The race to get ahead in artificial intelligence is getting fiercer than ever. Naturally, US companies are investing tons of money to build massive data centers and computing infrastructure for AI. Back in 2014, data centers only accounted for 5% of spending, whereas now they spend nearly a third (32%). Jensen Huang, believes that over the next four or five years, the data center infrastructure and hardware that will be constructed worldwide will be worth over 2 trillion dollars.
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Naturally, these data centers also have an insatiable appetite for electricity. Only last week, the Federal Energy Regulatory Commission denied plans for Talen Energy to supply additional on-site power to an AWS data center campus, with plan opponents citing a threat to grid reliability as well as a raise in customer rates. According to the U.S. Department of Energy, a single data center can require 50 times the electricity of a typical office building.
Nevertheless, the benefits of artificial intelligence are huge, possibly outweighing the drawbacks of its high electricity consumption. Companies strongly believe that integrating artificial intelligence in their operations can help them gain a competitive edge, such as by enhancing customer experiences, unlocking new revenue streams, and optimizing internal processes.
Emerging Trends in Artificial Intelligence
Shifting the focus to recent developments in the field, a notable legal victory has unfolded, shedding light on the evolving landscape of AI. Is it illegal for AI companies to use news articles, books, and similar material to train tools? While it may be a direct copyright infringement, OpenAI just secured itself a victory in its ongoing legal battle against publishers on how AI tools are using their creative work. A copyright lawsuit brought by independent publishers Alternet and Raw Story was dismissed on November 7 for its lack of standing. OpenAI claimed that these publishers had no legal standing to bring this claim, and there was no proof that ChatGPT was trained on their material.
“We build our AI models using publicly available data, in a manner protected by fair use and related principles, and supported by long-standing and widely accepted legal precedents”.
-OpenAI spokesperson Jason Deutrom.
In other news, XPENG Motors, a leading Chinese high-tech automotive company, has officially launched the P7+ in China, noted to be the world’s first AI-defined vehicle. The P7+ offers advanced AI-driven technology, enhancing smart driving and smart cockpit experiences through the company’s state-of-the-art AI architecture. The innovation marks the company’s dedication to leading the way in AI-defined mobility, and that too, on a global scale.
Further discussing automotive AI news, Waymo, an American autonomous self-driving technology company, is exploring a new kind of artificial intelligence model for its self-driving operations. Waymo’s new end-to-end multimodal model for autonomous driving, called EMMA, is currently in its research phase.
“EMMA is research that demonstrates the power and relevance of multimodal models for autonomous driving. We are excited to continue exploring how multimodal methods and components can contribute towards building an even more generalizable and adaptable driving stack.”
– Drago Anguelov, VP and Head of Research at Waymo.
For this article, we selected AI stocks by going through news articles, stock analysis, and press releases. These stocks are also popular among hedge funds.
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. RingCentral, Inc. (NYSE:RNG)
Number of Hedge Fund Holders: 33
RingCentral, Inc. (NYSE:RNG) is a leading provider of AI-driven cloud business communications, contact center, video and hybrid event solutions.
On November 7, RingCentral, Inc. (NYSE:RNG) announced a strategic partnership with Verint, a leader in customer experience (CX) automation. The partnership will allow RingCX™ customers to optimize employee productivity and enhance customer interactions by leveraging Verint’s tools and RingCentral’s native AI capabilities. Ultimately, these benefits will derive competitive advantage and operational efficiency for RingCX™ customers.
“We will now be able to offer our RingCX customers integration with industry-leading WEM and CX automation solutions from Verint. As the landscape of customer engagement solutions rapidly evolves, we remain committed to equipping our customers with cutting-edge, AI-powered solutions that not only enhance support and increase productivity, but also significantly reduce costs”.
– Vlad Shmunis, founder, chairman, and CEO of RingCentral.
9. AppLovin Corporation (NASDAQ:APP)
Number of Hedge Fund Holders: 54
AppLovin Corporation (NASDAQ:APP) is a technology company providing end-to-end software and artificial intelligence solutions. The company leverages its AI-powered platform to provide targeted, automated marketing solutions.
On November 8, Daiwa Securities upgraded AppLovin Corporation (NASDAQ:APP) to “Outperform” from Neutral with a price target of $280. Analyst Jonathan Kess from Daiwa is optimistic considering the company’s expanding total addressable market and increasing profitability and free cash flow. Since the launch of Axon 2.0 in Q1’23, management has delivered on its promises and executed well, and there is an added potential for 20-30% growth just within the mobile gaming sector that’s driven by APP’s AI capabilities that bolster both company and market growth, the analyst wrote in a note to clients.
8. International Business Machines Corporation (NYSE:IBM)
Number of Hedge Fund Holders: 54
International Business Machines Corporation (NYSE:IBM) is a leading provider of global hybrid cloud and AI, and consulting expertise.
On November 8, IBM CEO Arvind Krishna joined Squawk on the Street to discuss the company’s stance on AI governance. While acknowledging that industries need regulation, Krishna states that regulation also creates friction. This is because if the regulation becomes overzealous, it causes a massive slowdown which nobody wants. When asked about genAI regulation, the CEO says that they do believe in responsible AI. While discussing the executive order from the Biden administration, he noted that some interpretations of EOs suggested the need for third-party assessments. Such assessments would cause way too much friction especially when it’s an early stage. The company believes in open innovation, and even though being accountable is good, asking for third-party assessments isn’t a good idea, the CEO states.
“We are in favor of a lighter touch on regulation, other than for some extreme use cases where it involves life and death”.
– IBM CEO Arvind Krishna
7. Cisco Systems, Inc. (NASDAQ:CSCO)
Number of Hedge Fund Holders: 61
Cisco Systems, Inc. (NASDAQ:CSCO) is an American technology company that provides information technology and networking services. The company integrates AI-powered capabilities across its entire product and customer service portfolio, with artificial intelligence currently contributing an estimated 2% to the company’s revenue.
On November 8, Citi maintained a “Buy” rating on Cisco Systems, Inc. (NASDAQ:CSCO) and set a price target of $62.00. Citi bases its rating on the company’s growth potential and strategic positioning. The firm states that Cisco is poised to benefit from an expanding AI total addressable market, especially due to its robust pipeline of projects and partnerships, such as with META. Recent quarters have also witnessed Cisco’s growing presence in the Data Center Interconnect (DCI) market, although it contributes less significantly to company revenue. The analyst also states that the current valuation gap between Cisco and its peers is unjustified, especially considering its diversified sales mix and increasing software contributions.
6. Arista Networks, Inc. (NYSE:ANET)
Number of Hedge Fund Holders: 65
Arista Networks, Inc. (NYSE:ANET) is an industry leader in data-driven, client-to-cloud networking for large AI, data center, campus and routing environments. Its products are especially relevant for hyperscalers who are ramping up their data center infrastructure for scaling their cloud computing capabilities.
On November 8, Piper Sandler raised the firm’s price target on Arista Networks, Inc. (NYSE:ANET) to $421 from $345 and kept a “Neutral” rating on the shares. The company has reported Q3 earnings per share of $2.40, surpassing analysts’ forecast of $2.08. Its revenue was $1.81 billion, a 7% year-over-year increase and surpassing the $1.75 billion analysts’ expectation. Gross margin, however, fell to 64.2% in the third quarter, thinner than the previous quarter’s 64.9%. Per the analyst, Arista is a “best-in-class” networking name and one of the favorite long-term plays of the firm. However, they are still waiting for a better buying opportunity and expect more information on the company’s potential catalysts later this month.
5. Marvell Technology, Inc. (NASDAQ:MRVL)
Number of Hedge Fund Holders: 74
Marvell Technology, Inc. (NASDAQ:MRVL) is an American company offering security and networking platforms, secure data processing, networking, and storage solutions. It develops custom AI chips for big tech names such as Google and Amazon. The company is said to offer investors a unique, “non-Nvidia” alternative to capitalize on the AI/Data Center trade. Marvell Technology, Inc. (NASDAQ: MRVL) stood out as one of the top analyst calls for Friday, November 8. Jefferies reiterated the stock as a “Buy”, stating that it sees the most near-term upside potential for Marvell, along with one other chipmaker. Marvell is scheduled to release its earnings on December 3, 2024, and the investment community will be closely monitoring its performance.
4. Datadog, Inc. (NASDAQ:DDOG)
Number of Hedge Fund Holders: 79
Datadog, Inc. (NASDAQ:DDOG) is a SaaS-based cloud-based monitoring and analytics program. The enterprise software leader is an AI player offering expertise in cloud computing and AI-powered cybersecurity products.
On November 8, DA Davidson raised the firm’s price target on Datadog, Inc. (NASDAQ:DDOG) to $150 from $140 and kept a “Buy” rating on the shares. The buy rating comes after the company’s Q3 earnings beat, driven largely by its AI-driven cybersecurity products. Growing customer use and increased AI activity have been beneficial for the company. Moreover, its enterprise clients are its biggest source of revenue growth, analysts wrote in a research note.
3. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 85
Tesla, Inc. (NASDAQ:TSLA) is an American automotive company engaged in the design, development, manufacture, lease, and selling of electric vehicles, and energy generation and storage systems. It is an AI play leveraging advanced artificial intelligence to drive its development of self-driving technology.
On November 8, Wedbush Securities analyst Dan Ives forecast that Tesla, Inc. (NASDAQ:TSLA)’s artificial intelligence initiatives are poised to gain from Trump’s presidency, regardless of the headwinds of the broader electric vehicle sector. The analyst says that Trump’s return to the White House could potentially unlock “$1 trillion of incremental AI valuation” for the company.
“We believe Trump in the White House changes the landscape for @elonmusk and @Tesla and will start the unlock the $1 trillion of incremental AI valuation in the Tesla story in our view over the coming years”.
-Dan Ives, Wedbush Securities analyst.
2. Salesforce Inc (NYSE:CRM)
Number of Hedge Fund Holders: 117
Salesforce Inc (NYSE:CRM) is an American cloud-based software company. It integrates artificial intelligence in its business operations and offers AI solutions that deliver autonomous, generative, and predictive capabilities built directly into one’s CRM software.
On November 7, Jefferies maintained a Buy rating on Salesforce Inc (NYSE:CRM) and kept the price target at $350.00. The company’s promising developments and strategic initiatives have led to the buy rating, with significant financial impact already being drawn in from its recently launched Agentic AI called Agentforce. Another reason for the buy is the broader positive influence that integrating AI and Agentforce could have on the company, as it is expected to encourage users to upload more data to the Salesforce platform. This would in turn help drive revenue growth for the company. Additionally, the company also aims to deploy more than a billion agents by the end of 2025, demonstrating its potential for growth and added value.
1. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 179
NVIDIA Corporation (NASDAQ:NVDA) is a technology company that engineers the most advanced chips, systems, and software for the AI factories of the future. Leading the way in AI computing, the company’s AI accelerators command between 70% and 95% of the market share for artificial intelligence chips. One of the biggest analyst calls for Friday, November 8, was NVIDIA Corporation (NASDAQ:NVDA). Jefferies reiterated NVIDIA Corporation (NASDAQ:NVDA) as a “Buy”, saying the chipmaker has the most near-term upside potential, along with one other chipmaker.
While we acknowledge the potential of NVDA as an investment, 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 NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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