In this piece, we will take a look at the 10 stocks that hedge funds are crazy about right now.
Investing, broadly speaking, narrows down to two strategies. These see an investor decide whether to buy a stock for the short term and make quick profits or hold it for years to patiently wait for the returns to accrue. One of the most successful investor of our times, Warren Buffett (see his latest portfolio), is an ardent follower of the latter approach, and his wealth bears testament to his success.
Of course, deciding to pick the right stocks to sit on for years isn’t easy or else everyone would be rich by now. However, there are ways in which one can gain an edge over others. One such way is to see what the professionals are doing and then emulate their strategy. At Insider Monkey, we get right at the heart of investing by picking out the top stocks that hedge funds are investing in. Why hedge fund stock picks? Well, these professionals, who almost often charge an arm and a leg for their services, conduct extensive due diligence to pick out the right set of stocks. After all, no one would invest with a hedge fund if the fund was simply picking stocks by flipping a coin.
Yet, while due diligence is great and necessary to protect investors, investing, at the end of the day, is all about returns. By the looks of it, the funds do seem to know what they’re doing. Last year, the top ten hedge fund stock picks ended up outperforming the S&P benchmark stock index by 48.9 percentage points. In other words, while the index returned 26.1% in 2023, the top ten stocks returned 75.1% through price gains. This trend is also present in the top 30 hedge fund stocks of 2023 as these posted 53.2% in gains to outperform the S&P by 27 percentage points. Unsurprisingly, year to May 29th, the top 30 hedge fund stocks of 2024 led the S&P’s 11% and posted 20.2% in gains.
Unfortunately, though, data shows that as of 2021 end, 14% of the stock market was made of active funds while 16% was accounted for by passive funds. Compared to passive funds accounting for 8% of the market a decade ago with 20% belonging to active funds, it’s clear that the broader public believes that shifting to passive is a safer investment approach. After all, while everyone wants to make money, no one wants to lose it either.
But what if one could make their own investing decisions and gain an inside track to investing by figuring out what stocks most hedge funds have invested in? Well, at Insider Monkey we regularly compile data from more than 900 hedge funds to see where the smart money is headed. This is how we know that the top hedge fund stocks outperformed the benchmark index last year, and it’s also a strategy that’s helped us beat the market over the last 10 years. Compared to the SPY’s 235.6% in returns between 2014 and May 2024, the 10 most popular stocks among hedge funds returned 463.7%.
But wait. At this point, you could argue that since hedge fund SEC filings come with a 45 day lag, perhaps they aren’t that important. After all, it might be more important to know what the funds are doing now. Well, since we’ve been compiling top hedge fund stocks since 2012 in our quarterly newsletter, we can guarantee you that the top hedge fund stocks haven’t changed by much since 2018. So not only isn’t the time lag that significant, but by subscribing to our newsletter, you can gain an early track to see which stocks are falling out of favor among the funds as well.
So, all this talk about the top hedge fund stocks might make you wonder about the stocks themselves. Curious? Check out the 31 Most Popular Stocks Among Hedge Funds. We also cover legendary investors through pieces such as Warren Buffett’s 12 Longest Held Stocks.
Our Methodology
To make our list of the top ten hedge fund stocks, we scanned Insider Monkey’s database of 900+ hedge fund filings for Q1 2024 and picked out the stocks with the highest number of investors.
10. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Number of Hedge Fund Investors In Q1 2024: 135
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is a contract manufacturer responsible for manufacturing most of the world’s made to order chips. The firm’s competitive advantage and moat depends on its ability to keep its leading in the semiconductor fabrication race. TSMC’s latest manufacturing process right now is the 3-nanometer process, and the firm is also facing competition from rivals Intel and Samsung. While Intel’s advanced manufacturing processes, and its effort to establish a contract manufacturing division called Intel Foundry, will come online in the next couple of years, Samsung currently offers comparable products to Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)’s technologies. However, the Taiwanese firm continues to retain the bulk of global semiconductor manufacturing orders, and its role will become more crucial in the current AI wave.
Third Point Management mentioned Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q1 2024 investor letter. Here is what the fund said:
During the quarter, we added to our TSMC investment, which we initiated in May of last year. TSMC is coming off its worst year since the Global Financial Crisis, and in the years to come we see a combination of cyclical recovery plus structural growth in AI demand fueling substantial earnings growth for the company.
We view TSMC as the “toll road” of the semiconductor industry, particularly for AI compute. TSMC holds more than 90% market share for leading edge semiconductor manufacturing, where all AI silicon is being processed. Beyond their reliable execution producing some of the most complex products on earth in volume, TSMC has spent decades optimizing for and building ecosystems around their 500+ customers, an advantage that cannot be replicated overnight.
Today, TSMC derives a relatively small percentage of its revenues from AI processors, largely from NVDA, but we see that percentage quickly rising as AI compute broadens from just the GPU to custom accelerators. With Nvidia’s GPUs costing tens of thousands of dollars, the bulk of which go to Nvidia’s gross profit, hyperscalers are doubling down on their efforts to develop in-house silicon to alleviate AI compute’s economic burden. Google was the first mover to custom accelerators with the TPU almost 10 years ago, and today this is already a multi-billion dollar business for TSMC. Amazon, Microsoft, and Meta have all followed Google’s lead and have announced (and in Amazon’s case already mass producing) their own chips. As these products scale, we see TSMC’s AI revenue growing by multiples in the coming years.
While TSMC’s fundamental outlook looks bright, the market has concerns which are reflected in the stock’s 10x+ discount to the SOX, the widest in TSMC’s history. The main concern is Intel’s entry into the foundry market. While we commend Intel’s efforts to diversify the global semiconductor supply chain and have admiration for the company’s rich IP and manufacturing expertise, we think it will be difficult for Intel to challenge TSMC’s dominance in foundry. Putting aside the onerous capital requirements necessary to stand up a foundry business (TSMC’s capital budget stands at ~2x Intel’s projected EBITDA), we believe the transition from internal manufacturing to an external foundry will be a difficult one. Intel has spent the past 40+ years tailoring its manufacturing process and transistor design to suit its own narrow product suite. Broadening to a multitude of customized external customer designs across a variety of end markets, in particular mobile, we believe will prove challenging.
We believe TSMC has significant untapped pricing power which can be levered to offset (if not expand) its already admirable returns on capital.
9. Mastercard Incorporated (NYSE:MA)
Number of Hedge Fund Investors In Q1 2024: 148
Mastercard Incorporated (NYSE:MA) is a digital payments processing platform provider which connects retailers and consumers. Unlike most other firms, it has to capitalize significantly on the opportunities offered by AI to beef up its platform security and efficiency in order to maintain and grow market share not only against larger rival Visa but also other digital payment players such as PayPal. On this front, Mastercard Incorporated (NYSE:MA) announced an AI companion last year for retailers that use its services to use on their websites to improve customer experiences. In 2024, its slew of AI announcements include a new fraud detection platform rolled out to banks and another platform that the firm hopes will enable it to catch compromised cards through point of sale systems before scammers can misuse them.
Mastercard Incorporated (NYSE:MA)’s financial performance and stock health also depend on its ability to capture large transaction volumes, which in turn require a robust economy. On this front, Baron Funds had a few thoughts to share in its Q1 2024 investor letter where it outlined:
Mastercard’s shares rose after the company reported quarterly financial results that exceeded Street expectations, with 13% revenue growth and 20% EPS growth. Spending volume remains healthy, with outsized growth in international markets and cross-border transactions. Management also provided encouraging financial guidance for 2024 that calls for double-digit revenue growth and margin expansion. Meanwhile, investors largely shrugged off potential risks to Mastercard stemming from Capital One’s announced acquisition of Discover.
8. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Investors In Q1 2024: 150
One of the largest technology companies in the world, Apple Inc. (NASDAQ:AAPL) needs no introduction. However, its place at the top of the tech market value chain has been in a constant state of flux in 2024, which also shows the changing trends on Wall Street and in the technology industry. Apple Inc. (NASDAQ:AAPL) is one of the biggest companies in terms of revenue, but its shares remained lackluster in 2024 before a slew of AI announcements at its WWDC conference. Before the AI announcements, the shares had gained a mere 4% in the year, but since then, the stock is up by more than 8%. While AI might have injected fresh life into Apple Inc. (NASDAQ:AAPL)’s shares, another key determinant of its future is iPhone sales performance.
The iPhone is Apple Inc. (NASDAQ:AAPL)’s largest product in terms of revenue, and the shares have been lackluster as investors have been worried about slowing growth in China. These concerns were also on the mind of Aristotle Atlantic Partners, whose Q1 2024 investor letter (shared before WWDC) outlined:
Apple contributed to portfolio performance in the first quarter due to the strategy’s underweight relative to the benchmark. Investors continue to be concerned about weak handset sales globally, as well as declining market share and competitive dynamics in the Chinese market, as Huawei has returned to the market with a more competitive premium-priced handset. Apple has yet to demonstrate a competitive AI product, which could present further competitive headwinds for the company.
7. Salesforce, Inc. (NYSE:CRM)
Number of Hedge Fund Investors In Q1 2024: 154
Salesforce, Inc. (NYSE:CRM) is a software as a service (SaaS) company that provides customer relationship management software products. 2024 has been a rough year for the firm so far after its shares tanked by 20% after the first quarter earnings marked Salesforce, Inc. (NYSE:CRM)’s first revenue miss since 2006. This miss is crucial for a SaaS company since revenue growth is a key metric for SaaS evaluations. To make matters worse, the current quarter guidance also saw Salesforce, Inc. (NYSE:CRM) guide revenue growth lower than 10% for the first time. Put together, these factors hint at a slowing economy making businesses revaluate their SaaS spending, particularly in the context of higher inflation and investor worries about AI disrupting the SaaS industry and allowing alternatives to surface.
Harding Loevner mentioned Salesforce, Inc. (NYSE:CRM) in its Q1 2024 investor letter where it remained bullish on the firm due to the SaaS company’s considerable customer base and ‘agnosticism’ when it comes to using GPUs. The financial firm shared:
SAP, and ServiceNow are also already deeply integrated into their customers’ operations and workflow. Few users want to go through the hassle of changing or adding providers if their existing systems can offer some kind of equivalent upgrade. This effect is even more powerful if a customer can add AI capabilities to existing software and, for just a few extra dollars a month, meaningfully improve productivity. Microsoft said in January that 1.3 million subscribers are already paying the additional charge for the Copilot upgrade to GitHub. Furthermore, enterprise-software companies can make money from AI without regard for whose GPUs or ASICs are used in the future. And should the industry’s AI-monetization plans disappoint, they may be more resilient than a company such as NVIDIA, whose growth is more dependent on AI investment.
6. Visa Inc. (NYSE:V)
Number of Hedge Fund Investors In Q1 2024: 166
Visa Inc. (NYSE:V) is one of the largest payment processors in the world. Its size and heft offer it stability even in a troubling economy due to the simple fact that customers and retailers are unlikely to make a costly and time consuming switch to alternatives. Like sizeable SaaS companies, Visa Inc. (NYSE:V) needs to retain its market through new initiatives and products, and by doing so, it’ll be able to grow and retain its current stature in the market, save off nominal or black swan events. 2024 is also a crucial year for Visa Inc. (NYSE:V)’s retailer partnerships since while it and Mastercard agreed to a $30 billion settlement after decades of transaction processing fees, a judge in New York has hinted that she might strike the deal down.
Additionally, while some feel that the acquisition of Discover by Capital One might shake things up for Visa Inc. (NYSE:V), this concern isn’t on the mind of fund Wedgewood Partners who shared in its Q1 2024 investor letter:
Visa stock posted a small negative drop during the quarter. In the 2irst quarter, the Company grew earnings per share +11% as payment volume growth was up +8% and cross-border payment grew a solid +16%, adjusted for currency. Beyond their consistent growth and execution, recent regulatory trends have caught considerable investor attention. The Company’s networks and value-added services drive enough economic value to bank customers and retailers that the addressable market for payments should continue growing at a healthy rate for many more years, regardless of recent regulatory changes. Visa’s value- added services can be extended to less-sophisticated, emerging non-Visa networks to help grow the overall payment ecosystem that make up the vast global payment addressable market. For example, not long after debit interchange rates were regulated last decade, Visa began an aggressive push to allow non-bank 2inancial institutions access to Visa’s networks, which helped drive more interchange volume to banks and offset lower interchange rates. This was a key element that spawned the massive “Fintech” industry that exists today. We continue to expect Visa’s scale and breadth of service offerings will help them drive attractive growth at stellar margins along with the overall payments’ ecosystem.
5. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Investors In Q1 2024: 186
NVIDIA Corporation (NASDAQ:NVDA) is the darling of Wall Street and the tech world right now. Key to the firm’s success, particularly in the AI sphere, is its CUDA platform which enables customers to speed up their computing applications solely on NVIDIA Corporation (NASDAQ:NVDA)’s platform. CUDA, along with leading edge chip manufacturing technologies from chip contract manufacturer TSMC, are NVIDIA Corporation (NASDAQ:NVDA)’s key moats as they help ensure that its products are industry leaders in performance despite similar silicon being available from both Intel and AMD.
NVIDIA Corporation (NASDAQ:NVDA)’s competitive moat and the potential for its largest customers like Alphabet and Microsoft to develop their own AI chips was also on the mind of well known investment firm Harding Loevner in its Q1 2024 investor letter. A classic contrarian move, Loevner exited its NVIDIA Corporation (NASDAQ:NVDA) stake in the quarter, and its note mentions key reasons such as difficulty in estimating the “ultimate size of the total addressable market.” The full note is too long to share here and merits a complete read. Here’s one relevant snippet:
While NVIDIA is expected by many to capture the lion’s share of this market for years to come, history tells us that it becomes increasingly difficult for a stock to outperform when expectations are so high. At the advent of the commercial internet, Cisco Systems, which makes the networking equipment that enables much of the internet, occupied a similarly strategic vantage point for the new era. By March 2000, it was the world’s most valuable company. Cisco and its investors were right about the internet: it did change everything. The company’s routers remain a key piece of infrastructure. However, Cisco’s stock price tumbled 88% from its peak and took 20 years to recover. The earnings growth implied by the price investors were willing to pay took longer to arrive than the novelty of the technology took to capture their imagination.
NVIDIA is not Cisco, but its share price suggests that investors may be overestimating the durability of the company’s market position. Warren Buffett once wrote that “the key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.” One threat to NVIDIA’s competitive advantage comes from its own client base, as some key customers begin to invest in backward integration.
4. Alphabet Inc. (NASDAQ:GOOGL)
Number of Hedge Fund Investors In Q1 2024: 222
Alphabet Inc. (NASDAQ:GOOGL) is a global household name due to its variety of products such as Google Search, YouTube, and Gmail. The bulk of Alphabet Inc. (NASDAQ:GOOGL)’s fortunes are because of its dominance in the global search engine industry and lucrative deals with firms like Apple that make Search the default platform on thousands of devices. Additionally, Alphabet Inc. (NASDAQ:GOOGL) is also a key player in the AI software industry, and its models compete with big ticket players such as the Microsoft backed OpenAI. Any threats to Alphabet Inc. (NASDAQ:GOOGL)’s dominance in Search, any alternative products by customers, and a shift in global use cases to AI that’s not developed by Alphabet Inc. (NASDAQ:GOOGL) could be bad news for the firm.
Baron Funds mentioned Alphabet Inc. (NASDAQ:GOOGL) in its Q1 2024 investor letter. The firm wasn’t particularly worried about the technology giant losing its dominant status in the market. Here is what the firm said:
During the quarter, we initiated a position in Alphabet Inc., the parent company of Google, the world’s largest search and online advertising company. Alphabet has over 90% market share in its core Google search business, it owns the world’s leading video platform, YouTube (which has over 2 billion users), a competitive cloud service provider, Google Cloud, a leading ad network, and optionality in a number of smaller subsidiaries like the autonomous vehicle company, Waymo.
Google’s core search business continues to grow at a solid clip, and we believe it could structurally earn much higher margins than it does today as the company increases operating efficiency. Google Cloud should also continue growing in the healthy double digits for years to come given the relatively early stage of cloud adoption with $597 billion total cloud spending14 in 2023 out of worldwide IT spending of $4.7 trillion15, or around 13%. Additionally, YouTube has a long runway for growth, driven by the growing adoption of connected TV and the shift of advertising dollars from linear TV.
When ChatGPT originally came out in November 2022, it appeared that Google was caught a bit unprepared for a potential change in the way people search. While the advancements of GenAI represent a risk to Google, we believe investors underappreciate the company’s positioning in AI and have assigned too high of a probability that the risk materializes. Alphabet owns the largest consumer training datasets (particularly across Search and YouTube), which in our view are important ingredients for competitive advantages in AI, it has massive user distribution (nine products with over 1 billion users each), long-standing AI research labs (DeepMind and Google Brain), top AI/ML engineering talent (Google invented the transformer AI architecture16, which is the basis for the modern LLMs including Chat GPT), a solid cloud computing division in Google Cloud, and deep pockets for investing in AI.
3. Meta Platforms, Inc. (NASDAQ:META)
Number of Hedge Fund Investors In Q1 2024: 246
Meta Platforms, Inc. (NASDAQ:META) is one of the largest social media and communications firms in the world. Its primary social media platform Facebook provides it with a stable revenue base due to a sizeable amount of users that are targetted through advertisements. At the same time, Meta Platforms, Inc. (NASDAQ:META) has made key moves in the AI industry through its Llama model and impressed developers by making Llama open source. To maintain its dominance, the firm has to regularly ensure that users remain engaged on Facebook and Instagram and do not migrate to other social media networks such as Elon Musk’s X (formerly Twitter). Meta Platforms, Inc. (NASDAQ:META)’s decision to buy hundreds of thousands of NVIDIA GPUs for AI training have also placed it in a key position in the AI industry since the GPUs are in short supply and those with access can gain advantages in developing new models. Should the firm succeed in commercializing Llama, then the future could be very bright for Meta Platforms, Inc. (NASDAQ:META).
Baron Funds is of the view that Meta Platforms, Inc. (NASDAQ:META) can maintain its key role in the industry due to its sizeable user base and key ties with advertisers. In its Q1 2024 investor letter, the fund outlined:
Shares of Meta Platforms, Inc., the world’s largest social network, rose 37.3% in the quarter due to robust fourth quarter top-line growth of 25% year-over-year with operating margins more than doubling year-over-year to 41%, benefiting from the year of efficiency12 as Meta’s headcount was down 22% year-over-year (note that the profitability of the core business is even stronger as Reality Labs’ losses of over $4.5 billion in the quarter are included in the overall operating income metric). Meta also guided for first- quarter revenue growth of approximately 29% year-over-year, which was better than expected. Advertiser satisfaction and adoption of Meta remains strong, core app engagement is healthy with video daily watch time up 25% year-over-year and the total number of monthly active users up 6% year-on-year to 3.98 billion in the fourth quarter, and Instagram Reels and click-to-message ads monetization continues to improve. Meta also continues to rapidly innovate in GenAI, with its leading research lab releasing widely adopted open-source models (e.g., Llama 2), and internal algorithms and core apps becoming augmented with AI (e.g., Meta’s recommendation engine). We remain shareholders and believe Meta can sustain its leading market share in digital advertising thanks to strong network effects enabled by its massive user and advertiser base. Additionally, we believe the company’s innovative culture, large installed base, and leading GenAI research should enable it to embed AI and GenAI into its offerings with further monetization opportunities ahead. For example, AI agents could help scale business messaging, handling a large volume of customer requests on behalf of business customers, making business messaging at scale more viable.
2. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Investors In Q1 2024: 293
Amazon.com, Inc. (NASDAQ:AMZN) is an interesting stock. This is because while its fortunes are because of the highly lucrative and fast growing eCommerce market, the firm has used this growth to establish a commanding position in the enterprise computing market too. This means that Amazon.com, Inc. (NASDAQ:AMZN) can balance its eCommerce and enterprise computing businesses, and use AI to the benefit of both. The firm’s dominant market share in eCommerce insulates it from new entrants or competitors to provide it with a stable moat. Additionally, Amazon.com, Inc. (NASDAQ:AMZN)’s AWS platform designs its own chips and has integrated AI into customer offerings too, in order to adequately compete with offerings from Microsoft. Keeping an eye high growth industries, the firm’s satellite internet subsidiary Kuiper which plans to launch satellites soon can also provide it an entry into an attractive cash flow generating market currently dominated by SpaceX’s Starlink.
Ithaka Group mentioned Amazon.com, Inc. (NASDAQ:AMZN) in its Q1 2024 investor letter. Here is what the firm said:
Founded in 1994, Amazon has evolved from its early roots as an online bookstore to become one of the world’s largest eCommerce retailers. At the end of 2022 Amazon stood poised to capture ~40% of all US e-commerce sales, representing five times more share than the next closest competitor. In addition to eCommerce, Amazon Web Services (“AWS”) has become the market leader in outsourced cloud infrastructure. Further, Amazon Advertising is garnering significant share in digital advertising, particularly product placement ads, thanks to consumers beginning their product searches on Amazon’s site. Amazon’s stock appreciated on the back of stabilization of the company’s cloud computing segment and increased confidence the company would be able to contain expenses and push operating margins above prior peaks in the near-to-medium term.
1. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Investors In Q1 2024: 302
Microsoft Corporation (NASDAQ:MSFT) is not only the top hedge fund stock pick but it is also the most valuable technology company in the world. Its key role in the technology industry also enables it to keep a keen eye on new technologies, the latest of which is AI. Under its CEO Satya Nadella, Microsoft Corporation (NASDAQ:MSFT) has successfully diversified from personal to enterprise computing and moved forward from a rather disastrous foray into consumer electronics. Enterprise computing also enables it to fully utilize AI through initiatives such as the new CoPilot AI platform, which can be used for a myriad of use cases such as evaluating code. Microsoft Corporation (NASDAQ:MSFT)’s role as Windows’ developer provides it with a unique opportunity to leverage AI internally as well, and success with AI commercialization by convincing businesses to use the technology will be key factors for its success.
Mar Vista Investment mentioned Microsoft Corporation (NASDAQ:MSFT) in its Q1 2024 investor letter and shared:
Microsoft continues to occupy a strong position, poised to capture market share as businesses navigate the transition to a digital-first landscape and embrace generative AI-driven solutions. The company’s commanding presence in the enterprise arena, combined with its comprehensive product portfolio encompassing Infrastructure- as-a-Service (IaaS), Platform-as-a-Service (PaaS), and Software-as-a-Service (SaaS), establishes it as a crucial provider of IT solutions for companies of all sizes. Microsoft is effectively executing its strategy in a sizable market by offering a roadmap for digital transformation and adoption of AI-driven solutions, such as ChatGPT, while enhancing productivity and reducing costs. Consequently, we anticipate that Microsoft’s solutions should exhibit resilience even in a more challenging macroeconomic environment, supporting low double-digit growth in intrinsic value within our investment horizon.
While MSFT is the top hedge fund stock pick, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MSFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.
Disclosure: None.
