In this article, we will take a detailed look at 10 Trending AI Stocks in October.
Tom Lee, Fundstrat co-founder, while talking to CNBC in a latest program, explained his bullish case for the market and why he believes the S&P 500 is headed to close the year “well beyond” 5,700.
“Bull markets are supported by a strong fundamentals and this is a case where not only has the economy survivie extremely high interest rates but the Fed is beginning to cut rates, and an economy that has been sort of languishing has been China. Now we have stimulus and what looks like some bazooka policies that are supporting that region, and we have a lot of cash on the sidelines. I think this is a formula for stocks to do pretty well the next three to 12 months, and that’s why we think that we would be well beyond 5700 before year-end.”
Lee said that he’s inclined to buy “risks outright” as he believes more upward momentum would come for stocks after the election.
“Small caps still have good fundamentals, earnings growth is accelerating, the media P/E is eleven times which is almost seven turns lower than the S&P so I think there is still case to be made that small-cap are starting a multi-year gain.”
For this article we picked 10 AI stocks that are making big moves on the back of latest news. With each company we have mentioned the number of hedge fund 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).
10. Absci Corp (NASDAQ:ABSI)
Number of Hedge Fund Investors: 17
Absci Corporation is a U.S.-based company that uses generative AI and scalable wet lab technologies to accelerate biologic drug creation by optimizing multiple drug characteristics simultaneously for improved discovery and therapeutic outcomes.
The stock recently received a Buy rating from Guggenheim, which set a price target of $10.00. The firm cited Absci Corp (NASDAQ:ABSI) unique position in leveraging AI to lead the development of first- and best-in-class biologics.
The company’s platform can quickly assess millions of antibody variants, provides a competitive edge in generating large-scale proprietary data—an increasingly valuable asset in the biotech industry.
Guggenheim’s report highlights the potential of Absci’s AI-driven technology to significantly impact the biologics sector. Advances in AI, particularly through Large Language Models, are reshaping various industries, and Absci’s drug discovery approach positions it at the forefront of these changes.
The company balances risk in its pipeline with a mix of fast-follower programs and new biological explorations. This strategic approach, combined with the leadership team’s expertise, sets Absci Corp (NASDAQ:ABSI) up to benefit from the evolving techbio landscape.
The analyst’s $10.00 price target reflects confidence in Absci’s growth trajectory and its ability to use AI to drive advancements in biologics. The stock rating is based on the company’s current technological strengths and its strategic market positioning.
Absci Corp (NASDAQ:ABSI) utilizes its IDCP technology to rapidly produce high-quality drug candidates in as little as six weeks, reducing costs and boosting research success rates. The company has promising drug candidates in areas like inflammatory bowel disease, dermatology, and immuno-oncology, securing major partnerships valued at over $900 million, including royalties.
Absci is set to initiate a Phase 1 study of ABS-101 for inflammatory bowel disease (IBD) in early 2025, with interim data expected in the second half of the year. ABS-101 aims to stand out through features like de novo antibody creation, multiparameter lead optimization, and reverse immunology, offering potential advantages in potency and dosing flexibility.
The global markets for Crohn’s Disease and ulcerative colitis treatments are projected to reach $17.8 billion and $14.77 billion, respectively, by 2033.
9. HP Inc (NYSE:HPQ)
Number of Hedge Fund Investors: 41
HP Inc (NYSE:HPQ) made news as Citi downgraded the stock, reflecting a “more cautious” outlook for the PC sector. Analyst Asiya Merchant noted in a client memo, “Recent checks in the PC ecosystem suggest the near-term PC refresh opportunity remains protracted, given macro uncertainty and Windows 10 EOL security patch extensions, while AI impacts are likely further out into 2026/2027.” She downgraded her rating on HP Inc (NYSE:HPQ) to Neutral from Buy but maintained her price target at $37. Merchant also highlighted ongoing challenges in HP’s printer segment, citing “aggressive” pricing and weakness in China as persistent headwinds.
What spooked investors in the latest quarterly results of the company was the lackluster growth in PC revenue (about 4.9%) and a decline in the printing segment. The printing segment has never been the center of attention of HP Inc (NYSE:HPQ) investors. However, the latest data shows the growth in AI PCs everyone was banking on remains far into the future.
In the last couple of quarters, the company’s inventory levels have been climbing, reaching $7.5 billion as of the end of the last quarter.
HP Inc (NYSE:HPQ) Days of Inventory Outstanding (DIO) jumped to over 67 days, significantly above its five-year average of 55.96 days, nearing the highest level in recent years. With sales slowing, this spike in DIO suggests HP Inc (NYSE:HPQ) could face pressure on its stock price and uncertain returns in the next 1-2 years.
Amid all of this, the stock would be a risky bet for those who are just basing their hopes on the AI PC growth catalyst.
Greenlight Capital stated the following regarding HP Inc. (NYSE:HPQ) in its Q2 2024 investor letter:
“In addition to gold, we had four material winners in our long portfolio this quarter. HP Inc. (NYSE:HPQ) jumped from $30.22 to $35.02. After seven quarters of declines, PC sales turned marginally positive during the quarter. The industry appears to be in the early stages of an upcycle, perhaps to be enhanced by recently launched AI-enabled PCs that are expected to ramp up over the next several quarters.”
8. Crowdstrike Holdings Inc (NASDAQ:CRWD)
Number of Hedge Fund Investors: 69
Crowdstrike Holdings Inc (NASDAQ:CRWD) seems to be recovering from the widespread outage experienced in July, with analysts from TD Cowen noting that significant customer churn is not anticipated and that Microsoft (NASDAQ: MSFT) is unlikely to sever ties with the cybersecurity firm.
In a recent note, TD Cowen analysts led by Shaul Eyal emphasized, “We reiterate our view that MSFT is unlikely to cut Crowdstrike Holdings Inc (NASDAQ:CRWD) off from accessing telemetry data out of the kernel given the mission criticality of the Falcon EDR platform product, which is deployed at over 29,000 customers, including 70% of the Fortune 100.” They observed that there does not appear to be significant near-term churn, as customers do not seem to be leaving in the wake of the July outage.
Eyal added that a more accurate assessment of revenue uplift potential will require patience over the next two quarters, allowing management to gain sufficient visibility into the Falcon Flex renewal pipeline. TD Cowen maintains its Buy rating on Crowdstrike Holdings Inc (NASDAQ:CRWD) stock with a price target of $380.
Despite the tech outage incident, the fundamental story of Crowdstrike Holdings Inc (NASDAQ:CRWD) remains unchanged, despite short-term damages. Wedbush Securities estimates that less than 5% of CrowdStrike’s customers might switch providers, potentially impacting revenue by $150 million out of the projected $3 billion in sales for fiscal year 2024. This would lower the company’s forward revenue growth from 30.6% to 25.6%, but even at this adjusted rate, Crowdstrike Holdings Inc (NASDAQ:CRWD) would remain well above the IT sector median.
TimesSquare Capital Management U.S. Focus Growth Strategy stated the following regarding CrowdStrike Holdings, Inc. (NASDAQ:CRWD) in its Q2 2024 investor letter:
“Our cybersecurity holdings were also beneficial to the strategy this quarter. That included the 20% gain from CrowdStrike Holdings, Inc. (NASDAQ:CRWD), a cloud-based network security service provider that supports a range of devices, endpoints, and cloud environments. CrowdStrike’s revenues and earnings exceeded expectations, with 33% growth in annual recurring revenue. CrowdStrike continues to see growing momentum in emerging areas such as Cloud Security, Identity, and Security Information & Event Management where it is displacing legacy providers. That led CrowdStrike’s management to increase its guidance for revenues and earnings for the balance of its fiscal year.”
7. ServiceNow Inc (NYSE:NOW)
Number of Hedge Fund Investors: 97
William Blair’s top picks list also includes NOW. The firm recently said it views ServiceNow Inc (NYSE:NOW) as a strong player in generative AI, benefiting from its established relationships with enterprises. “ServiceNow is seen as a key partner for many businesses, with direct access to CIOs and the broader C-suite due to its product positioning,” said analysts Jake Roberge and Arjun Bhatia. They noted that ServiceNow Inc (NYSE:NOW) can seamlessly integrate its GenAI solutions into the products its customers are already using.
ServiceNow Inc (NYSE:NOW) impressed the market with strong second-quarter results which have proved the company’s AI potential. Morgan Stanley’s Keith Weiss maintained his Overweight rating on the stock and a $900 price target, saying the AI momentum is real and continues to build. ServiceNow Inc (NYSE:NOW) said additional annual revenue from new Pro Plus edition contracts, which include generative AI features, doubled from the previous quarter. The company secured 11 new contracts worth over $1 million each. Analysts believe ServiceNow Inc (NYSE:NOW) strength is its NOW platform as it makes it easier for companies to integrate all tools and software at one place, including Salesforce, Microsoft, and SAP. The company’s portfolio has 168 digital workflow solutions with a 98% renewal rate.
In a tough environment for SaaS companies, ServiceNow Inc (NYSE:NOW) managed to raise its full-year guidance. It also raised its operating income by 50 basis points.
NOW is trading at about 40 times its estimated earnings for 2025, which is not a high multiple when compared with over 20% revenue growth estimates for ServiceNow Inc (NYSE:NOW) and an increasing number of growth catalysts.
Lakehouse Global Growth Fund stated the following regarding ServiceNow, Inc. (NYSE:NOW) in its April 2024 investor letter:
“US-based software company,ServiceNow, Inc. (NYSE:NOW), provided another strong result, continuing its long and consistent track record of 20%-plus revenue growth combined with healthy profitability. Subscription revenues grew 25% year-on-year to $2.5 billion and free cash flow grew 47% year-on-year to $1.2 billion. The company’s core operating metrics were also impressive with remaining performance obligations growing 26% year-on-year to $17.7 billion (i.e. roughly 2x 2023 revenue) and renewal rates holding steady at 98%. Performance was evenly spread across segments, products, and geographies, with notable strength in the US federal government. The company now boasts 1,933 customers generating in excess of $1 million in Annual Contract Value (ACV), which is pleasing to see as it implies multiple solutions are involved and that the company’s platform model is increasingly resonating with customers. In our view, ServiceNow is one the highest quality software businesses globally as the combination of consistent growth at scale, robust free cash flow generation and a large addressable market make it a compelling opportunity.”
6. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Number of Hedge Fund Investors: 108
BofA Securities reaffirmed Advanced Micro Devices, Inc. (NASDAQ:AMD) Buy rating ahead of the company’s AI event on October 10.
BofA analysts, led by Vivek Arya, said their top AI picks remain Nvidia (NVDA) and Broadcom (AVGO). However, they maintained AMD’s rating, highlighting the company’s unique potential for CPU market share gains. AMD is well-positioned to take market share in the PC and server CPU sectors from Intel (INTC), which continues to face internal challenges and restructuring efforts.
The analysts also pointed to Advanced Micro Devices, Inc. (NASDAQ:AMD) potential to tap into the growing AI market. AMD estimates the total addressable market for AI accelerators will surpass $400 billion by 2027, a sector where Nvidia currently leads but continues to expand. The expanding market offers opportunities for alternative suppliers like AMD, particularly in the application-specific integrated circuit (ASIC) space.
Arya’s team believes that upcoming AI roadmap updates (including the MI-325/250/400 series) and server CPU advancements (Zen-5-based Turin versus Intel’s Granite Rapids) could reignite investor interest in AMD.
Despite these growth prospects, competition remains fierce. Investors expect AMD’s AI sales to grow another 10% in 2024 to exceed $5 billion, with potential to double year-over-year to $10 billion in 2025. However, the company still faces stiff competition from Nvidia, which holds over 80% of the AI market, and cost-effective custom ASICs from Broadcom and Marvell Technology (MRVL), which collectively control nearly 10%.
BofA analysts estimate Advanced Micro Devices, Inc. (NASDAQ:AMD) AI accelerator market share will remain at 5-7% for 2024-2026, well below its more than 20% share in consumer CPUs and gaming GPUs. But if AMD can carve out a 10% AI market share by 2026, it could add around $5 billion in sales, bringing potential earnings per share to $8-$9, up from current consensus estimates of $7.37.
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.”
5. Alphabet Inc (NASDAQ:GOOG)
Number of Hedge Fund Investors: 165
Pivotal Research initiated coverage on Alphabet Inc (NASDAQ:GOOG) with a “buy” rating on Tuesday, citing the company’s strong competitive position and deep moat around its core search business. Despite ongoing antitrust trials, the firm believes the potential negative outcomes are already reflected in Google’s stock price. Pivotal’s forecast for Google is conservative on search but anticipates significant growth in cloud revenue and sees untapped value in its moonshot ventures. The firm set a price target of $215, suggesting a 30% upside for Alphabet Inc (NASDAQ:GOOG) shares.
Despite constant alarms going off about its search business, Alphabet Inc Class C (NASDAQ:GOOG) search revenue jumped about 13.7% in the second quarter year over year. As of the end of June, Google has about 91.06% share of the search engine market, just 1.65% lower than the December 2019 levels. With AI overviews and other search initiatives, Alphabet Inc Class C (NASDAQ:GOOG) will be able to stave off any competitors given its dominance in the market. According to StatCounter report, Bing search engine’s market share only increased from 3.03% in August 2023 to 3.91% in August 2024. This shows MSFT has not been able to make any notable dent in Google’s market share.
Cloud and YouTube are two key strong catalysts for Alphabet Inc Class C (NASDAQ:GOOG) shares. During the second quarter, Alphabet’s Cloud revenue rose 28.8% to $10.35 billion, crushing past analysts’ forecasts of $10.16 billion. Alphabet Inc Class C (NASDAQ:GOOG) is on the path to reach a $100 billion revenue run-rate from YouTube Ads and Google Cloud by the end of 2024.
Diamond Hill Large Cap Strategy stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q2 2024 investor letter:
“Among our top individual contributors in Q2 were Amazon, Texas Instruments and Alphabet Inc. (NASDAQ:GOOG). Media and technology company Alphabet also continued delivering strong results in its search, YouTube advertising, YouTube subscription and cloud businesses. Shares rose amid an environment that continues favoring mega-cap technology companies.”
