In this article, we will take a look at the 10 best innovative stocks to invest in according to hedge funds.
Technology is a Big Deal, Strategist Highlights
The Magnificent Seven continues to grasp a sizeable market share of the market gains over the past few years. That said, investors and analysts are excited to see what this earnings period has to offer for the magnificent seven and how much of an influence they have on the market. On October 31, Christian Dery, head of macro strategy at Capital Fund Management, appeared in an interview on Yahoo Finance to discuss the impact of the magnificent seven on the market.
Dery suggested that these companies have grown to become large entities and their market capitalization often fluctuates by $2 billion to $400 billion on earnings events. Looking at the dispersion of the index, Dery adds that individual stocks within the S&P are very diverse and more independent, hinting towards a very low correlation in the index.
He adds that generative AI and LLMs are very different from the traditional software business. Therefore, the hyperscaling model that is conventionally taken from software can not be applied here. For every new customer in the software business, the marginal cost often goes down to nearly zero. However, if you look at the “tech incumbents”, they have to increase their capital expenditures to develop compute clusters and scale their operations, suggests Dery.
In 2023, the chips industry generated revenue of about $3 billion, reflecting that we are yet to find a killer use case or see results of generous AI spending. Dery adds that the market is more likely to be “discerning” on the path to profitability since companies are going to focus more on capital expenditures and projections for capital expenditures. He is particularly interested in the CapEx projections of the Magnificent Seven and shares that if they miss there could be a negative reaction among those stocks.
Dery reiterated that the market is yet to see the investments pay off multiple times but maintains his interest in capital expenditures by these companies playing out. While he is bullish on technological innovation and believes artificial intelligence is disruptive and a “big deal”, he fails to see viable results as of now. Dery also emphasizes that these companies are directing their investments to AI because they do not want to fall behind competitors, with no proper timeline for AI monetization.
That said, some companies are investing heavily in innovation and are at the forefront of a technological revolution. Let’s now take a look at the 10 best innovative stocks to invest in according to hedge funds.
An aerial view of a petrochemical manufacturing plant, its intricate network of pipes and vats reflecting the industry’s innovation and complexity.
Our Methodology
To come up with the 10 best innovative stocks to invest in according to hedge funds, we went over multiple similar rankings on the internet from credible financial websites. We then examined the hedge fund sentiment of each stock and picked the most popular ones. Our list is in ascending order of the number of hedge fund holders as of the end of Q2 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 Innovative Stocks to Invest in According to Hedge Funds
10. Oracle Corporation (NYSE:ORCL)
Number of Hedge Fund Holders: 93
Oracle Corporation (NYSE:ORCL) is one of the best innovative stocks to invest in according to hedge funds. The technology company is based in Austin, Texas, and specializes in providing businesses with a complete suite of cloud applications. Its fully integrated stack of cloud applications and cloud platform services is used by more than 430,000 customers from across the globe.
Oracle Corporation (NYSE:ORCL) has spent more than $80 billion on research and development since FY 2012 and over $110 billion on 150-plus acquisitions so far. In the fiscal first quarter of 2025, the company logged $13.3 billion in revenue, which was up 7% year over year and was driven by its cloud infrastructure. The company’s cloud revenue jumped 21% year over year to $5.6 billion and its cloud infrastructure revenue was $2.2 billion, up by a staggering 45%.
At the forefront of innovation, Oracle Corporation (NYSE:ORCL) recently announced its plan to invest over $6.5 billion in AI and cloud computing in Malaysia. In addition to that, on October 30, the company launched an AI-backed analytics intelligence platform for life sciences. The company currently has 162 cloud data centers in operation and under construction across the globe, and in FQ1 2025, it signed 42 additional cloud GPU contracts that totaled $3 billion.
9. ServiceNow, Inc. (NYSE:NOW)
Number of Hedge Fund Holders: 97
ServiceNow, Inc. (NYSE:NOW) is a software company that helps companies manage digital workflows and operations using its cloud computing platform. The company’s Now Platform allows businesses to leverage AI to enhance productivity, automate workflows, scale for growth, and improve security.
In the third quarter of 2024, ServiceNow, Inc. (NYSE:NOW) generated $2.79 billion in revenue, a 22% increase from the same quarter in 2023. Of this, subscription revenue was worth $2.72 billion, representing a growth rate of 23%. The company attributes this momentum to customers doubling down on ServiceNow as a leading AI platform for operational efficacy and business transformation. The company itself is confident in its future performance as the demand for AI continues to grow.
During the quarter, ServiceNow, Inc. (NYSE:NOW) processed its largest AI release to date, the Now Platform Xanadu release. The release encompasses hundreds of new and improved AI capabilities and generative AI solutions for the telecom, media, technology, and financial services industries. In addition to that, the company also partnered with NVIDIA to co-develop AI agents using Nvidia’s blueprints in the ServiceNow platform. To align with its expansion strategy, ServiceNow, Inc. (NYSE:NOW) also forged separate partnerships with Siemens, Rimini Street, and Pearson to develop AI use cases for different industries and customer segments.
Overall, ServiceNow, Inc. (NYSE:NOW) is an investor favorite because of its quality deals with major players in the industry. Similarly, the company has high growth expectations for the full fiscal year and the fourth quarter of 2024, contributing to its ranking as one of the best innovative stocks according to hedge funds.
Ithaka Group’ Ithaka US Growth Strategy stated the following regarding ServiceNow, Inc. (NYSE:NOW) in its Q3 2024 investor letter:
“Founded in 2004, ServiceNow, Inc. (NYSE:NOW) has become the leading provider of cloud-based software solutions that define, structure, manage and automate workflow services for global enterprises. ServiceNow pioneered the use of the cloud to deliver IT service management (“ITSM”) applications. These applications allow users to manage incidents and to plan new IT projects, provision clouds, manage application performance and build applications themselves. The company has since expanded beyond the ITSM market to provide workflow solutions for IT operations management, customer support, human resources, security operations and other enterprise departments where a patchwork of semi-automated processes have been used with varying success in the past. ServiceNow’s stock appreciated in the quarter on the back of strong earnings that beat Street estimates on the top and bottom line, with the company pointing to strength in subscription revenues, cRPO, operating margins, and continued demand for the company’s AI products.”
8. Salesforce, Inc. (NYSE:CRM)
Number of Hedge Fund Holders: 117
Salesforce Inc (NYSE:CRM) is a leading cloud provider and one of the best innovative stocks to buy according to hedge funds. The company has one of the world’s most trusted customer relationship management platforms. What started as a collaborative cloud company is now an AI powerhouse that boasts advanced technological capabilities.
Salesforce Inc (NYSE:CRM) is committed to expand and innovate. MuleSoft, Salesforce’s software company that provides integration software to connect data and applications, launched AsyncAPI capable of building AI-powered customer experiences in real-time. The launch will facilitate the widespread adoption of event-driven infrastructures, allowing businesses to respond to real-time events faster. Fast forward to October 29, Salesforce Inc (NYSE:CRM) announced the general availability of Agentforce, a new feature on the Salesforce platform, that will help companies develop and deploy autonomous AI agents.
As Salesforce Inc (NYSE:CRM) transcends to making AI a reality, new bookings for its AI products more than doubled during Q2 2024 sequentially. In addition to that, the company signed 1,500 AI deals during the same period. The company’s Data Cloud saw a 130% increase in paid customers and the number of customers spending more than $1 million in a year has more than doubled.
Overall, Salesforce Inc (NYSE:CRM) claims that this is its first step to becoming an AI enterprise and is expecting a major tailwind in revenue due to AI adoption in the coming years. Analysts are also bullish on the stock and their median price target of $317.5 implies an upside of 8%.
7. Micron Technology, Inc. (NASDAQ:MU)
Number of Hedge Fund Holders: 120
Micron Technology, Inc. (NASDAQ:MU) ranks seventh on our list of the best innovative stocks according to hedge funds. Its primary offerings include memory and storage products.
In the fiscal year 2024, Micron Technology, Inc. (NASDAQ:MU) grew its revenue by 62% and gross margins by more than 30 percentage points, driven by growth in its data center and automotive segments. During the year, the company invested $8.1 billion in capital expenditures and expects CapEx to be considerably higher in 2025.
Speaking of artificial intelligence, on October 15, Micron Technology, Inc. (NASDAQ:MU) launched a new portfolio of memory solutions that are capable of fueling the new wave of AI PCs. Its corporate vice president, Dinesh Bahal, stresses the need for a memory paradigm shift as AI takes flight. To align with his stance, Micron is working relentlessly to meet the need for future AI workloads. In addition to that, the company has also been working with Intel to deliver next-generation compute performance to the market.
Micron Technology, Inc. (NASDAQ:MU) is shifting its complete focus to meeting the demands for artificial intelligence and data center customers, two of the fastest-growing industries at the moment. The company expects server unit shipments to grow significantly this year as the demand for AI servers continues to increase, positioning it as a major player in AI.
Baird Chautauqua International and Global Growth Fund stated the following regarding Micron Technology, Inc. (NASDAQ:MU) in its Q3 2024 investor letter:
“After Micron Technology, Inc.’s (NASDAQ:MU) price appreciated 54% in 1H24, investors became anxious about potential memory weakness, less clear cyclical recovery pace, and whether competitor Samsung will act rationally with capacity expansion. We maintain our long-term positive view on the industry’s demand/supply situation. We believe Micron is well positioned in technology capability, and that its margins will continue to improve.”
6. Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holders: 130
Broadcom Inc. (NASDAQ:AVGO) designs and develops a range of semiconductor products and is well known for making is application-specific integrated circuits (ASICs). It also provides infrastructure software products. Some of its products include cable modems, networking processors, and storage adapters. The company serves the data center, networking, software, broadband, storage, and wireless markets.
2024 has been quite a feat for Broadcom Inc. (NASDAQ:AVGO). During the year, the company launched two breakthrough technologies, such as the industry’s first switch platform for scalable AI systems and Retimers, which facilitate the management of large datasets for AI tasks. On October 15, Broadcom Inc. (NASDAQ:AVGO) expanded its 20-year partnership with Deutsche Telekom’s subsidiary, T-Systems, to keep its strategy active. The subsidiary is now a VMware Cloud Service Provider.
During the third quarter, Broadcom Inc. (NASDAQ:AVGO) generated $13.1 billion in revenue, up by 47% year over year. The growth in revenue and operating profits was driven by AI revenue, VMware bookings, and sustained non-AI semiconductor revenue. In the fiscal fourth quarter of 2024, Broadcom expects revenue from AI to grow by 10% sequentially to $3.5 billion, bringing the full-year total to $12 billion, driven by ethernet networking and custom accelerators for AI data centers.
Broadcom Inc.’s (NASDAQ:AVGO) cloud computing platform for enterprises promises a solid growth opportunity as it leverages artificial intelligence. In addition to that, company officials believe AVGO is finally achieving stability on a company-wide level and is on track to becoming an AI powerhouse.
ClearBridge Investments’ ClearBridge Large Cap Value Strategy stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its Q3 2024 investor letter:
“In IT, we bought Broadcom Inc. (NASDAQ:AVGO) as we believe the company has a long runway for growth with its custom silicon business, which should be more durable and less volatile than other components within the AI food chain. We also believe the acquisition of VMware creates another opportunity for steady, subscription-based durable growth that is still in its early innings. We believe the stock has an attractive risk/reward profile given the reasonable visibility toward mid-teens EPS growth at a low-20s P/E multiple. We made room for Broadcom by exiting Lam Research, whose shares we believed priced in a full recovery, while we grew increasingly concerned that China exposure might create an air pocket.”
5. Uber Technologies, Inc. (NYSE:UBER)
Number of Hedge Fund Holders: 145
Ride-hailing company Uber Technologies, Inc. (NYSE:UBER) is one of the best innovative stocks to invest in according to hedge funds. The ride-hailing company is expected to become a completely electric and zero-emission platform by 2040, a major reason for its growing fanbase across the globe.
In Q3 2024, Uber (NYSE:UBER) grew its gross bookings by 16% year-over-year, the fourth quarter of logging in at least 20% growth. Last year the company partnered with Waymo to bring autonomous driving technology to UBER and has extended its partnership to offer ride-hailing services to Atlanta and Austin by early 2025. During the quarter, the company launched all-electric Uber Green, an EV-only ride option across 40 cities across the globe supported by an EV preference feature in various other markets.
For drivers, Uber (NYSE:UBER) introduced an AI assistant that helps answer EV-related questions along with an EV mentorship program. More recently, on October 3, Uber (NYSE:UBER) formed a partnership with ENSO, The Earthshot Prize Finalist, to launch a range of low-emission electric vehicle tires across the United Kingdom and the United States. Additionally, the company developed a Clean Air Fund worth £145 million to help drivers go electric.
Despite the uncertainty in the autonomous driving industry, Uber Technologies, Inc. (NYSE:UBER) is continuing to make strides in EV, contributing to its ranking on our list. Analysts are also bullish on the stock, and their 1-year median price target of $90 points to a 23% upside from current levels.
RiverPark Advisors stated the following regarding Uber Technologies, Inc. (NYSE:UBER) in its first quarter 2024 investor letter:
“Uber Technologies, Inc. (NYSE:UBER): UBER was a top contributor in the quarter following better than expected 4Q23 earnings and 1Q24 guidance. Gross bookings of $37.6 billion were up 22% year over year. Mobility gross bookings of $19.3 billion grew 29% over last year driven by a combination of product innovation and driver availability. Delivery gross bookings of $17 billion were up 19% from last year and continued to be strong throughout the quarter. 4Q Adjusted EBITDA of $1.3 billion, up $618 million year over year, was better than management’s guidance of $1.2 billion, and the company generated $768 million of free cash flow, up from a cash loss of $303 million last year. Management guided to continuing growth in 1Q Gross Bookings (20% growth) and Adjusted EBITDA (of $1.3 billion). The company hosted a well-received analyst day in February during which it guided to three year compounded annual growth rates for gross bookings of mid-to-high single digits and EBITDA of 30-40%, both above investor expectations. The company also guided to free cash flow conversion of 90% of EBITDA.
UBER remains the undisputed global leader in ride sharing, with a greater than 50% share in every major region in which it operates. The company is also a leader in food delivery, where it is number one or two in the more than 25 countries in which it operates. Moreover, after a history of losses, the company is now profitable, delivering expanding margins and substantial free cash flow. We view UBER as more than a ride sharing and food delivery service; we also see it as a global mobility platform with 142 million users (by comparison, Amazon Prime has 200 million members) and the ability to penetrate new markets of on-demand services, such as package and grocery delivery, travel, and hourly worker staffing. Given its $5.4 billion of unrestricted cash and $4.8 billion of investments, the company today has an enterprise value of $165 billion, indicating that UBER trades at 21x our estimates of next year’s free cash flow.”
4. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 179
NVIDIA Corporation (NASDAQ:NVDA) ranks 4th on our list of the best innovative stocks to invest in according to hedge funds. NVIDIA is a leading GPU maker that is driving innovation in artificial intelligence, gaming, creative design, autonomous vehicles, and robotics.
There is no doubt about NVIDIA’s position in the technology and AI sector. On October 21, the company announced a partnership with Deloitte to deploy digital AI agents for healthcare. On the same day, NVIDIA Corporation (NASDAQ:NVDA) joined hands with Microsoft to support AI startups across the globe with a focus on healthcare and life sciences in the first phase. On October 29, the company revealed Enterprise Reference Architectures. These blueprints will help the company’s partners and customers build AI factories.
NVIDIA Corporation (NASDAQ:NVDA) is scheduled to release earnings towards the end of this month, one of the most awaited events at the moment. On October 26, Toshiya Hari, managing director at Goldman Sachs, appeared in an interview on Yahoo Finance to discuss his thesis on NVDA. According to Hari, the environment is pretty robust supported by broadening customer demand. He shares his bullish stance on the stock and suggests that its ability to innovate across “multiple components” sets it apart from competitors, also contributing to its dominant position. He adds that the stock has more room to run and expects more upside to come. Hari also believes that as hyperscalers announce earnings, NVDA is likely to go even higher.
Ithaka Group’s 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.”
3. Meta Platforms Inc (NASDAQ:META)
Number of Hedge Fund Holders: 219
Meta Platforms Inc (NASDAQ:META) is a technology conglomerate behind Facebook, Instagram, Threads, and WhatsApp. The company has a large user base of over 3 billion daily active users across all its platforms.
Over the past few months, the company has ventured into AI and augmented reality, having launched its debut AR glasses, Orion, in September. On the same day, the company released its most affordable mixed-reality headset, Meta Quest 36. Meta Platforms Inc (NASDAQ:META) is striving to become one of the best recommendation technology companies and to reach that position META launched new features that allow users to explore their interests and like-minded people.
The company is expanding its position on AI and for good reason. On November 1, Brent Thill, Senior Analyst at Jefferies, appeared in an interview on Yahoo Finance to discuss his thesis on META and its AI spending. Thill emphasized the role of AI in showing appropriate content to users and personalizing commerce suggestions across all META platforms. He adds that for advertisers and small business owners, especially, AI spending by META has started to show results.
Meta Platforms Inc (NASDAQ:META) has a strong business model and its position as one of the innovative stocks is evidence of that. The company is pioneering ad tech using artificial intelligence, challenging for any other company to replicate.
Rowan Street Capital stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q2 2024 investor letter:
“We are pleased to report that Meta Platforms, Inc. (NASDAQ:META), our largest position in the fund, has delivered a remarkable performance, +450% since our November 2022 note. Our investment in Meta dates back to 2018, with an average cost basis of approximately $172 per share. Today, the stock trades around $535, reflecting a 3x return over the six-year holding period, equating to a 20% annualized return.
We would like to remind you that achieving these types of returns is never a straight path. From time to time, we might experience volatility — that’s simply part of the investment journey. In fact, wealth creation and volatility go hand in hand. There’s no escaping it; it’s the “price of admission” the market demands. If you take a look at the chart below, you’ll notice the drawdowns META stock has faced over the years, with 2022 standing out as a particularly challenging period, where the stock saw a 75% drop….. ” (Click here to read the full text)
2. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 279
Microsoft Corporation (NASDAQ:MSFT) is a technology giant that is spending generously on artificial intelligence and data. As the company ventures into new technologies and AI, it does represent a breakthrough stock that can influence the future.
Microsoft Corporation (NASDAQ:MSFT) is part of the list because of its strategic investments, positioning it as a leader in AI. On October 31, Brent Bracelin, Piper Sandler equity research analyst of cloud software and analytics, appeared in an interview on Yahoo Finance to analyze the performance of MSFT. Bracelin suggests that the company’s AI business will cross $10 billion in revenue in only two and a half years, becoming its fastest-growing product yet. He adds that its AI business “has legs” to become the next $100 billion business for MSFT. While he agrees that MSFT is pouring a lot into AI, he highlights that more than half of it is dedicated to building land investments. The land investments will eventually “be filled with capacity” driving incremental revenue and profit for the company.
On the AI front, the company closed deals with startups and technology companies to run their workloads on Microsoft Azure, its cloud platform. On October 10, the company revealed several breakthrough AI capabilities in healthcare that offer medical imaging, clinical records management, and genomics. Previously on October 3, Microsoft Corporation (NASDAQ:MSFT) closed a partnership with Rezolve AI to develop innovative AI-backed online retail solutions.
Microsoft Corporation (NASDAQ:MSFT) is a long-standing company with immensely strong fundamentals. This coupled with its investments in AI and data make it one of the best innovative stocks to buy according to hedge finds.
1. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 308
Amazon.com, Inc. (NASDAQ:AMZN) ranks first on our list of the best innovative stocks to invest in according to hedge funds. The technology company is an e-commerce giant that also provides streaming and cloud computing services.
Amazon.com’s (NASDAQ:AMZN) growth trajectory in AI is exceptional. On November 1, Arun Sundaram, senior equity research analyst at CFRA Research, joined Market Domination on Yahoo Finance to discuss Amazon’s results and its AI spending. Sundaram shares his bullish thesis on the stock suggesting it has all the “ingredients” needed for a stock to go up. He adds that all hyperscalers are increasing their capital expenditures on AI, including Amazon, and while investors are concerned over stocks like MSFT and META, they are less likely to be worried about AMZN pouring into AI. Sundaram stresses that AMZN is not reliant on Nvidia for chips as the company is building and creating chips of its own that are valuable and less costly. In addition to that, the company is less likely to experience capacity constraints as is the case for MSFT.
Amazon.com, Inc. (NASDAQ:AMZN) has not only been actively involved in the development of AI hardware and software but has also signed partnerships with the government and AI startups. Similarly, in a recent development, on October 16, Amazon.com, Inc. (NASDAQ:AMZN) announced its plans to invest in nuclear energy to meet the power demand from AI data centers.
Amazon.com, Inc. (NASDAQ:AMZN) has significant growth potential and to achieve such the company is working tirelessly. Over the next few years, the company is not only poised to become a fully functional AI company but it is also on track to become carbon-free.
Diamond Hill Select Strategy stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q2 2024 investor letter:
“Among our top individual contributors in Q2 were Amazon.com, Inc. (NASDAQ:AMZN), Texas Instruments and Mr. Cooper Group. Internet retail and cloud infrastructure company Amazon is benefiting from strong profitability, particularly in its Amazon Web Services (AWS) business. Shares also received a boost amid growing optimism around the demand for AWS as Amazon customers’ investments in generative AI projects continue growing.”
While we acknowledge the potential of AMZN to grow, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AMZN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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