In this article, we will discuss the 10 Best S&P 500 Stocks to Buy According to Hedge Funds.
As per AXA Investment Managers, the US dominated financial markets this year. The investment firm believes that the broader economy has been stronger than anticipated with GDP growth running at an annualized rate of 3.0% in Q2. The blue-chip benchmark, S&P 500 index, has surged ~22% on a YTD basis. Also, the US fixed-income markets saw strong returns. Overall, the financial markets were supported by the success of the US Fed in dealing with inflation.
Interest rates have started to move lower, with credit markets reflecting the strength of the broader US corporate sector, per AXA Investment Managers. At the start of October 2024, the investment firm mentioned that a 50:50 allocation to the S&P 500 Growth equity index and the ICE US High Yield bond index might have resulted in a return of ~18% YTD.
S&P 500 Index – The Road Ahead
Forbes believes that the prevailing outlook for 2025 is cautious optimism. While the momentum in technology innovation, together with the environment of lower interest rates, should help the broader S&P 500 index, investors are required to be wary of certain risks. These include elevated valuations, global tensions, and uncertainty regarding the US presidential election.
According to ClientFirst Wealth, Legacy & Estate Planning, which is an independent, fee-only registered investment advisor (RIA), the ongoing innovation in AI and lower rates should help the S&P 500 Index see growth in the range of 14.5% – 19.6%. Another firm, Running Point Capital Advisors, expects the S&P 500 to see an increase of 7% – 11% in 2025, with some volatility. As per the company, the influencing factors include economic growth, expansion in earnings, higher mergers and acquisitions activity, and a favorable interest rate environment.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
Sectors To Keep on Radar
Forbes highlighted that investors are required to keep certain sectors, like technology, healthcare, and energy, on the radar in 2025. As per IDC, worldwide spending on AI, which includes AI-enabled applications, infrastructure, and associated IT and business services, should more than double by 2028 to reach $632 billion. The incorporation of AI, and generative AI (GenAI) in particular, in a range of products should result in a CAGR of ~29.0% over 2024-2028, which should help the broader technology sector.
Definitive Healthcare believes that investors should see more device makers and pharmaceutical companies jump on the D2C bandwagon in 2025. Also, ICRA, a Credit Rating Agency, expects a strong financial outlook for the broader hospital industry in FY 2025. The optimistic outlook stems from the increasing incidence of non-communicable lifestyle diseases, a rise in per capita healthcare spending, increased medical tourism, and penetration of health insurance.
US Energy Information Administration, in its short-term energy outlook report (October 2024), mentioned that the summer temperatures this year were warmer in the US as compared to last summer, mainly in the upper Midwest and Northeast regions, which supported pushing up the US electricity demand. EIA expects 2% more U.S. sales of electricity to ultimate customers in 2024 as compared to 2023, followed by another 2% expected growth in 2025. Overall, it expects electricity sales to increase throughout economic sectors. It projects that commercial electricity sales will rise by 3% this year followed by a 1% growth in 2025.
With all of these trends in context, let’s take a look at the 10 Best S&P 500 Stocks to Buy According to Hedge Funds.
A professional financial analyst studying data on a computer, illustrating the company’s index investment decisions.
Our Methodology
To list the 10 Best S&P 500 Stocks to Buy According to Hedge Funds, we extracted the stocks from the S&P 500 index. After getting the list, stocks that were the most popular among hedge funds were chosen. Finally, the stocks were arranged in the ascending order of their hedge fund sentiment, as 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 S&P 500 Stocks to Buy According to Hedge Funds
10) Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holdings: 85
Tesla, Inc. (NASDAQ:TSLA) is engaged in designing, developing, manufacturing, leasing, and selling EVs, and is also involved in the energy generation and storage systems markets.
Tesla, Inc. (NASDAQ:TSLA)’s pivot from traditional vehicle sales and manufacturing to a focus on AI and autonomous driving technologies should continue to drive topline growth over the near term. The company took steps to increase the adoption of FSD. While Tesla, Inc. (NASDAQ:TSLA) plans to launch FSD in China, it reaffirms its commitment to the global expansion of this technology.
Tesla, Inc. (NASDAQ:TSLA)’s global manufacturing footprint, given the facilities in the US, China, and Germany, offers it economies of scale and the ability to serve several markets efficiently. Moreover, the company has the largest charging infrastructure in the industry, which should continue to act as a significant competitive advantage as EV adoption grows. Market experts believe that the success of Tesla, Inc. (NASDAQ:TSLA)’s Robotaxi service and the adoption of its FSD technology should act as potential catalysts for future growth.
Through leveraging the current fleet of vehicles equipped with FSD hardware, Tesla, Inc. (NASDAQ:TSLA) can deploy a large-scale autonomous ride-hailing service, which should help it capture a significant share of the global Robotaxi market. This transition will shift the company from mainly a vehicle manufacturer to a mobility services provider, which can result in generating high-margin recurring revenue streams.
Morgan Stanley reissued an “Overweight” rating on shares of the company, setting a $310.00 price target on 3rd October. Baron Funds, an investment management company, released its third quarter 2024 investor letter. Here is what the fund said:
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) Walmart Inc. (NYSE:WMT)
Number of Hedge Fund Holders: 95
Walmart Inc. (NYSE:WMT) is engaged in the operation of retail, wholesale, and e-Commerce worldwide.
Wall Street believes that Walmart Inc. (NYSE:WMT)’s long-term growth is expected to be aided by its competitive advantages, which stem from the cost advantage and scale-based efficiencies and capabilities. The company’s strategic initiatives and growth drivers revolve around private label development, technology and automation, international growth, among others. Walmart Inc. (NYSE:WMT) has been expanding its private label offerings, which include the introduction of “bettergoods” at Walmart U.S. as well as strengthening the “Member’s Mark” brand at Sam’s Club. Such initiatives should improve brand loyalty and drive sales.
Notably, significant investments in supply chain automation and in-store technology are expected to reduce costs and improve operational efficiency. Walmart Inc. (NYSE:WMT) continues to focus on high-margin businesses like Walmart Marketplace, Walmart Connect (advertising), and financial services to fuel profitability. The company’s focus on developing alternative profit streams, including digital advertising and financial services, offers a strong opportunity for margin expansion.
Over the long term, the company’s focus on price leadership, enhanced assortment, and convenience via digital and delivery services should continue to act as tailwinds. Walmart Inc. (NYSE:WMT)’s value proposition is now beyond just price competitiveness as convenience is becoming an increasingly crucial factor for consumers. Analysts at UBS Group upped their price target on the shares of Walmart Inc. (NYSE:WMT) from $81.00 to $92.00, giving a “Buy” rating on 11th October.
8) Eli Lilly and Company (NYSE:LLY)
Number of Hedge Fund Holdings: 100
Eli Lilly and Company (NYSE:LLY) is engaged in discovering, developing, and marketing human pharmaceuticals worldwide. Eli Lilly and Company (NYSE:LLY) saw significant attention because of its success in the obesity and diabetes markets, primarily with its GLP-1 receptor agonists Mounjaro (tirzepatide) and Zepbound.
Zepbound and Mounjaro are regarded as the key drivers of the company’s recent growth. These GLP-1 receptor agonists have demonstrated robust traction in the market. Wall Street analysts opine that Zepbound’s total prescriptions (TRx) touched new highs, while Mounjaro has been performing well. The success of these products strengthened Eli Lilly and Company (NYSE:LLY)’s position in the competitive obesity and diabetes markets.
The company has a diverse portfolio of products throughout various therapeutic areas. Its ability to develop and market successful drugs across multiple categories supports its overall financial stability and growth potential. Eli Lilly and Company (NYSE:LLY) announced a $4.5 billion investment to create the Lilly Medicine Foundry. This facility should offer the ability to research new ways of producing medicines, while, at the same time, scaling up the manufacturing of medicines for clinical trials.
Eli Lilly and Company (NYSE:LLY) has been exploring new areas like mental health while expanding its obesity treatment opportunities. The company’s significant investments focused on expanding its manufacturing capabilities, mainly in Ireland, place it well for future growth. Moreover, the expanded manufacturing capabilities should result in economies of scale, potentially resulting in improved profit margins over time.
Analysts at Bank of America increased their price objective on the shares of Eli Lilly and Company (NYSE:LLY) from $1,000.00 to $1,125.00, giving a “Buy” rating on 9th August. PGIM Jennison Health Sciences Fund released its Q2 2024 investor letter. Here is what the fund said:
“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) Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holdings: 130
Broadcom Inc. (NASDAQ:AVGO) designs, develops, and supplies semiconductor and infrastructure software solutions.
Wall Street analysts opine that Broadcom Inc. (NASDAQ:AVGO)’s long-term growth trajectory is expected to be aided by its competitive advantages, which stem from intangible assets in chip design and switching costs for the software products. The company plans to continue its focus on hyperscalers, cloud, and digital natives for AI products. Broadcom Inc. (NASDAQ:AVGO) anticipates a recovery in non-AI markets and robust AI revenue growth in fiscal 2025.
Its strategic financial management, which includes debt restructuring and dividend payouts, demonstrates a commitment to maintaining a healthy balance sheet while, at the same time, delivering value to shareholders. Its focus on AI and collaboration with Seagate reflect its emphasis on innovation and market trends. Broadcom Inc. (NASDAQ:AVGO) has been positioning itself for strong growth in the rapidly evolving tech landscape.
The company is a critical player in the AI revolution, leveraging expertise in custom silicon and networking solutions in a bid to tap a substantial share of the expanding market. The robust demand for its AI accelerators and Ethernet solutions should continue to aid its topline. Broadcom Inc. (NASDAQ:AVGO)’s strong position in custom AI silicon and high-speed networking solutions position it as the leader in the AI revolution.
Analysts at Mizuho increased their price objective on shares of Broadcom Inc. (NASDAQ:AVGO) from $190.00 to $220.00, giving an “Outperform” rating on 14th October. Baron Funds, an investment management company, released its Q3 2024 investor letter. Here is what the fund said:
“We continued to build our position in Broadcom Inc. (NASDAQ:AVGO), a global technology leader that designs, develops, and supplies a broad range of semiconductor and infrastructure software solutions. As AI continues to proliferate, we believe hyperscalers – such as Meta, Microsoft Azure, Google Cloud Compute, and Amazon Web Services, to name just a few – will increasingly deploy custom accelerator chips for their AI workloads as they can be more cost-effective and energy-efficient than using NVIDIA’s general-purpose GPUs. Broadcom has a leading position partnering with hyperscalers to develop these custom chips, with its AI customer accelerator business up 3.5-times year-over-year in its most recently reported quarter, and a goal of at least $8 billion in custom accelerator revenues for this fiscal year. Additionally, VMware continues to perform better than expected as Broadcom is implementing its product simplification and subscription revenue model strategy. Further, its non-AI related semiconductor business, which tends to be more cyclical, is in the early stages of a recovery. Combined, all these factors will drive strong revenue and earnings growth over the next several years.”
6) Mastercard Incorporated (NYSE:MA)
Number of Hedge Fund Holders: 142
Mastercard Incorporated (NYSE:MA) offers transaction processing and other payment-related products and services in the US and internationally.
Wall Street analysts opine that the continued expansion of Mastercard Incorporated (NYSE:MA)’s payment network revenue and accelerating growth of its value-added services should continue to support its long-term growth trajectory. The company’s strategic focus on VAS is a key differentiator and growth engine and this shift forms part of Mastercard Incorporated (NYSE:MA)’s strategy to diversify revenue streams and reduce cyclicality in the business model.
The company is well-placed to capitalize on the ongoing shift from cash to digital payments. Operating margins of Mastercard Incorporated (NYSE:MA) are expected to expand as a result of its scale, ongoing displacement of cash transactions, and roll-out of new service and technology offerings. Its VAS offerings, which consist of data analytics, cybersecurity solutions, and consulting services, have been experiencing quicker adoption.
As organizations look for comprehensive financial solutions, the company’s expanding suite of services places it as a one-stop shop for payment and data-driven business insights. Moreover, the acquisition of companies such as Recorded Future, which specializes in AI-powered analytics, improves Mastercard Incorporated (NYSE:MA)’s VAS capabilities. Analysts at Robert W. Baird increased their target price on the company’s shares from $545.00 to $575.00, giving an “Outperform” rating on 16th October.
L1 Capital, an investment management firm, released its second-quarter 2024 investor letter. Here is what fund said:
“The share prices of Mastercard Incorporated (NYSE:MA) and Visa, both long term Fund investments, have both drifted down over recent months. There have been no dramatic developments, but there has been a general slight softening in the rate of growth of consumer spending in the U.S. and globally, a court decision rejecting Mastercard and Visa’s proposed settlement of a long-lasting dispute with U.S. merchants as well as other modest adverse regulatory developments. We continue to view Mastercard and Visa as two of the highest quality businesses in the world, and both are well placed to continue to deliver attractive, risk adjusted returns to shareholders over time.”
5) Alphabet Inc. (NASDAQ:GOOG)
Number of Hedge Fund Holdings: 165
Alphabet Inc. (NASDAQ:GOOG) offers various products and platforms in the US, Europe, the Middle East, Africa, the Asia-Pacific, Canada, and Latin America.
Despite short-term challenges, Alphabet Inc. (NASDAQ:GOOG)’s long-term outlook is positive. Its leadership in AI technology, together with a diverse product portfolio, places it well for healthy growth. Analysts opine that continued AI integration throughout products, expansion of cloud services (primarily in AI and machine learning capabilities), YouTube’s potential to tap a significant share of the shifting TV ad spend, and cost discipline and operational efficiencies are expected to act as potential growth drivers.
Wall Street analysts opine that AI advancements have aided other Alphabet Inc. (NASDAQ:GOOG)’s properties, like YouTube, where ML algorithms tend to improve content recommendations and ad placements. Over the long term, AI integration should result in new product innovations and revenue streams. This should further solidify Alphabet Inc. (NASDAQ:GOOG)’s position as a technology leader.
The growing importance of first-party data in a privacy-focused advertising ecosystem should fuel Alphabet Inc. (NASDAQ:GOOG)’s growth prospects. Its extensive user data throughout various products enables precise targeting and measurement. This is valuable to advertisers because third-party cookies are phased out. Alphabet Inc. (NASDAQ:GOOG)’s investments in AI and machine learning are placing it well to develop new ad formats and targeting capabilities that can offer increased ROI for advertisers.
Wedgewood Partners, an investment management company, published third-quarter 2024 investor letter and mentioned Alphabet Inc. (NASDAQ:GOOG). Here is what the fund said:
“Alphabet Inc. (NASDAQ:GOOG) also detracted from performance despite reporting strong +15% revenue growth (foreign exchange-neutral) in its core search business during the Company’s second quarter. The Company continues to integrate generative AI (gen AI) applications into its largest products that reach billions of users every day. The advertisements that appear above and below this gen AI content, particularly on search results, represents a valuable opportunity for businesses. In addition, the Google subsidiary of Alphabet has been deploying gen AI features that help advertisers easily create ad content and then quickly scale that content across all of Google’s properties and formats. As we have pointed out in the past, Google’s new AI-driven advertising tools and products represent returns on the Company’s early and aggressive investments in AI hardware and application software over the past decade and should lead to significant, sustainable competitive advantages. During the quarter, the District of Columbia ruled that Google violated antitrust law by maintaining a monopoly in the U.S. across its search services and text advertising, specifically through exclusive distribution agreements. Alphabet’s deep competitive advantages go far beyond its distribution agreements, and we believe the Company should be able to maintain its superior return structure, despite the recent legal headwinds.”
4) NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 179
NVIDIA Corporation (NASDAQ:NVDA) offers graphics and compute and networking solutions in the US, Taiwan, China, Hong Kong, and internationally.
NVIDIA Corporation (NASDAQ:NVDA) continues to maintain a dominant position in the graphics processing unit (GPU) and AI chip markets. The company’s success revolves around its strong focus on innovation. Its current flagship AI chip, the Hopper architecture, saw healthy demand from cloud service providers and enterprises alike. Wall Street remains optimistic about the Blackwell GPU, which should drive significant revenue growth over the medium to long term.
NVIDIA Corporation (NASDAQ:NVDA)’s CUDA programming platform should continue to act as a significant competitive advantage, providing developers with a strong ecosystem for AI and high-performance computing applications. The company’s dominance in the AI chip market enabled it to capitalize on the robust growth in AI investments throughout industries.
Hyperscale customers, such as well-established cloud service providers, continue to invest in AI infrastructure. Capital expenditure from such customers has been tagged as a key indicator of demand for NVIDIA Corporation (NASDAQ:NVDA)’s systems. Analysts at Evercore ISI upped their price objective on the company’s shares from $145.00 to $150.00, giving an “Outperform” rating on 23rd August.
Baron Funds, an investment management company, released its Q3 2024 investor letter. Here is what the fund said:
“Given the stellar returns of their stocks over the last couple of years, particularly NVIDIA Corporation, and the weights they grew to in the portfolio, we trimmed NVIDIA and Microsoft Corporation during the period. As we articulated above, our views regarding AI and the leadership of these two companies have not changed. On an absolute basis, NVIDIA and Microsoft remain the top two positions in the portfolio – as of this writing NVIDIA is our largest position and Microsoft is second – and both remain material overweights versus the Benchmark.”
3) Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holdings: 184
Apple Inc. (NASDAQ:AAPL) is engaged in designing, manufacturing, and marketing smartphones, personal computers, tablets, wearables, and accessories.
Apple Inc. (NASDAQ:AAPL) has been maintaining a strong position in the premium smartphone market, which should continue to drive topline and bottom-line growth. Its ability to differentiate products with the help of hardware innovations and software ecosystem enhancements should be able to help it maintain market share and pricing power. Wall Street analysts believe that its services segment should continue to achieve strong growth, aided by improved margins.
As this high-margin business expands, it can aid Apple Inc. (NASDAQ:AAPL)’s profitability and justify premium valuation. The strong potential for new service offerings and elevated monetization of the existing user base should offer additional upside to revenue and earnings projections. Moving forward, Apple Inc. (NASDAQ:AAPL)’s growth trajectory is expected to be aided by a strong ecosystem of products and services and a loyal customer base.
During Q3 2024, the company’s business performance was able to generate EPS growth of 11% and ~$29 billion in operating cash flow, enabling it to return more than $32 billion to shareholders. Analysts at Melius Research restated a “Buy” rating on the shares of Apple Inc. (NASDAQ:AAPL), setting a $265.00 target price on 27th August.
Wedgewood Partners, an investment management company, released a Q3 2024 investor letter. Here is what the fund said:
“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.”
2) Meta Platforms, Inc. (NASDAQ:META)
Number of Hedge Fund Holders: 219
Meta Platforms, Inc. (NASDAQ:META) operates as a social technology company.
Meta Platforms, Inc. (NASDAQ:META) has been dominating the social media landscape, while, at the same time, continuing to aggressively invest in AI and emerging technologies. The company’s AI initiatives have been showing promising results. It reported that its AI-driven improvements continue to enhance ad delivery efficiency and improve return on ad spend (ROAS) for advertisers. Additionally, Meta AI has been gaining traction, with the company expecting that it will become the most widely used AI assistant by 2024 end.
Meta Platforms, Inc. (NASDAQ:META)’s AI investments tend to go beyond advertising, with the company establishing new features such as AI Studio and Business AIs. These are anticipated to result in additional monetization opportunities throughout its platforms. Its focus on open-source AI compute platforms can act as a strategic growth enabler, potentially positioning Meta Platforms, Inc. (NASDAQ:META) ahead of competitors.
Meta Platforms, Inc. (NASDAQ:META) expects to incur significant capital expenditure towards AI research and product development efforts. The company anticipates full-year 2024 capital expenditures to be between $37 billion – $40 billion. Wall Street sees these investments as crucial for its long-term competitiveness and growth potential. Mizuho upped its price target on the company’s shares from $600.00 to $650.00, giving an “Outperform” rating on 17th October.
Baron Funds, an investment management company, third quarter 2024 investor letter. Here is what the fund said:
“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)
1) Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holdings: 308
Amazon.com, Inc. (NASDAQ:AMZN) is engaged in the retail sale of consumer products, advertising, and subscription services. It also has a cloud services business, AWS.
Wall Street analysts believe that Amazon Web Services (AWS) was a beneficiary of the transition of IT spending to the cloud from on-premises. The advent of generative AI ramped up this shift as organizations accelerated to build AI models in the cloud. The unfolding of AI megatrend should support AWS but, at the same time, Amazon.com, Inc. (NASDAQ:AMZN) needs to invest heavily in the technology.
Amazon.com, Inc. (NASDAQ:AMZN)’s substantial investments in logistics and fulfillment impacted margins for some time, but market experts believe that the company has now been reaping the benefits of earlier expenditures. A critical area of focus for Amazon.com, Inc. (NASDAQ:AMZN) revolves around reducing the “cost to serve.”
Notably, a resilient consumer, sustained growth in advertising revenue, and healthy momentum at Amazon Web Services should continue to aid Amazon.com, Inc. (NASDAQ:AMZN). The company continues to gain market share in global e-commerce and also improve its value proposition to merchants and consumers. The rate-cut cycle and changing dynamics of consumer sentiment should help Amazon.com, Inc. (NASDAQ:AMZN) in the near term.
Scotiabank covered the shares of Amazon.com, Inc. (NASDAQ:AMZN) on 11th October. They gave a “Sector outperform” rating and a $245.00 price target. Meridian Funds, managed by ArrowMark Partners, released its second quarter 2024 investor letter. Here is what the fund said:
“Amazon.com, Inc. (NASDAQ:AMZN) is a global technology company that operates e-commerce, cloud computing, digital advertising, and other businesses. We own Amazon because we believe it is well-positioned to benefit from several strong secular trends, including the shift to online shopping, the growth of cloud computing, and the increasing importance of digital advertising. The company exceeded expectations in the first quarter, with cloud-computing revenue growth accelerating, driven by easing cost optimization pressures and the ramp of generative AI workloads. The North American retail segment drove record operating margins, highlighting the success of Amazon’s efforts to improve efficiency and lower its cost to serve. International retail also showed promise, as emerging markets steadily progressed towards profitability. Given the strength across these key segments, we continue to hold the position in the company.”
While we acknowledge the potential of AMZN as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued 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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