had investments in Meta (NASDAQ:META), with positions worth $42.54 billion. GQG Partners is the top investor in the company as of the second quarter and has a stake worth $5.4 billion.
Fred Alger Management stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q1 2024 investor letter:
“Meta Platforms, Inc. (NASDAQ:META) operates the world’s largest social network, with over 3 billion monthly active users across its platform. The company generates revenue predominantly from advertising. which accounts for over 95% of its total revenue, evenly split between North America and international markets. During the quarter, shares contributed to performance following the release of strong fiscal fourth quarter operating results, with revenues and earnings surpassing analyst estimates. The better-than- expected revenues were attributed to strong advertiser demand and Al-driven ad improvements. Moreover, the company materially raised its fiscal first quarter sales and earnings guidance above analysts’ estimates, buoyed by continued strong advertiser demand trends and enhancements to Reels. Advantage+. Click-to-message, and Shop Ads. Further, management noted that ongoing investment in Al is enhancing user engagement and advertiser returns through improved targeting and measurement. Separately, Meta authorized a new share repurchase plan representing approximately 5% of its market capitalization and announced the initiation of its first dividend, implying an approximate 0.4% yield.”
1. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 279
10-year Revenue CAGR: 10.94%
Microsoft Corporation (NASDAQ:MSFT) is a prominent American multinational technology company. It runs through three main business segments, Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.
The Productivity and Business Processes segment includes offerings such as Office Commercial, which covers Office 365 subscriptions and Microsoft Teams, and Office Consumer products like Microsoft 365 Consumer subscriptions. This segment also has LinkedIn and Dynamics 365, a collection of cloud-based applications designed for enterprise resource planning (ERP) and customer relationship management (CRM).
The Intelligent Cloud segment focuses on a range of server products and services, including public, private, and hybrid solutions. Major products of this segment are Microsoft Azure, SQL Server, and Windows Server, along with developer tools such as Visual Studio and GitHub.
The More Personal Computing segment features a variety of consumer-oriented products and services. This includes the Windows operating system, Surface devices, and Xbox hardware and content. It also includes search and news advertising through platforms like Bing and Microsoft Edge.
In the second quarter, 279 hedge funds held positions in Microsoft (NASDAQ:MSFT) and their stakes amounted to $89.068 billion. As of June 30, the Bill & Melinda Gates Foundation Trust is the most dominant shareholder in the company and has a position worth $15.6 billion.
Microsoft (NASDAQ:MSFT) is making significant strides in AI, a key area expected to drive future growth for the company. By partnering with OpenAI, the creator of ChatGPT, the company has strategically integrated advanced AI technology into its offerings. The recent fiscal fourth-quarter results highlight the impact of this focus as the Azure OpenAI service saw a 60% increase in customers year-over-year and reached 60,000. Additionally, the average spending per Azure AI customer is on the rise, which reflects the growing value businesses see in its AI solutions.
Beyond Azure, the company’s AI efforts are also flourishing across its other platforms. GitHub Copilot is already generating more revenue than GitHub did before Microsoft’s acquisition as per the company. Its Copilot AI assistant is now embedded in a range of products, from Microsoft 365 to Dynamics 365 and Power Platform. These integrations are driving transformation, particularly in Dynamics, where AI capabilities are improving business processes.
In terms of financial performance, Microsoft’s (NASDAQ:MSFT) largest revenue segment, the Intelligent Cloud, saw a 20% increase in the fourth quarter. This segment includes Azure, where AI services contributed significantly to this growth, accounting for 8% of the 29% year-over-year revenue rise in cloud services. The company expects that its investments in AI will continue to boost Azure’s growth in the second half of fiscal 2025.
Overall, the company’s focus on AI is not only enhancing its product offerings but also contributing to robust financial results. The company’s revenue for the fourth quarter was $245 billion, a 16% increase while operating income grew 24% year-over-year to $109.4 billion. With these strong financials and the ongoing expansion in AI, the company is one of the best beginner stocks to buy now as it capitalizes on the transformative potential of AI.
Baron Opportunity Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:
“Microsoft Corporation (NASDAQ:MSFT) is the world’s largest software and cloud computing company. Microsoft was traditionally known for its Windows and Office products, but over the last five years it has built a $135 billion run-rate cloud business, including its Azure cloud infrastructure service and its Office 365 and Dynamics 365 cloud-delivered applications. The stock contributed to performance because of continued strong operating results and investor enthusiasm regarding Microsoft’s leadership across the secular megatrends of AI and cloud computing. Recent business momentum continued to show evidence of the strength and attractiveness of Microsoft’s product portfolio among its customer set: (1) Azure OpenAI – its suite of AI services – is now used by 65% of the Fortune 100 and contributed 7% of Azure revenue (an annualized run rate of $5.2 billion); (2) GitHub Copilot – its AI code writing service – is bending the productivity curve for developers (reports of 40%- plus improvements in developer efficiency) and now has 1.8 million paid subscribers, with growth accelerating to over 35% quarter-over-quarter; and (3) Copilot Studio – its AI application service that makes it easier for anyone to build an application, automate a workflow, or create a Copilot using natural language. 30,000 organizations across every industry have used Copilot Studio to customize Copilot for Microsoft 365 or build their own, up 175% quarter-over-quarter. In the March quarter, Microsoft again reported better-than-expected financial results, highlighted by Microsoft Cloud growing 23% year-over-year, with the fastest commercial bookings in six quarters, and Azure accelerating to 31% constant currency growth, up from 28% in the previous quarter. June quarter guidance came in-line with consensus, but the company provided higher guidance for the most important segment, Intelligent Cloud, on the back of continued strong trends across Azure and Azure OpenAI. We remain confident that Microsoft is one of the best-positioned companies across the overlapping software, cloud computing, and AI landscapes.”
While we acknowledge the potential of Microsoft Corporation (NASDAQ:MSFT) to grow, our conviction lies in the belief that 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 NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Read Next: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
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