In this article, we will take a detailed look at the 10 Trending AI Stocks to Watch for the Rest of 2024.
Chris Hyzy, Merrill & Bank of America Private Bank chief investment officer, said while talking to CNBC in a latest program that there is “ a lot of momentum” behind the market rally. The analyst said that to gauge how much momentum we have behind the optimism, we need to analyze the “wedge” in the market.
“The biggest wedge that was in the market last year and in 2022 was inflation. That’s beginning to go away. It’s almost to the fact that no one’s is talking about whether or not we are going to have inflation that’s worrisome.”
Hyzy said that the Fed easing its fiscal policy and now China “joining the party” will be two key tailwinds for the market.
Answering a question about the hard landing vs soft landing debate, the analyst said we should look beyond the two possibilities as he believes there are many other scenarios to consider in between these two outcomes.
“We have a lot of components of a soft landing. I’d like to say it’s more of a mid-cycle slowdown with easier financial conditions that should actually create a profit revision to the upside not downside,” Hyzy added.
For this article we picked top 10 trending AI stocks on the back of latest news and analyst ratings. 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).
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10. PalantirTechnologies Inc (NYSE:PLTR)
Number of Hedge Fund Investors: 44
Commenting on PalantirTechnologies Inc (NYSE:PLTR)’s multi-year, multimillion-dollar extension of its enterprise deal with energy company APA Corporation, Wedbush’s Dan Ives said the “Messi of AI” Palantir Technologies Inc (NYSE:PLTR) will keep expanding its deal flow and AI use cases:
“We believe the Messi of AI Palantir is in a prime spot to continue expanding its pipeline/deal flow while providing more use cases coming forward to address critical problems across industries and empower data-driven decision-making with a comprehensive suite of AI/ML solutions.”
Wedbush has kept its Outperform rating on the stock and raised its 12-month price target to $45 from $38.
“New and existing customers across the commercial and federal landscapes continue signing up for multiple aspects of the PLTR tech stack based on our recent checks as the company introduces new valuable use cases to customers with more organizations seeking to drive efficiencies on the back of AI,” Ives noted.
What makes Palantir Technologies Inc (NYSE:PLTR) one of the top AI stocks? Its technologies are actually solving the problems of businesses. Palantir’s data technology Ontology is solving the famous hallucination problem for AI systems, thanks to the company’s years of experience with military and defense systems. Earlier this year at an event with customers, Palantir Technologies Inc (NYSE:PLTR) shared some specifics on how its customers are being able to reduce costs and increase profits due to its artificial intelligence platform (AIP) that was launched about a year ago.
Airbus accelerated A350 production by 33%, BP reduced costs per barrel by 60%, and Jacobs Connect cut power usage by 30%. Panasonic decreased waste by 12%, ESI Group sped up ERP harmonization by 70%, and PG&E reduced transformer ignitions by 65%. Eaton boosted productivity by 25%, while Tyson Foods achieved $200 million in cost savings.
However, Palantir Technologies Inc (NYSE:PLTR) stock’s valuation has been a concern for many.
The stock is trading at about 21.2 times the next 12 months (NTM) revenue. For fiscal year 2024, Palantir expects revenue growth of 24% year-over-year (YoY) to $2.746 billion, with an adjusted operating income of $970 million, representing a 35.3% margin. However, revenue growth is expected to slow over the next two years, with estimates suggesting a 22% YoY growth rate, potentially bringing revenues to around $4 billion by fiscal 2026. If Palantir Technologies Inc (NYSE:PLTR) can improve margins by 100 basis points annually, it would be able to generate about $1.5 billion in adjusted operating income by FY26, with a present value of $1.3 billion when discounted at 8%. Applying an S&P 500-like growth multiple of 2.5 to 2.75 times earnings, Palantir Technologies Inc (NYSE:PLTR) would have a P/E of 46, translating to a price target of $27, significantly down from its current price of $36.
9. Hewlett Packard Enterprise Co (NYSE:HPE)
Number of Hedge Fund Investors: 58
Barclays recently upgraded Hewlett Packard Enterprise Co (NYSE:HPE) citing a potential recovery in the enterprise market. Analyst Tim Long expressed confidence in HPE’s growth, particularly in AI server revenues and storage, boosted by the recent JNPR deal. He emphasized that Hewlett Packard Enterprise Co (NYSE:HPE) offers a unique opportunity for investors as it doesn’t carry the same AI premium seen with other hardware companies. Long raised his rating from Equal Weight to Overweight and increased the price target from $20 to $24.
Long highlighted that Hewlett Packard Enterprise Co (NYSE:HPE) may have slightly higher gross margins on AI servers than its competitors, despite being less proactive in this area, which has kept its stock from rising as much as other “AI plays.” Nevertheless, he noted that HPE is ramping up orders and revenue in AI, with a notable increase in AI server sales last quarter.
“We are seeing early signs of an enterprise recovery and believe HPE is one of the best ways to invest in this emerging trend since the stock lacks an AI premium vs. other hardware names.”
Carillon Scout Mid Cap Fund stated the following regarding Palantir Technologies Inc. (NYSE:PLTR) in its first quarter 2024 investor letter:
“The top contributor to return for the quarter was Palantir Technologies Inc. (NYSE:PLTR). Sentiment improved on Palantir after it reported stronger than expected commercial customer revenue and free cash flow. U.S. commercial growth was especially encouraging, as U.S. commercial revenue was up by a large percentage year over year for the fourth quarter and U.S. commercial customer count grew nearly as much. We expect Palantir to become one of the premier artificial intelligence (AI) software providers, built on its Foundry and AIP platforms.”
8. Salesforce Inc (NYSE:CRM)
Number of Hedge Fund Investors: 117
Salesforce (NYSE:CRM) is trending after Piper Sandler upgraded the stock citing a promising risk-reward profile and significant potential in artificial intelligence.
Analyst Brent Bracelin noted in an investor note, “We are upgrading CRM to Overweight based on a favorable risk-reward given the potential for free cash flow per share to double to over $20 by FY2029 from $9.65 in FY2024, even if top-line growth remains at subdued levels of 8-9%.” He also raised his price target for Salesforce to $325 from $268.
Bracelin highlighted that the introduction of Agentforce could also help stabilize demand.
“Salesforce has historically provided new platform updates three times a year,” Bracelin mentioned. “The pace of AI has changed this cadence, particularly with Data Cloud, which now sees monthly updates. Agentforce, a result of these innovations, will be generally available next month, with early production already underway involving companies like Gucci and Wiley.”
Salesforce Inc (NYSE:CRM) is trending after beating second-quarter estimates and raising its full-year profit guidance to $10.03 to $10.11 per share from $9.86 to $9.94 per share.
In the second quarter, Salesforce’s revenue rose 8% year over year while gross profits jumped 10%.
Salesforce Inc (NYSE:CRM) is also on investors’ radar because of its acquisitions. The company recently agreed to acquire AI voice agent firm Tenyx. This acquisition follows Salesforce’s strategic partnership with Workday to develop an AI-powered assistant for employees. The company has also agreed to buy SaaS data protection startup Own for $1.9 billion in cash.
Wall Street expects $11.12 per share in profits for Salesforce Inc (NYSE:CRM) next year, representing a 10% year-over-year increase. For the current financial year, profits are expected to grow by 23%, with estimates trending upwards. Based on these forecasts, Salesforce trades at a forward price-to-earnings ratio of 22, which is attractive given the AI-related growth catalysts.
Parnassus Growth Equity Fund stated the following regarding Salesforce, Inc. (NYSE:CRM) in its Q2 2024 investor letter:
“Salesforce, Inc.’s (NYSE:CRM) growth continues to moderate, and investors question its prospect as it relates to AI. We remain confident that the company, which developed the original salesforce automation product and pioneered the SaaS (software as a service) delivery model, is well positioned to capitalize on emerging AI opportunities.”
7. Micron Technology Inc (NASDAQ:MU)
Number of Hedge Fund Investors: 120
Micron Technology Inc (NASDAQ:MU) shares are trending after the company posted strong quarterly results and bullish guidance.
Micron Technology’s (NASDAQ:MU) guidance showed the artificial intelligence boom is more than offsetting consumer weakness.
Micron Technology Inc (NASDAQ:MU) specializes in manufacturing memory solutions, particularly DRAM and NAND, essential for computing and electronic devices. Its products play a vital role in data centers, mobile devices, and various other sectors.
During the last quarter, Micron Technology Inc (NASDAQ:MU) saw record revenues for NAND and storage business units, fueled by robust demand in the data center and automotive industries.
However, Micron Technology Inc (NASDAQ:MU) faces stiff competition in a sector characterized by a narrow “moat.” Major competitors like Samsung and SK Hynix also boast comparable technological expertise, intensifying price wars and cyclical oversupply issues that can significantly impact profitability and cause substantial fluctuations in Micron Technology Inc (NASDAQ:MU)’s valuation.
Micron Technology Inc (NASDAQ:MU) has $4 billion in net debt when accounting for its long-term marketable securities. Yet, Micron Technology Inc (NASDAQ:MU)’s guidance suggests a promising outlook, projecting nearly 40% non-GAAP gross margins. This robust margin profile mitigates many concerns raised by skeptics. For fiscal Q1 2025, Micron Technology Inc (NASDAQ:MU)’s non-GAAP projections indicate earnings of around $1.80 per share.
Despite ongoing uncertainties regarding its ability to sustain these profit margins and questions about its competitive advantages, Micron Technology Inc (NASDAQ:MU)’s valuation remains appealing. Without needing substantial acceleration in its core operations, Micron Technology Inc (NASDAQ:MU) could easily achieve $9 in non-GAAP EPS for fiscal 2025, placing its stock at a price-to-earnings ratio of 12 times this year’s non-GAAP EPS—an attractive figure.
Parnassus Value Equity Fund stated the following regarding Micron Technology, Inc. (NASDAQ:MU) in its Q2 2024 investor letter:
“Micron Technology, Inc. (NASDAQ:MU) posted fiscal-third-quarter results that met expectations. Micron’s DRAM (dynamic random access memory) and NAND (non-volatile storage technology) segments grew revenue strongly, continuing the company’s recovery from a cyclical downturn last year. We believe Micron is well positioned to capitalize on AI-driven demand for greater memory.”
6. Alphabet Inc (NASDAQ:GOOG)
Number of Hedge Fund Investors: 165
Alphabet Inc (NASDAQ:GOOG) shares are trending after the company released new AI capabilities. Google Cloud showcased its AI capabilities at the Google Gemini at Work event on Tuesday, highlighting various applications of AI agents in businesses. Analysts from Wedbush, led by Scott Devitt, noted a growing confidence in Google’s generative AI offerings and their potential to drive growth for Google Cloud.
Alphabet Inc (NASDAQ:GOOG) is collaborating with major players like Snap, Volkswagen, Warner Bros. Discovery, and Best Buy to develop AI agents tailored for different tasks. The main types of AI agents include those for customer support, employee assistance, coding, data management, security, and creative projects.
Alphabet Inc (NASDAQ:GOOG) also shared that over 2 million developers are utilizing its GenAI solutions, with a remarkable 36-fold increase in Gemini API usage on Vertex AI since the start of the year.
The key question everyone is asking is whether Alphabet Inc (NASDAQ:GOOG) will be able to maintain its search dominance amid the onslaught of AI search products.
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.
Baron Fifth Avenue Growth Fund stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q2 2024 investor letter:
“We also added to Alphabet Inc. (NASDAQ:GOOG). The company reported solid financial results with first quarter revenue growth of 15% year-over-year, driven by 14% growth in search, 21% growth in YouTube, and 28% growth in cloud (which accelerated from 26% growth in the fourth quarter). The company has also increased its cost discipline efforts, which drove operating margins to 31.6% (compared to 25% in the first quarter of 2023). With regards to GenAI, while we are cognizant of the potential risks to the dominance of search, we believe that on the range of outcomes, Alphabet remains well positioned through its massive user distribution (9 products with over 1 billion users each), long-standing AI research labs (DeepMind and Google Brain), top AI talent, a solid cloud computing division in Google Cloud, and deep pockets for investing in AI. During the quarter, Alphabet also held its annual I/O conference, where it provided an update on its efforts in AI including: Gemini is now used by 1.5 million developers; model quality is expanding rapidly (e.g., context window is now 2 million tokens of length); the new genomics model, Alphafold 3 can predict structures of molecules and potentially accelerate drug discovery; new TPU6 AI chips has shown a 4.7 times improvement in compute performance compared to the prior generation; and Gemini for workspace is showing early data on a 30% increase in user productivity. Alphabet also has real value in assets such as Waymo, which are not factored into valuation today (and are potentially included at a negative valuation as they currently generate losses, hurting EPS). We continue to believe that the current valuation of Alphabet presents an attractive risk/reward for long-term owners of the business and have therefore increased our position.”
5. Nvidia Corp (NASDAQ:NVDA)
Number of Hedge Fund Investors: 179
Nvidia Corp (NASDAQ:NVDA) shares recently rose after a new report from Bain & Company said the AI-related hardware and software market is expected to grow between 40% and 55% annually, reaching between $780 billion and $990 billion by 2027.
Nvidia’s declines after the latest quarterly results were more or less expected amid Blackwell delay reports confirmed by management. However, the delays were mainly due to a change in Blackwell GPU mask. That does not affect the main functional logic or design of the chip, according to analysts. While Blackwell has been delayed for a few months, it does not change the core growth thesis for Nvidia.
Nvidia is set to see huge growth on the back of the data center boom amid the AI wave.
At Nvidia’s GPU Technology Conference in March 2024, CEO Jensen Huang estimated annual spending on data center infrastructure at about $250 billion. Over the next decade, this could total between $1 trillion and $2 trillion, depending on how long this level of investment continues. During the same Q&A session, Bank of America’s Vivek Arya echoed this estimate, suggesting the total addressable market would fall in the $1-2 trillion range, particularly as countries invest in their own AI infrastructure. By the end of the decade, spending could be at the high end of that range.
Of course, Nvidia won’t dominate the entire $2 trillion opportunity, as it faces competition from companies like AMD and internally developed AI accelerators from Google, Amazon, and even Apple. Some analysts believe Nvidia’s data center market share between 2025 to 2029 will be over $950 billion—less than half of the total market—but still enough to make it the leader in the sector.
Ithaka US Growth Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2024 investor letter:
“NVIDIA Corporation (NASDAQ:NVDA) is the market leader in visual computing through the production of high-performance graphics processing units (GPUs). The company targets four large and growing markets: Gaming, Professional Visualization, Data Center, and Automotive. NVIDIA’s products have the potential to lead and disrupt some of the most exciting areas of computing, including: data center acceleration, artifi cial intelligence (AI), machine learning, and autonomous driving. The reason for the stock’s appreciation in the quarter was twofold: First, the stock benefi ted from tremendous excitement surrounding the further development of generative AI and the likelihood this would necessitate the purchase of a large number of Nvidia’s products far into the future; Second, Nvidia posted another strong beat[1]and-raise quarter, where the company upped its F2Q25 revenue guidance above Street estimates, showcasing its dominant position in the buildout of today’s accelerated computing infrastructure.”
4. Apple Inc (NASDAQ:AAPL)
Number of Hedge Fund Investors: 184
More and more Wall Street analysts are starting to realize that the much-hyped demand for iPhone 16 might never be realized and Apple Inc (NASDAQ:AAPL) is in a different world now.
Lead times for the iPhone 16 are shorter than in recent years, according to investment firms. Morgan Stanley’s Erik Woodring points out that while supply has improved and there are some signs of strong demand, it’s wise to remain cautious. As of September 24, average lead times in the U.S. for the iPhone 16 stand at 15.2 days, down from 25.7 days for the iPhone 15 last year and 18 days for the iPhone 14 in 2022.
Globally, the trend is similar, with average lead times for the iPhone 16 at 16.3 days, compared to 28.5 days for the iPhone 15. UBS analysts echo these findings, noting that typically, wait times for high-end models like the Pro and Pro Max increase as demand stabilizes. However, this year, wait times for the iPhone 16 haven’t shown the same uptick as in previous launches.
UBS suspects demand might stay below expectations until the rollout of iOS 18.2 in November, which will introduce more AI features. The update, iOS 18.1, is set for mid-October and will showcase some of these features. While it’s early to draw firm conclusions from lead times, Woodring suggests the outlook for iPhone builds leans more negative than positive, despite reports of strong initial demand from some regions like India.
Almost every bullish case on Apple Inc (NASDAQ:AAPL) was built around this assumption: millions of people would rush to upgrade their iPhone because of AI features.
However, Apple Inc (NASDAQ:AAPL) has been seeing a long-term decline in mobile carrier upgrade rates, especially postpaid, for several years. This suggests that people are holding onto their devices longer, likely due to economic factors, satisfaction with current technology, or a lack of exciting new features in recent models. This trend isn’t great for Apple Inc (NASDAQ:AAPL). Can Apple Intelligence break this trend? We’ll find out soon.
However, the assumption that we will see a huge upgrade cycle of iPhone just because of AI is big and comes with a lot of risks. Apple Inc (NASDAQ:AAPL) trades at a forward PE multiple of around 35x, well above its 5-year average of nearly 27x. Its expected EPS forward long-term growth rate of 10.39% does not justify its valuation, especially with the iPhone upgrade cycle assumption. Adjusting for this growth results in a forward PEG ratio of 3.33, significantly higher than its 5-year average of 2.38
Parnassus Growth Equity Fund stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q2 2024 investor letter:
“Apple Inc. (NASDAQ:AAPL) gained but detracted from relative performance due to our underweight. While the company’s overall and iPhone revenues declined year over year, the unveiling of an upgraded iPad Pro and iPad Air boosted investor sentiment. In particular, the introduction of generative AI features allayed concerns that Apple was not keeping pace with competitors.”
3. Meta Platforms Inc (NASDAQ:META)
Number of Hedge Fund Investors: 219
Gene Munster, Deepwater Asset Management, said while talking to CNBC in a latest program that while he is bullish on Meta Platforms Inc (NASDAQ:META)’s ability to drive engagement on its platform using AI, the “substance” of the initial details at its Connect event was a “little thin.”
“Meta is making it clear they believe in a future where smart glasses – they refer to them as AI glasses – are going to be hundreds of millions of units. Today if you look at Quest it’s probably five million units, probably one percent of sales,” Munster said.
Asked whether the stock’s 60%+ gain so far this year is justified, Munster said yes, adding that Meta Platforms Inc (NASDAQ:META)’s earnings have posted strong growth and we haven’t even “begun” to see the benefit of AI.
The market has been reluctant about Meta Platforms Inc (NASDAQ:META) massive spending on AI. What does Meta want to achieve with its AI spending? The company wants to use AI to improve engagement and language models like Llama 3 to improve user interactions, boost engagement, and better monetize its 3.2 billion daily active users.
But can Meta Platforms Inc (NASDAQ:META) sustain this high spending? The company’s free cash flow margin is around 30%, and it’s well on track to report $50 billion in free cash flow this year. Based on this target the stock is trading at around 26 times this year’s free cash flow. Given the current trajectory continues Meta Platforms Inc (NASDAQ:META) can post $58 billion in free cash flow by next year, which means the stock is trading at 21 times next year’s free cash flow. With a whopping $35 billion in net cash, a strong user base, and a key position in the consumer-facing side of the AI industry, Meta Platforms Inc (NASDAQ:META) could be a solid long-term investment.
Rowan Street Capital stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q2 2024 investor letter:
“We are pleased to report that Meta Platforms, Inc. (NASDAQ:META), our largest position in the fund, has delivered a remarkable performance, +450% since our November 2022 note. Our investment in Meta dates back to 2018, with an average cost basis of approximately $172 per share. Today, the stock trades around $535, reflecting a 3x return over the six-year holding period, equating to a 20% annualized return.
We would like to remind you that achieving these types of returns is never a straight path. From time to time, we might experience volatility — that’s simply part of the investment journey. In fact, wealth creation and volatility go hand in hand. There’s no escaping it; it’s the “price of admission” the market demands. If you take a look at the chart below, you’ll notice the drawdowns META stock has faced over the years, with 2022 standing out as a particularly challenging period, where the stock saw a 75% drop…” (Click here to read the full text)
2. Microsoft Corp (NASDAQ:MSFT)
Number of Hedge Fund Investors: 279
Some believe OpenAI was the only key edge Microsoft Corp (NASDAQ:MSFT) had in the AI race and it’s quickly fading away.
DA Davidson recently downgraded the stock, with analyst Gil Luria saying the company’s advantages in the cloud and code generation sectors have diminished, making it difficult for Microsoft Corp (NASDAQ:MSFT) to maintain its previous performance. He highlighted that Amazon Web Services is now nearly matching Azure in cloud growth, while Google Cloud is also gaining momentum.
Luria downgraded Microsoft Corp (NASDAQ:MSFT) from Buy to Neutral, maintaining a $475 price target. He pointed out that Amazon and Google have made significant strides in integrating custom silicon into their data centers, putting Microsoft at a disadvantage. This reliance on NVIDIA (NVDA) for technology means Microsoft is effectively transferring wealth from its shareholders to NVIDIA’s, according to Luria.
Following a year of margin expansion, Microsoft Corp (NASDAQ:MSFT) is now projecting a decline in operating margins due to increased data center capital expenditures rising from 12% to 21% of revenue. This increase outpaces that of Amazon and Google, largely due to Microsoft’s dependence on NVIDIA.
Luria said that if Microsoft Corp (NASDAQ:MSFT) continues to overinvest at the current rate, margins could drop by at least 1 percentage point cumulatively, potentially necessitating layoffs of around 10,000 employees each year to maintain margins.
The analyst also thinks Microsoft Corp (NASDAQ:MSFT) has lost much of its edge with GitHub Copilot, as Amazon and GitLab (GTLB) have caught up in capabilities.
The concerns voiced by the analyst are not unfounded. Microsoft is also losing its edge in open-source models as enterprises shift toward cost-effective, transparent open-source solutions like Meta’s Llama 3.1.
Alger Spectra Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:
“Microsoft Corporation (NASDAQ:MSFT) is a beneficiary of corporate America’s transformative digitization. The company operates through three segments: Productivity and Business Processes (Office, LinkedIn, and Dynamics), Intelligent Cloud (Server Products and Cloud Services, Azure, and Enterprise Services), and More Personal Computing (Windows, Devices, Gaming, and Search). During the quarter, shares contributed to performance after the company reported strong fiscal third quarter results, underscoring its leadership position in the cloud and highlighted its role as a primary facilitator and beneficiary of AI adoption. Company revenue growth, operating margin, and earnings growth surpassed consensus expectations. The utility scale Azure cloud business grew 31% in constant currency of which 7% was AI related versus 3% two quarters ago. Further, management noted most of the AI revenue continues to stem from inference rather than training indicating high quality AI applications by Microsoft’s clients. Management also indicated that the significant cost-cutting programs in corporate America are done, suggesting that the cost optimization headwinds previously impacting Azure’s growth are over. Separately, management provided color on their new AI-productivity tool, Copilot, noting that approximately 60% of Fortune 500 companies are already using Copilot, and that the quarter witnessed a 50% increase in Copilot assistance integration within Teams. We continue to believe that Microsoft has the potential to hold a leading position in AI, given its innovative approach and demonstrated high unit volume growth opportunity.”
1. Amazon.com (NASDAQ:AMZN)
Number of Hedge Fund Investors: 308
Anthropic, the AI startup supported by Amazon.com (NASDAQ:AMZN), is projected to hit $1 billion in revenue this year, according to CNBC. This marks a staggering growth of around 1,000% year-over-year, as reported by Deidre Bosa, who cited an internal document. Notably, third-party API access is expected to contribute 60% to 75% of this total revenue.
Amazon.com (NASDAQ:AMZN) has invested a total of $4 billion in Anthropic, including a $2.75 billion investment made in March. Other backers of the startup include Google and Salesforce.
Cantor Fitzgerlad recently initiated coverage of Amazon.com Inc (NASDAQ:AMZN) with an Overweight rating and said in a broader industry note that despite strong performance, many tech stocks remain attractively valued.
“Despite strong performance over the last 18 months, valuations in internet names are fairly reasonable and should benefit from the expectation for upcoming rate cuts, tempered by decelerating top-line growth and as benefits from widespread cost-cutting fade,” Cantor said.
AWS’s revenue growth accelerated from 17.2% in Q1 to 18.8% in Q2, driven by a shift from on-premises infrastructure to cloud solutions and increasing demand for AI capabilities. Amazon.com Inc (NASDAQ:AMZN) advertising segment added over $2 billion in revenue year-over-year, indicating significant potential in video advertising and opportunities within Prime Video offerings.
Like other tech companies, fears stemming from high CapEX are keeping investors on the sidelines. Amazon.com Inc (NASDAQ:AMZN) spending is expected to rise amid broadband project Project Kuiper and AI growth. Investors are still figuring out whether AI monetization and ROI will come anytime soon. Amazon.com Inc (NASDAQ:AMZN) is also facing a slowdown in consumer spending, especially for higher-ticket items like electronics and computers.
Based on Amazon.com Inc (NASDAQ:AMZN) Q3 guidance, its revenue growth would be 11%. The stock is trading 35x its fiscal 2025 earnings estimates set by Wall Street. This shows the stock is fairly priced and investors looking for strong growth could look elsewhere.
Meridian Hedged Equity Fund stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q2 2024 investor letter:
“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 Amazon.com (NASDAQ:AMZN), our conviction lies in the belief that under the radar 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 AMZN 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.
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