In this article, we will take a detailed look at the 10 Biggest AI Stories and Ratings Updates You Should Not Miss This Week.
The Federal Reserve now expects just one rate cut in this year, and the market’s reaction to this development has been calmer-than-expected, showing investors are now paying little to no attention to what the Fed does and instead have their eyes focused on AI, which continues to push the markets higher. Tech companies, small and large, are continuing to roll out AI-focused products and solutions, while funds are pouring billions into AI. SoftBank has recently committed another $5 billion in AI investments for 5 companies ($1 billion each). A Wall Street Journal report cited SoftBank’s CFO, who said the bank’s chief Masayoshi Son was taking a “break from quarterly earnings meetings so he could focus on AI.”
In this backdrop it’s important to stay ahead of the curve and see what’s happening in the AI space.
In this article we will take a look at some of the biggest AI stock ratings updates and stories which can’t be missed. We focused on AI stocks that are popular among the smart money investors. 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).
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10. HP Inc (NYSE:HPQ)
Number of Hedge Fund Investors: 49
HP Inc (NYSE:HPQ) is the limelight amid the stock’s growth catalysts stemming from the AI PC growth catalysts. Alex Cho, HP Inc (NYSE:HPQ) President of Personal Systems, recently highlighted the potential of the AI PCs market while presenting at Bank of America Global Technology Conference. Here’s what Cho said:
“We expect that in three years, 40% to 60% of shipments of PCs will be AI PCs. That’s a pretty big penetration rate to your question of these devices. Secondly, we said that the contribution of that will increase ASPs, 5% to 10%. I think it’s a good starting point. Remember that we’re just in early days on this, but as a good starting point for the entire computing industry of 5% to 10%, and why because you need to configure it more. And why? Because we think from a customer perspective, there’s tangible benefits for them, right, overall. What we said is to a market that’s deemed to be about single-digit growth, those two factors alone over the long period of time or that planning period can double the growth rate of the market.”
Why could HP Inc (NYSE:HPQ) be one of the best AI PC and hardware stocks in the coming months? Let’s take look at our bull case.
Microsoft has named HP Inc (NYSE:HPQ) as one of its notable partners in the production of AI PCs. HP is also making waves in the AI PC market with HP’s OmniBook X AI PC and HP EliteBook Ultra G1q AI PCs. HP recently posted strong Q2 results, which also indicated the company has started to see a new AI-powered PC refresh cycle. Morgan Stanley analyst Erik Woodring said in a note that HP’s PC business saw growth for the first time since April 22. The analyst also maintained his Overweight rating and increased the stock’s price target to $37 from $36.
HP shares have gained about 18% so far this year. HP is also a dividend-paying company, with a 3% dividend yield as of June 4 market close. HP shares are trading at 9.53X the company’s 2025 estimated earnings per share, which makes the stock undervalued given the industry’s forward P/E median sits at 22%. According to data from Yahoo Finance, HP is expected to grow at 6.70% next year and at 5.10% for the following five years on a per-annum basis.
9. Dell Technologies Inc (NYSE:DELL)
Number of Hedge Fund Investors: 82
Dell Technologies Inc (NYSE:DELL) shares are in the limelight after latest media reports suggested many Chinese companies are finding loopholes in US sanctions to buy and use chips made by US companies. These loopholes include renting and using third parties as indirect buyers. Earlier this year, it was reported that some Chinese research institutes were able to buy Nvidia’s AI chips through resellers. These chips were reportedly embedded in server products made Dell Technologies Inc (NYSE:DELL).
Moving beyond this news, many investors are asking if Dell Technologies Inc (NYSE:DELL) is one of the best AI stocks to buy in 2024? Many Wall Street analysts are saying yes to this question, especially after the last dip in the stock price following lackluster quarterly results. Morgan Stanley analyst Erik Woodring recently said in a note that he’d buy Dell Technologies Inc (NYSE:DELL) on the dip since the near-term [Infrastructure Solutions Group] profitability disappointment is “more than offset by building AI ecosystem momentum.”
Bank of America analyst Wamsi Mohan said in a note after Q1 earnings that he reiterated his Buy rating for Dell Technologies Inc (NYSE:DELL). The analyst believes we are still in the early stages of AI adoption and expects momentum around AI servers. Mohan set a $180 price target for Dell Technologies Inc (NYSE:DELL), which shows a 33% upside potential from the current levels.
8. Adobe Inc (NYSE:ADBE)
Number of Hedge Fund Investors: 108
Melius Research recently downgraded Adobe Inc (NYSE:ADBE) stock to Hold from Buy with a $510 price target, citing broader issues the enterprise software industry is experiencing when it comes to AI. Melius analyst Ben Reitzes said these issues are similar to the ones on-premise hardware companies experienced following the rise of Cloud computing. The analyst also said that AI is making it easier for smaller companies to develop and deploy tools, increasing competition to bigger players in the industry.
Adobe Inc (NYSE:ADBE) shares have lost about 20% so far this year. The notion that the rise of generative AI tools would give a tough competition to Adobe Inc’s (NYSE:ADBE) design tools is weighing down the stock. Adobe Inc’s (NYSE:ADBE) revenue in the first quarter jumped 11% YoY to $5.18 billion, narrowly beating the Street estimate of $5.1 billion. As of the end of the first quarter of 2024, Adobe Inc (NYSE:ADBE) had $17.58 billion in remaining performance obligations (‘RPOs’), representing 16% YoY growth. RPOs is an indicator of future revenue growth as it represents the sum of invoiced amount and the future amounts not yet invoiced for a contract with a customer.
Adobe Inc (NYSE:ADBE) management sensed the worries among investors stemming from fears the generative AI boom would cut the demand of Adobe products. Adobe Inc’s (NYSE:ADBE) management believes the AI boom would only increase the need of its editing tools since text-to-image content cannot be used in isolation and needs editing. Here’s the management’s take on why it believes Adobe Inc (NYSE:ADBE) has no threats in the AI arms race:
“Every creator and business is focused on building their brand and engaging with their audiences through standout content. Creative Cloud remains the solution of choice for the world’s creators, whether their medium is design, photography, video, illustration or 3D. Adobe Express is inspiring millions of users of all skill levels to design more quickly and easily than ever before. In the year since we announced and released Adobe Firefly, our creative generative AI model, we have aggressively integrated this functionality into both our Creative Cloud flagship applications and more recently, Adobe Express, delighting millions of users who have generated over $6.5 billion assets to date. In addition to creating proprietary foundation models, Firefly includes a web-based interface for ideation and rapid prototyping, which has seen tremendous adoption.
We also recently introduced Firefly Services, an AI platform which enables every enterprise to embed and extend our technology into their creative, production and marketing workflows.”
Read the full earnings call transcript here.
Whether or not the management’s thesis pans out is something only time would tell. While there are risks involved, Adobe Inc’s (NYSE:ADBE) current valuation is attractive. The stock has a forward P/E of 25.83, close to the sector median of 23.68. Revenue growth in 2025 is expected to come in at 11% while EPS growth estimate set by Wall Street for Adobe Inc (NYSE:ADBE) is 13.00%.Average analyst price target for Adobe Inc (NYSE:ADBE) is $611.15, which represents a 33% upside potential from the current levels.
RiverPark Large Growth Fund stated the following regarding Adobe Inc. (NASDAQ:ADBE) in its first quarter 2024 investor letter:
“Adobe Inc. (NASDAQ:ADBE): ADBE was our last top detractor in the quarter following OpenAI’s announcement of an AI-based text-to-video offering called Sora. Some investors seem to believe that AI and the Sora product specifically pose an existential threat to Adobe’s Creative Cloud Suite. We do not share these concerns and believe that AI is a tremendous growth opportunity for Adobe. In fact, in a recent conference call, management described how innovative AI-based solutions are expected to be drivers of growth across its product lines.
ADBE is the leading software and solutions provider in the content creation and content management space. The company offers a line of products and services used by creative professionals, communicators, businesses of all sizes, and consumers for creating, managing, delivering, measuring and optimizing content and experiences across personal computers, smartphones, other electronic devices and digital media formats. The company has grown revenue in the double-digit percent range for the last decade, and as it enters its 42nd year since its founding, we expect ADBE to continue to grow revenue greater than 10% per year through 2028. The company generates 40% EBITDA margins, which we think can expand to nearly 50%, and we believe the company will more than double last year’s roughly $7 billion of free cash flow over the next five years.”
7. Micron Technology Inc (NASDA:MU)
Number of Hedge Fund Investors: 115
UBS recently maintained a Buy rating on Micron Technology Inc (NASDA:MU) and increased its price target on the stock to $155 from $125, citing its industry checks pointing to higher prices in the DRAM and NAND memory industry. UBS said that Micron Technology Inc’s (NASDA:MU) valuation could become attractive once its gross margin peaks in the fourth quarter of 2025 . UBS expects Micron Technology Inc’s (NASDA:MU) EPS in 2025 to come in at around $17.50.
During the fiscal second quarter, out of its four segments, three segments saw a 50% growth on a YoY basis. At the consolidated level, Micron Technology Inc (NASDA:MU) saw a 58% YoY revenue growth. During fiscal Q3, Micron Technology Inc (NASDA:MU) expects revenue growth to increase to 76%. Analysts believe Micron Technology Inc (NASDA:MU) is expected to keep growing faster amid a rising demand for its chips that power Cloud and AI servers. Micron HBM3E, one of Micron Technology Inc’s (NASDA:MU) most famous AI chips, has already sold out for 2024 and most of 2025.
According to data compiled by Yahoo Finance, Wall Street expects Micron Technology Inc’s (NASDA:MU) revenue growth to total 44% in 2025, while earnings growth is expected at 750% in the next year. The stock’s forward P/E ratio is 18, which is justified if Micron Technology Inc (NASDA:MU) is able to see sustained growth in the months to come.
Sequoia Fund stated the following regarding Micron Technology, Inc. (NASDAQ:MU) in its fourth quarter 2023 investor letter:
“Exits last year included Netflix, Bank of America and Micron Technology, Inc. (NASDAQ:MU). As discussed in our Q2 shareholder letter, we exited Micron after the rationale for our investment was strained by rising geopolitical tensions, which have increased investment risks in the high-performance semiconductor industry. These risks are bearable, but we felt it prudent to reduce the portfolio’s exposure to them. We think both Bank of America and Micron were purchased at conservative prices given the facts at hand, but the facts changed and we moved on.”
6. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Number of Hedge Fund Investors: 124
Advanced Micro Devices, Inc. (NASDAQ:AMD) shares recently slipped after Morgan Stanley’s Joseph Moore downgraded the stock to Equalweight from Overweight, saying the Street’s expectations from Advanced Micro Devices, Inc.’s (NASDAQ:AMD) AI business are “too high.” The analyst went on the say that Advanced Micro Devices, Inc. (NASDAQ:AMD) is expensive when compared to peers like NVDA and AVGO. However, the analyst retained his $176 price target on the stock.
Average analyst estimate for Advanced Micro Devices, Inc. (NASDAQ:AMD) is $187.2, which presents an upside potential of 17%. Wall Street analysts expect Advanced Micro Devices, Inc. (NASDAQ:AMD) to grow 32.50% this year and 59% next year. For the next five years the growth will then moderate to 32% on a per-annum basis, which is still high. Based on Advanced Micro Devices, Inc.’s (NASDAQ:AMD) 2025 EPS forecast, the stock is trading at around 28.6X forward P/E ratio, which isn’t high given Advanced Micro Devices, Inc.’s (NASDAQ:AMD) growth trajectory and catalysts.
Meridian Contrarian Fund stated the following regarding Advanced Micro Devices, Inc. (NASDAQ:AMD) in its fourth quarter 2023 investor letter:
“Advanced Micro Devices, Inc. (NASDAQ:AMD) is a global semiconductor chip maker specializing in central processing units (CPUs), which are considered the core component of most computing devices, and graphics processing units (GPUs), which accelerate operations running on CPUs. We invested in 2018 when it was a mid-cap value stock plagued by many years of underperformance due to lagging technology and lost market hi share versus competitors Intel and Nvidia. Our research identified that changes and investments made by current management under CEO Lisa Su had, over several years, finally resulted in compelling technology that positioned AMD as a stronger competitor to Nvidia and that its latest products were superior to Intel’s. We invested on the the belief that AMD’s valuation at that that time did not reflect the potential for its technology leadership to generate significant market share gains and improved profits. This thesis has been playing out for several years. During the quarter, AMD unveiled more details about its upcoming GPU products for the AI market. The stock reacted positively to expectations that AMD’s GPU servers will be a viable alternative to Nvidia. Although we pared back our exposure to AMD into strength as part of our risk-management practice, we maintained a position in the stock. We believe AMD will continue to gain share in large and growing markets and is reasonably valued relative to the potential for significantly higher earnings.”
5. Apple Inc (NASDAQ:AAPL)
Number of Hedge Fund Investors: 150
Apple Inc (NASDAQ:AAPL) shares are trending as the company announced a slew of AI products and features at its much-awaited WWDC conference.
Wedbush’s Dan Ives also thinks Apple Inc (NASDAQ:AAPL) will be able to create an ecosystem around its AI offerings and Apple Inc (NASDAQ:AAPL) would see a $30 to $40 per share surge because of its AI products. Ives has a $275 price target on Apple Inc (NASDAQ:AAPL) shares.
Apple Inc (NASDAQ:AAPL) is trading at 27x its 2025 EPS estimate, which is still a high multiple given Apple Inc’s (NASDAQ:AAPL) 9.60% growth estimate for 2025 and 10.50% per-annum growth expected over the next five years. But if Apple can really execute its AI strategy well, the company can become the next favorite AI stock of the Street.
TF International Securities analyst Ming-Chi Kuo said in a fresh note that Apple has a competitive edge over others with its on-device AI.
“Consumers may find purchasing Microsoft’s AI PC confusing (calculating whether it reaches 40 TOPS before purchase), whereas Apple directly tells consumers which models can support Apple Intelligence. Regardless of whether on-device AI applications meet consumer needs, Apple has a clear selling advantage from the start,” Kuo said.
RiverPark Large Growth Fund stated the following regarding Apple Inc. (NASDAQ:AAPL) in its first quarter 2024 investor letter:
“Apple Inc. (NASDAQ:AAPL): Apple shares were a top detractor in the quarter. The company’s stock was pressured by negative news items including a government antitrust case, an Apple Watch patent dispute, and slowing China iPhone sales. Ultimately the company’s fiscal 1Q24 earnings report delivered a slightly better than expected quarter, but with guidance that disappointed investors. 1Q24 revenue and gross margin were better than feared, buoyed by stronger than expected worldwide iPhone sales which grew 6% despite a slight decline in China iPhone sales. Services revenue in the quarter was as expected and signaled the third quarter in a row of accelerating growth. Gross margins were also stronger than expected at 45.9%, the highest level in more than a decade. Guidance of $90 billion of revenue for 2Q24 was light however, due to weaker than expected iPhone sales in the current period and year-over-year declines in other hardware products facing difficult year-over year comps.
Although near-term trends are a bit muted, Apple is carrying lean inventory into an iPhone refresh cycle later this year. With an installed base of 2.2 billion active devices and significant growth of the company’s recurring revenue Services segment, we believe that Apple remains one of the most innovative, best positioned and most profitable companies in the mobile technology industry.”
