Maintaining balance is essential in the current financial climate as uncertainties loom over both equity and bond markets. Investors are advised to stay informed and seek potential opportunities amid these changes. Recently, discussions have centered around the performance of mega-cap stocks, particularly in a bull market that has seen significant gains. As this bull market approaches its second anniversary, there is optimism regarding the future of AI and its impact on stock performance. Key players in the market are expected to continue driving growth, although at a potentially slower pace than in previous years.
Looking ahead, investors should prepare for a more gradual approach to interest rate cuts and reassess historical expectations regarding market dynamics. The ongoing economic shifts necessitate a diversified investment strategy focused on long-term growth potential, particularly for those new to investing. Emphasizing stocks with solid fundamentals and cash reserves may provide safer opportunities in an evolving landscape. Earlier in October, Malcolm Ethridge, Capital Area Planning Group managing partner, appeared on CNBC to discuss markets, particularly mega-cap stocks. We discussed his opinion in greater detail in our article on the 8 Best Stocks To Buy For Beginners Right Now, here’s an excerpt from it:
“When discussing the resilience of the two-year-old bull market, Ethridge highlighted that rising interest rates were initially expected to negatively impact market performance. However, despite facing historically high rates, the market has thrived. He noted that many leading companies, including some of the MAG7, have substantial cash reserves and are not reliant on borrowing to fund growth. This financial strength allows them to invest in AI technologies without being overly concerned about the Federal Reserve’s policies…
The conversation then shifted to expectations regarding future Fed rate cuts. Ethridge suggested that investors should prepare for a slower pace of rate cuts than previously anticipated. While a 25 basis point cut may occur at the next meeting, he indicated that there could be a prolonged period of stability afterward rather than a rapid series of cuts…”
READ ALSO: 10 Best Pharma Stocks To Buy Right Now and 10 AI News Investors Should Not Miss.
Strategies for Hedging and Investment
On October 30, RBC’s Amy Wu Silverman appeared on CNBC and outlined a strategy for investors to hedge risks in the equity markets, through the use of put options. Amy Wu Silverman thinks that investors have gotten long where they need to, and now they’re hedging positions. She provided insights into the current state of the options market, particularly focusing on mega-cap tech stocks, commonly called the MAG7. Silverman noted a stark contrast between H1 2024 and the current market sentiment in the latter half as the market gears up for significant earnings reports this week. In the earlier months, there was a notable exuberance among investors driven by fear of missing out on AI opportunities. This led to a surge in upside call buying. However, as of now, that trend has diminished, indicating that investors have largely established their positions and are now more focused on hedging their investments rather than aggressively pursuing new upside.
Silverman emphasized that while there is a general sense of bullishness surrounding these mega-cap tech names, many investors are seeking protection for their long positions. This protective stance is particularly relevant in a year where AI advancements have significantly influenced market performance. The conversation also highlighted the term “overhang,” which Silverman identified as her word of the day. This concept reflects the uncertainty surrounding upcoming major events, including earnings reports from megacap tech companies, the US presidential election scheduled for November 5, and Federal Open Market Committee (FOMC) meetings. She suggested that this overhang creates a challenging environment for investors as they navigate daily market fluctuations while anticipating future developments.
Silverman pointed out that investors are closely monitoring volatility expectations. A key metric in this regard is the Volatility Risk Premium, which measures how future expectations for volatility compare to actual market movements. Currently, this premium is substantial, indicating that traders expect heightened volatility in response to upcoming data releases and events. There is growing concern among investors about the possibility of not receiving an anticipated Fed rate cut if economic data comes in stronger than expected.
In addition to tech stocks, she discussed the oil market’s volatility amid geopolitical tensions in the Middle East. Silverman noted that there has been an increase in upside hedging related to these geopolitical risks. Investors are trying to determine whether the high volatility risk premium stems from political uncertainties or ongoing geopolitical factors impacting energy markets. To mitigate these risks, she recommended looking at energy proxies such as XOP or XEG in Canada as potential hedges against escalating geopolitical tensions.
Before concluding her remarks, Silverman shared a specific options trading strategy ahead of the election: S&P put spreads for November expiration. This strategy involves purchasing near-the-money put options while selling further out-of-the-money puts. Given the recent rally in the S&P 500 and the multitude of significant events on the horizon, she described this approach as an effective insurance mechanism against potential market downturns while capitalizing on current volatility conditions.
Methodology
We sifted through several threads to compile a list of the top 30 trending stocks. We then selected the 10 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers.
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. Tesla Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 85
Tesla Inc. (NASDAQ:TSLA) is an innovative EV and clean energy company that designs, manufactures, and sells battery electric vehicles (BEVs). In addition to automotive offerings, it’s involved in solar energy solutions and energy storage systems. With a strong focus on sustainable energy and advanced technology, it has established itself as a significant player in both the automotive and tech industries.
It recently unveiled a new lineup of EVs, designed to stimulate the launch of new models. With its expanded production capacity, the company is poised to deliver over 3 million vehicles annually when fully optimized. Furthermore, it achieved a significant milestone by producing its 7 millionth vehicle on October 22 recently.
Tesla Inc. (NASDAQ:TSLA) reported strong third-quarter results, with revenue reaching $25.18 billion, a 7.85% year-over-year increase. While automotive revenue grew modestly by 2% to $20.02 billion, the energy segment saw a significant 52% surge and reached $2.34 billion. This overall revenue growth was driven by increased vehicle deliveries and the rapid expansion of the company’s energy business.
It’s investing $3.6 billion to build a new battery factory in Nevada, focused on producing larger 4680 battery cells crucial for the Cybertruck. It’s also investing $1 billion in a Texas-based lithium refinery to produce battery-grade lithium hydroxide sustainably.
Tesla Inc.’s (NASDAQ:TSLA) focus on AI and autonomous driving, coupled with its global manufacturing footprint and extensive charging infrastructure, positions the company for continued growth. The potential success of its Full Self-Driving (FSD) technology and Robotaxi service could be significant catalysts for future growth, transforming it into a leading mobility services provider.
Baron Opportunity Fund stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its Q3 2024 investor letter:
Tesla, Inc. (NASDAQ:TSLA) designs, manufactures, and sells EVs, related software and components, and solar and energy storage products. Tesla shares contributed to performance during the quarter, reflecting increased investor confidence and optimism in Tesla’s AI initiatives, stabilization in the company’s industrial operations, including strong growth in its energy segment, and the anticipated launch of new vehicle models in the first half of 2025. After years of industry-wide investments in autonomous vehicles, advancements in AI technology have accelerated the development of autonomous driving technology. Tesla deployed its AI-based Full Self Driving (FSD) solution last year and has demonstrated rapid improvements in driving performance. It has articulated a goal of achieving nearly a 20-fold improvement in miles driven between critical disengagements – soon exceeding 10,000 miles – over a two-month period this fall.
AI relies on vast amounts of high-quality data and computational power, and we believe Tesla possesses distinct assets that will serve as a strong foundation for its AI initiatives. Since 2016, every Tesla vehicle produced has been outfitted with cameras and essential hardware, resulting in millions of connected cars globally that gather data from billions of miles driven each year by the Tesla fleet. This rich and unique dataset is invaluable for FSD training. Tesla is also differentiating with its AI training compute factory. Tesla finished 2023 with close to 15,000 NVIDIA H100 chip equivalents in training computation power. By the second quarter of 2024, it doubled this capacity. In the third quarter, the company activated its advanced training data center in Texas, which should allow the company to harness up to 90,000 H100 equivalent compute power by the end of 2024 – six times the compute capacity it had at the beginning of the year and by far the world’s largest autonomous driving training cluster. Unlike any other automotive company, Tesla is investing billions of profits generated by its automotive segment in its AI initiatives aiming to capture material share in lucrative markets of autonomy and robotics…” (Click here to read the full text)
9. PayPal Holdings Inc. (NASDAQ:PYPL)
Number of Hedge Fund Holders: 87
PayPal Holdings Inc. (NASDAQ:PYPL) is a popular online payment service that makes it easy to send and receive money. Its platform can be used to shop online, transfer funds to friends and family, and even pay bills.
The company is focused on improving branded checkout, with new mobile checkout experiences designed to boost conversion. These new experiences are being rolled out to customers and are already delivering significant results. Fastlane, its new guest checkout solution, has gained traction with 1,000+ merchants. It is also making progress in large enterprises, with Braintree, which is a payment processing platform, contributing to increased profits for the company.
The company is also expanding its reach to small and medium-sized businesses through PayPal Complete Payments and partnerships with Shopify and Amazon. It’s seeing early signs of success with the PayPal debit card and plans to expand PayPal Everywhere to Europe. Its Venmo segment, for peer-to-peer transactions, is also transforming, with a focus on shifting from a P2P service to a broader financial platform.
The company’s Q3 results were strong, with total payment volume growing 9% to $423 billion and revenue increasing 5.78% to $7.85 billion. The earnings per share rose 22% year-over-year. The number of active accounts grew by 3 million to 432 million, and monthly active accounts rose by 2% to 223 million. PayPal Holdings Inc. (NASDAQ:PYPL) is focused on a price-to-value strategy, prioritizing healthy, profitable growth. With continued investment in key growth initiatives, it is well-positioned for future success.
Longleaf Partners Fund stated the following regarding PayPal Holdings, Inc. (NASDAQ:PYPL) in its Q3 2024 investor letter:
“PayPal Holdings, Inc. (NASDAQ:PYPL) – Digital payments platform PayPal was a contributor for the quarter. The company posted solid results, with gross margin dollars growing by 8%, an improvement over the 4% increase in the previous quarter. Strong cost management also led to double-digit FCF growth, a key metric for us. The company further enhanced shareholder value by repurchasing nearly 10% of its shares on an annualized basis, leading to even stronger FCF per share growth. Much of what we envisioned at our initial investment is materializing quicker than expected, driven by the improved leadership of relatively new CEO Alex Chriss.”
8. Eli Lilly And Co. (NYSE:LLY)
Number of Hedge Fund Holders: 100
Eli Lilly And Co. (NYSE:LLY) is a major pharmaceutical company that develops and manufactures medicines. It specializes in treatments for various diseases, including diabetes, cancer, and mental health disorders. Some of its well-known drugs include insulin products, treatments for Alzheimer’s disease, and medications for autoimmune diseases. The company continues to invest heavily in research and development to address significant health challenges globally.
It had a strong third quarter for the year 2024, with revenue growing 42% after excluding the divested olanzapine portfolio. Overall revenue growth for the quarter was 20.43% and its revenue amounted to $11.44 billion. New products like Mounjaro and Zepbound, two weight loss medications, drove over $3 billion in growth, with strong US demand and expanding access. The company is on track to exceed the production target for incretin medicines, for the treatment of type 2 diabetes, in H2 2024.
While supply and channel dynamics impacted Q3 sales of Mounjaro and Zepbound, Eli Lilly And Co. (NYSE:LLY) is investing heavily to increase production and accelerate demand generation. The company is confident in its ability to exceed its production goals and drive future growth.
PGIM Jennison Health Sciences Fund stated the following regarding Eli Lilly and Company (NYSE:LLY) in its Q2 2024 investor letter:
“Eli Lilly and Company (NYSE:LLY) is a diversified biopharmaceutical company with core franchises in Diabetes, Obesity, Immunology, Neurodegeneration, and Oncology. The company is one of the two global leaders in diabetes with blockbuster products in Trulicity and recently launched Mounjaro (tirzepatide) to serve this large underserved market. To date, the Mounjaro launch is the strongest for any diabetes drug ever launched, which we attribute to off label usage in the obesity indication as well as on label use in diabetes. We believe the tirzepatide (the generic name for Mounjaro) franchise is also uniquely positioned to grow substantially from here thanks to its recent approval for obesity. To that note, in late 2023, Eli Lilly received approval for tirzepatide in obesity and is commercializing it for obesity under a new brand name, Zepbound. While still early in the launch, uptake has been extremely strong, exceeding that of both Wegovy and Mounjaro at the same timepoint in their launches. While Alzheimer’s Disease has been a tough market for drug developers, Eli Lilly has breakthrough designation from the food and drug administration (FDA) for donanemab and recently presented Phase III pivotal trial data that positions donanemab as the most efficacious drug in the class. In June, the FDA advisory committee voted unanimously in favor of donanemab as an effective treatment where the benefits outweigh the risks, praising the therapy as innovative. Donanemab was then approved under the brand name Kisunla in early July. Eli Lilly also has exciting franchises in dermatology, immunology, and oncology that are starting to add meaningfully to growth. With a proven history of strong commercial execution and one of the highest research and development (R&D) success rates in the industry, we see opportunity for continued success. With a lack of meaningful patent expirations for the rest of the decade. Eli Lilly is uniquely positioned amongst its larger-cap peers. Recent positive performance has been driven by the continued strong growth of Mounjaro and Zepbound, which led to a big guidance raise on the 1Q call, an unusual action for Eli Lilly this early in the year, which speaks to their confidence in the strong trends they are seeing.”
7. Advanced Micro Devices Inc. (NASDAQ:AMD)
Number of Hedge Fund Holders: 108
Advanced Micro Devices Inc. (NASDAQ:AMD) is a semiconductor company that designs and manufactures microprocessors, including the Ryzen and EPYC series, and graphics processing units (GPUs) under the Radeon brand. It’s a major competitor to other big semiconductor firms, particularly in the CPU market, providing processors for personal computers and servers. Its GPUs are also used in gaming, data centers, and AI applications.
The company’s AMD Instinct MI300X is a powerful AI accelerator designed for high-performance computing and GenAI tasks and is becoming popular with cloud companies, computer makers, and AI businesses. Major tech companies like Microsoft and Meta are using the MI300X for their AI projects.
The company delivered strong Q3 results, exceeding revenue expectations with a 17.57% year-over-year increase to $6.82 billion. Data Center and Client Processor sales drove this growth, offsetting declines in the Gaming and Embedded segments. Earnings per share increased by 31%.
AMD is acquiring the tech company, ZT Systems, to enhance its AI capabilities. This acquisition will strengthen its expertise in designing AI infrastructure, which will help the company compete better in the overall market. The deal is expected to close in H1 2025. Additionally, it launched the next-generation MI325X GPU, which offers up to 20% higher performance for AI tasks. The company is focused on AI and has made significant advancements in its product portfolio and partnerships, positioning it for continued growth.
Columbia Threadneedle Global Technology Growth Strategy stated the following regarding Advanced Micro Devices, Inc. (NASDAQ:AMD) in its Q2 2024 investor letter:
“Shares of Advanced Micro Devices, Inc. (NASDAQ:AMD) lagged the market after the company reported earnings results that, while generally strong, left the market wanting more. The company reported AI revenue of ~$600 million and increased its forward-looking outlook for AI revenue growth, but shares took a breather, as results missed elevated expectations after the stock’s strong performance. Despite the stock’s underperformance during the quarter, the company’s AI story remains very much intact. The growth outlook for the company is supported by better cloud demand, enterprise recovery and continued share gains ahead of the company’s new AI product launch.”
6. NVIDIA Corp. (NASDAQ:NVDA)
Number of Hedge Fund Holders: 179
NVIDIA Corp. (NASDAQ:NVDA) is a technology company specializing in graphics processing units (GPUs). These powerful chips are used for tasks like gaming, video editing, and AI. While it’s best known for gaming graphics cards, its GPUs are also crucial for powering data centers and accelerating AI research. The focus on high-performance computing has made it a key player in the tech industry.
The company has experienced significant growth in recent years. In FQ2 2025, its revenue soared 122.4%, primarily fueled by the increasing demand for data center chips. Looking ahead, the company projects revenue of $32.5 billion for the FQ3, driven by the strong performance of its Blackwell and Hopper Architecture products. Blackwell architecture is a new generation of GPUs designed for high-performance computing and GenAI, while Hopper architecture focuses on data center applications, both enhancing processing power and efficiency for complex tasks like AI model training and inference.
Its dominance in the AI chip market, with a market share ranging from 70% to 95%, has solidified its position as a leading player in the industry. Overall, NVIDIA Corp.’s (NASDAQ:NVDA) impressive financial performance, strong market position, and innovative technology have positioned it as a key player in the AI revolution.
Vltava Fund stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q3 2024 investor letter:
“Over the summer, we devoted a lot of time to studying the AI-related investment wave. This spans a wide range of sectors and our view could be very briefly summarised as follows: The first-tier beneficiaries are primarily companies in the semiconductor sector, NVIDIA Corporation (NASDAQ:NVDA) perhaps the most. That company is benefiting from the huge increase in investment by large technology companies to build enormous data centres. We know who NVIDIA’s customers are. They are companies like Meta, Alphabet, Amazon, and Microsoft. They are investing hundreds of billions of dollars into their AI capabilities. What is not entirely clear, however, is who are and will be the customers of NVIDIA’s customers, and, more importantly, when, and if, they will be able to come up with such huge demand for AI services that the profits from AI will justify and pay for the enormous investments all these companies have been making. The further we move away from the starting point that NVIDIA represents in our more broadly-reaching estimates, the lessreliable those estimates are.So far, we know just one thing for sure, and that is that investments in AI capabilities are ongoing and they are huge. They are not only bringing large demand to chipmakers and the semiconductor sector but to some other sectors as well. Indeed, building AI clusters also requires the construction of new semiconductor factories, new energy sources, and all the associated infrastructure. The numbers under consideration are incredibly high. It is possible that over the next decade the construction of AI centres will necessitate a 20% increase in US energy consumption. The investment required will be measured not in the hundreds of billions of dollars, but in an order of magnitude higher. Maybe two orders of magnitude.”
5. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 184
Apple Inc. (NASDAQ:AAPL) is a tech giant known for its sleek and innovative products. Its iPhones are among the most popular smartphones globally, and its iPads are top-selling tablets. It also makes powerful Mac computers, stylish Apple Watches, and the popular AirPods. The focus on user experience and design has made it a beloved brand, and its services like Apple Music and Apple TV+ are rapidly growing.
Apple Intelligence, which was the company’s new GenAI platform announced in June, is now available to US English users on iPhone, iPad, and Mac. Additional features, such as visual intelligence and ChatGPT integration, will be released in December, along with localized support for English in several countries.
The company reported a record-breaking September quarter, with revenue reaching $94.93 billion, a 6.07% year-over-year increase. iPhone sales surged across all regions, setting a new record. Services revenue also hit an all-time high, growing 12% and was driven by Apple TV+.
Despite recent market challenges, Apple Inc. (NASDAQ:AAPL) remains a strong investment. Positive analyst sentiments and the potential for future growth, particularly in AI, suggest a bullish outlook for the company. While short-term concerns exist, its long-term prospects remain robust, making it a compelling choice for investors.
Wedgewood Partners stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q3 2024 investor letter:
“Apple Inc. (NASDAQ:AAPL) also contributed to performance as investors continued to favorably discount the recent unveiling of its AI strategy. As we have noted in the past, the Company has been at the forefront of proprietary semiconductor computer processor development for well over a decade. Given the compute-intensive nature of AI applications, Apple is well situated to develop a suite of compelling, consumer-friendly AI services that are also cost-effective. Apple’s AI value proposition should compel consumers to continue growing their engagement in the Apple ecosystem over the next several years.”
4. Alphabet Inc. (NASDAQ:GOOGL)
Number of Hedge Fund Holders: 216
Alphabet Inc. (NASDAQ:GOOGL), the parent company of Google, is a tech giant known for its innovative products and services. While its search engine is used by almost everyone every day, it’s also known for YouTube videos, Gmail, and Google Maps. Beyond these, it’s investing heavily in AI and self-driving cars. It’s also exploring other futuristic technologies like quantum computing.
Q3 2024 was a strong quarter and the company recorded a revenue of $88.27 billion, up 15.09% as compared to the year-ago period, driven by AI innovations. The company is investing heavily in infrastructure, including data centers, chips, and clean energy, to support its AI efforts. Its Gemini model, a multimodal AI model, is rapidly gaining traction, and it’s committed to bringing AI to the real world, with projects like Project Astra aiming to deliver AI-powered experiences by 2025. This project aims to create a more interactive experience by blending the features of Google Assistant and Gemini.
It recently formed a multi-billion dollar strategic partnership with Vodafone Group to bring Google Cloud, AI, Android, ads, and digital services to over 330 million customers across Europe and Africa. The company’s impressive financial performance highlights its ability to capitalize on emerging trends. With a strong foundation and a focus on innovation, Alphabet Inc. (NASDAQ:GOOGL) is well-positioned for continued success.
Cooper Investors Global Equities Fund (Hedged) stated the following regarding Alphabet Inc. (NASDAQ:GOOGL) in its Q3 2024 investor letter:
“Alphabet Inc.’s (NASDAQ:GOOGL) operating performance remains strong with sales growing 14% in the most recent quarter. Highlights included the ongoing secular growth of digital advertising driving Google search (+14%), YouTube’s continued success as a leading content platform (+13%) and the performance of the Cloud business (+29%). In conjunction with this strong sales momentum, Alphabet’s increased focus on expenses is delivering margin expansion such that Operating Income grew 26%.
Despite this operational momentum, Alphabet’s share price declined 11% in the quarter as a federal judge ruled against the company in its case with the US Department of Justice. The case pertains to Google’s monopolisation of both the search and digital advertising markets which is claimed to limit competition and innovation and/or in
Potential remedies include prohibiting exclusive agreements which make Google the default search engine on Apple or Samsung devices, forcing Alphabet to share its advertising technology with rivals, or in the extreme breaking the company apart. The timing and outcomes remain somewhat uncertain however we remain of the belief that at the fundamental level Alphabet’s products are best of breed across several verticals and are benefitting from secular industry trends and that these factors will be the ultimate determinant of long-term shareholder returns.”
3. Meta Platforms Inc. (NASDAQ:META)
Number of Hedge Fund Holders: 219
Meta Platforms Inc. (NASDAQ:META), formerly known as Facebook, is a tech company that connects people around the world. It owns popular social media platforms like Facebook, Instagram, and WhatsApp, where people share photos, videos, and messages. It’s also building the future of social connection through virtual and augmented reality.
In Q3 2024, the company recorded strong growth in its core apps, with over 3.2 billion people using at least one of its services daily. It made a revenue of $40.59 billion in Q3 2024, up 18.87% year-over-year. Meta Platforms Inc. (NASDAQ:META) has been leveraging AI to make improvements to its overall business segments.
Meta AI’s AI-driven feed and video recommendations have led to an 8% increase in time spent on Facebook and a 6% increase on Instagram. GenAI tools have empowered over a million advertisers to create over 15 million ads, with businesses experiencing a 7% boost in conversions. Llama, the AI language model, has seen exponential growth in token usage and has been adopted widely across the industry. It recently released Llama 3.2, and Llama 4 is currently under development on a massive scale.
Meta Platforms Inc.’s (NASDAQ:META) strategic investments in AI position the company for long-term growth and profitability. Despite short-term concerns about increased spending, its strong user base, innovative products, and clear monetization strategy make it a compelling investment opportunity.
Baron Opportunity Fund stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q3 2024 investor letter:
“Shares of Meta Platforms, Inc. (NASDAQ:META), the world’s largest social network, were up this quarter, due to impressive top-line growth of 22% year-over-year and solid forward guidance. Despite its large scale, Meta continues to outgrow the broader digital advertising industry, with better AI-driven content recommendations increasing engagement in products like Instagram Reels, and AI improving ad targeting and conversion rates. Our industry checks have continued to validate advertiser adoption and satisfaction, with improvements in Reels monetization, as well as strong adoption of Advantage+, Meta’s AI-driven service to allocate advertiser budgets across its content surfaces.
Meta continues to innovate in Gen AI, with a leading AI research lab and the best open-source models to date. We believe CEO Mark Zuckerberg’s open-source approach will encourage a broader developer ecosystem and standardization based on Meta, which will be beneficial for the company even if Meta doesn’t directly monetize model usage over the near term. In a blog this summer, titled “Open Source AI Is the Path Forward,” Zuckerberg laid out his case:…” (Click here to read the full text)
2. Microsoft Corp. (NASDAQ:MSFT)
Number of Hedge Fund Holders: 279
Microsoft Corp. (NASDAQ:MSFT) is a tech giant that makes software and hardware, mostly known for its Windows operating system, which runs on most personal computers. Beyond that, it’s big in cloud computing with its Azure platform, used by businesses to store and process data. It’s also known for its gaming products such as the Xbox and its search engine Bing.
Its strong performance in FQ1 2025 was driven by the robust growth of its cloud business, particularly Azure, which surpassed $38.9 billion in revenue, a 22% increase year-over-year. Overall, Microsoft Corp. (NASDAQ:MSFT) grew its revenue by 16.04% in FQ1 2025, recording an amount of $65.59 billion. Its continued investment in AI is driving significant growth. The company’s AI-driven innovations are transforming industries, with its AI business on track to achieve a $10 billion annual revenue run rate in the next quarter, making it the fastest-growing business in the company’s history.
The company is strongly committed to developer productivity, evident in the advancements made to GitHub Copilot, an AI-powered coding assistant, which is empowering developers to build software more efficiently. The introduction of GitHub Copilot Workspace and Copilot Auto Fix is further streamlining the development process and improving code quality.
The company’s strong AI-driven growth, particularly in Azure, positions it for future success. While near-term challenges persist, the long-term outlook remains bullish due to the accelerating adoption of AI technologies.
Baron Opportunity Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q3 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 $147 billion run-rate cloud business, including its Azure cloud infrastructure service and its Office 365 and Dynamics 365 cloud-delivered applications. Shares gave back some gains from strong performance over the first half of this year. For the fourth quarter of fiscal year 2024, Microsoft reported a strong quarter with total revenue growing 16%, in line with the Street; Microsoft Cloud up 22%; Azure up 30%; 43% operating income margins; and 36% free cash flow margins. Core Azure growth came in one point shy of expectations, however, due to a soft European market and continued constraints on AI compute capacity. In the same vein, while Microsoft reiterated its fiscal 2025 targets of double-digit top-line and operating income growth, quarterly guidance called for Azure growth to slow a bit before accelerating in the back half of the fiscal year, as capital expenditures increase, yielding an expansion of AI compute capacity. We believe this investment is a leading indicator for growth, with more than half of the spend related to durable land and data center build outs, which should monetize over the next 15-plus years. We remain confident that Microsoft is one of the best-positioned companies across the overlapping software, cloud computing, and AI landscapes, and we remain investors.”
1. Amazon.com Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 308
Amazon.com Inc. (NASDAQ:AMZN) is an e-commerce giant that sells almost anything you can imagine, from books to electronics to groceries. Beyond shopping, it also has a powerful cloud computing service, Amazon Web Services (AWS), that businesses use to store and process data. Plus, it offers streaming services for movies and TV shows and even makes its own devices like smart speakers and tablets.
The company recently released its Q3 2024 earnings, recording a strong sales improvement of 11.04% as compared to the year-ago period. Total revenue generated was $158.88 billion, with an earnings per share value of $0.43. The North American stores saw a 9% sales increase, while international stores grew by 12%.
There has been impressive growth in its advertising segment particularly, with an 18.8% year-over-year revenue improvement due to a vast customer base, targeted offerings, and ability to measure campaign effectiveness. AWS revenue was also up 19.1%, as the company continues to innovate and develop its stronghold in the cloud computing market.
While consumers are cautious, Amazon.com Inc. (NASDAQ:AMZN) is thriving through a combination of customer-centric strategies, a booming advertising business, and continued dominance in cloud computing with AWS. All of these factors together position this company as a leader in its industry.
Alphyn Capital Management stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q3 2024 investor letter:
“Amazon.com, Inc.’s (NASDAQ:AMZN) continued growth is driven by its strong performance in AWS and advertising, which grew 19% and 20%, respectively. E-commerce growth moderated to 9.3%, likely due to softer consumer demand.
In previous letters, I mentioned how Amazon’s heavy investments in logistics and fulfillment suppressed margins for some time, but the company is now reaping the rewards of those earlier expenditures. European operations have been profitable for the second consecutive quarter, while North American operating margins have risen from pandemic lows to 5.3%. A key ongoing area of focus for Amazon has been reducing the “cost to serve”; this is beginning to show tangible benefits. In 2023, Amazon undertook a “regionalization” strategy, which divided the U.S. into eight distinct regions for fulfillment and transportation, with corresponding distribution centers in each. As I learned from an expert interview done by InPractise, “regionalization” has resulted in estimated shipping expenses dropping from $4.76 per unit to $4.50, and they are now approximately $4.26, with potential reductions of 2-3% annually. Interestingly, Amazon leaned on its third-party vendors (3P) to finance much of this strategy. It did so by requiring 3P vendors ship inventory to the multiple regional distribution centers, instead of to a single location as they used to do. Moreover, Amazon imposed penalties for failing to meet strict minimum and maximum quantities. In this way, Amazon used 3P inventory to expand its distribution capacity by around 24 million square feet, much of which it could use for its own 1P inventory. Clever strategy, but one wonders if this raises the risk of an eventual vendor backlash due to the added financial and logistical pressures on 3P sellers.
Like Alphabet, Amazon is investing heavily in its AWS infrastructure to support its growing AI business. In the first half of the year, the company spent $30.5 billion on capital expenditures, with plans to exceed that in the year’s second half. When questioned about this during the earnings call, CEO Andy Jassy emphasized that they are seeing significant demand for AI-related services, which he believes will become a “very large” business for Amazon.”
As we acknowledge the growth potential of Amazon.com Inc. (NASDAQ:AMZN), our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. 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.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
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