In this article, we will take a detailed look at the 10 Trending AI Stocks to Watch in September.
Sam Stovall, chief investment strategist at CFRA Research, said while talking to CNBC in a latest program that since 1990, the market on average gains about 18% between the last rate hike and the first rate cut. However, during the 30 days after the first rate cut, the market historically “tread water,” gaining less than “one half of one percent.”
“Most of the action is below surface however, in the sectors, areas where a lot of the leaders be in the defensive areas but I have to add technology in there because investors don’t want to be giving up on the growth,” Stovall said.
Stovall pointed to another important historical data point regarding election years. He said that usually August and September are slow months in the stock market, but during election years the trend shifts to September and October, with markets historically rebounding in November and December once the uncertainty around the election subsides. The analyst recommended investors to position for a post-election rally which he believes buoys growth stocks.
For this article, we chose the top 10 AI stocks currently on investors’ radar following important news, earnings and analyst ratings. With each stock, 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. Astera Labs Inc (NASDAQ:ALAB)
Number of Hedge Fund Investors: 19
Astera Labs Inc (NASDAQ:ALAB) is a connectivity platform company for AI infrastructure. Morgan Stanley recently upgraded the stock to Overweight from Equal-weight amid strong demand for its AI connectivity solutions. The firm believes Astera Labs’ lower prices give it an edge in the market.
“Following the recent pullback on GB200 content concerns, the stock is trading +50% below post-IPO peaks, and we now see a compelling entry point,” said Morgan Stanley analyst Joseph Moore, in a note. “We continue to believe that their growth trajectory is strong, and trust the management team’s ability to execute.
Astera Labs Inc (NASDAQ:ALAB) Intelligent Connectivity Platform is a high-speed, mixed-signal suite that includes complementary software. These solutions are for hyperscalers, which need robust and fast connectivity to support increasing compute power demands.
Astera Labs Inc (NASDAQ:ALAB) has quickly become a favored partner for many original equipment manufacturers (OEMs) and hyperscalers, with numerous design wins. Customers appreciate the company’s efficient connectivity, fast deployment, and real-time monitoring capabilities.
Astera Labs Inc (NASDAQ:ALAB) has experienced rapid growth, with revenue rising 45% from $80 million in 2022 to $116 million in 2023. At the same time, operating losses were reduced by more than half to $30 million.
Baron Discovery Fund stated the following regarding Astera Labs, Inc. (NASDAQ:ALAB) in its Q2 2024 investor letter:
“AI models are rapidly moving from objects of curiosity to levels of functionality that just a couple of years ago were believed to exist only in the realm of science fiction. We obviously do not invest in large-cap companies that produce AI hardware, which is where significant market attention is focused right now. Yet we continue to look for exciting small-cap ideas in AI hardware. For example, we owned a small-cap AI-oriented semiconductor company in the second quarter called Astera Labs, Inc. (NASDAQ:ALAB). Astera Labs manufactures analog semiconductors that facilitate improved communications within a motherboard (for example between graphics processing units like what NVIDIA makes and central processing units which are made by companies like Intel), and between servers. We bought shares when the company went public, but due to the incredible hype surrounding hardware-based AI companies, the stock quickly doubled and exceeded what we believed was a reasonable long-term valuation (particularly given new competitive offerings on the horizon). Therefore, we sold our investment but continue to monitor its valuation closely for a potential re-entry point.”
9. Hewlett Packard Enterprise Co (NYSE:HPE)
Number of Hedge Fund Investors: 58
Hewlett Packard Enterprise Co (NYSE:HPE) recently posted upbeat quarterly results and guidance amid strong AI server demand.
Morgan Stanley analysts noted a modest upside in Hewlett Packard Enterprise Co (NYSE:HPE) third-quarter results but kept an Equal-weight rating on the stock with a $21 price target. Analyst Meta Marshall commented that while more growth was expected from the Intelligent Edge segment, factors such as the ongoing deal with Juniper and slow demand in international markets likely tempered the results. Despite this, there was no indication of a further decline in global demand.
Hewlett Packard Enterprise Co (NYSE:HPE) saw its adjusted gross margin fall by 410 basis points year-over-year and 130 basis points sequentially, largely due to lower margins in its AI server business. However, the company’s Server segment grew by 35.1% year-over-year, driven by the rapid rise in AI workloads, which also contributed to the lower gross margin.
But analysts believe this decline in AI server margins is temporary because the company’s AI offerings include both products and services. Services currently make up only about 10% of total AI revenue. As AI server growth stabilizes, the mix of higher-margin services should increase, boosting overall profitability.
8. Intel Corp (NASDAQ:INTC)
Number of Hedge Fund Investors: 75
Research firm Erste recently downgraded Intel, citing increased competition from AMD.
Erste analysts said AMD has become very competitive thanks to CEO Lisa Su’s hardware and software goals. They also highlighted the increasing demand for AMD’s data center GPUs like MI300x.
The analysts believe Intel’s valuation compared to its estimated 2024 earnings is higher than that of its peer group.
Intel Corp (NASDAQ:INTC) shares recently saw a bloodbath following the company’s weak Q2 results and disappointing guidance. The results show the AI growth everyone was talking about won’t come in cheap. Intel Corp (NASDAQ:INTC) expects its gross margin in the third quarter to decline to 34.5% from 38.7% reported in the second quarter, which was a significant decline from the company’s expectation of 43.5%.
While Intel Corp (NASDAQ:INTC) has suspended its dividend and announced massive layoffs, its problem of inventory won’t be resolved anytime soon. Intel has 137 days of inventory, worth over $11.2 billion. This is much higher than the industry average of 90 days. Intel Corp (NASDAQ:INTC) has close to $52 billion in long-term debt and analysts believe its cost-cutting measures along with AI growth initiatives won’t let it fix this problem soon. S&P Global recently put the stock’s credit rating on “watch” saying:
“While these cost-cutting measures, including significant capital expenditure reductions, could alleviate some near-term cash-flow-generation challenges, it is unclear whether these steps will be sufficient to maintain its business competitiveness and enable healthy growth.”
Raymond James said in a report after earnings that Intel’s margin issues are expected to continue until 2025. AI PC growth has become a larger headwind for margins, as the higher cost of external wafers offsets modest average selling price premiums.
Amid these factors, investors are better off looking for other AI stocks and avoid Intel for now until there’s visibility on how exactly Intel Corp (NASDAQ:INTC) would resolve its core problems.
Ariel Global Fund stated the following regarding Intel Corporation (NASDAQ:INTC) in its Q2 2024 investor letter:
“Alternatively, several positions weighed on performance. One of the world’s largest semiconductor chip manufacturers by revenue, Intel Corporation (NASDAQ:INTC), underperformed in the period on news of a longer than expected turnaround in profitability within the Foundry business. This was exacerbated by disappointing near-term guidance due to a weakening demand environment signaling an extended replacement cycle. We view the quarter as a temporary trough that should dissipate as we see signs of a cyclical recovery for personal computers (PCs) and central processing units (CPUs), driven by the Windows 11 upgrade. In our view, the market is overlooking the progress Intel is making to advance its manufacturing process. Not to mention, the company’s efforts to serve as a viable second source foundry partner of leading-edge silicon. We believe the separation of the design and manufacturing businesses will be a key catalyst in unlocking improved financial performance while also enhancing the competitiveness of the foundry business.”
7. Salesforce Inc (NYSE:CRM)
Number of Hedge Fund Investors: 117
Wedbush analyst Dan Ives has yet again reiterated his claim that the AI boom represents the fourth industrial revolution and the AI party is just getting started.
“While we recognize the bumpy macro/job data and the drumroll for the US Presidential elections into November, we view this sell-off in tech stocks as a buying opportunity for our core winners in this AI Revolution,” said Wedbush analysts, led by Daniel Ives, said in a note.
Salesforce Inc (NYSE:CRM) is one of the top stocks Ives believes can benefit from the AI wave.
“While investors may fret about this massive spending wave and frustrated that top-line growth/margins from these investments could take time to materialize, this ultimately speaks to our view this is a 1995 (almost 1996) start of the Internet Moment, and not a 1999 Tech Bubble-like moment despite bears getting louder during some of these head for the elevators tech sell-offs,” Ives added.
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.
Ithaka US Growth Strategy stated the following regarding Salesforce, Inc. (NYSE:CRM) in its Q2 2024 investor letter:
“Salesforce, Inc. (NYSE:CRM) is the largest pure-play cloud software company, holding a leading market share in customer relationship management applications and a top-five market share position in the company’s other clouds (Marketing, Service, Platform, Analytics, Integration, and Commerce). The company’s software subscription term-license model differs from the traditional perpetual-license software model in two respects: (1) the software is hosted on centralized servers and delivered over the internet, as opposed to traditional enterprise software that is loaded directly onto customers’ hard drives or servers; and (2) the revenue model is subscription-based, typically charging monthly fees per user as opposed to charging one-time licensing fees. The stock’s weak relative performance followed its fiscal first quarter earnings announcement, where the company missed top-line and cRPO (current remaining performance obligations) estimates while also issuing weak forward guidance.”
6. Broadcom Inc (NASDAQ:AVGO)
Number of Hedge Fund Investors: 130
Broadcom Inc (NASDAQ:AVGO) recently posted quarterly results and while they beat estimates on both EPS and revenue, guidance failed to impress the Street, resulting in a share price decline. However, Jefferies said the dip was a buying opportunity.
“Guidance came in a bit lighter than expected, but management has been messaging lumpiness in AI revenue and growth is set to reaccelerate in 4Q,” said Jefferies analyst Blayne Curtis, in a note. “The cyclical correction in non-AI revenue is in-line with peers, and our view is the long-term trend in AI still favors an industry shift to custom ASICs, where Broadcom Inc (NASDAQ:AVGO) remains well-positioned. Factor in the added benefit of the VMware acquisition running ahead of schedule on both revenue and earnings, and it’s easy to look past one minor bump in the road.”
Broadcom Inc (NASDAQ:AVGO) continues to be a leader in the AI ASCI and networking chips market. The company expects about $12 billion in AI revenue in fiscal 2024, which means 20% of its total revenue will come from AI and counting.
Broadcom Inc (NASDAQ:AVGO) has 3nm AI ASIC chip deals with Alphabet and Meta in addition to many other tech giants aiming massive spending for AI hyperscaling.
The company’s Ethernet business is also strong amid partnerships with Arista Networks (ANET), while the company is also collaborating with Dell (DELL), Juniper (JNPR), and Super Micro (SMCI) in the networking business and other segments.
Mar Vista Focus strategy stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its Q2 2024 investor letter:
“During the quarter, we established new investments in Broadcom Inc. (NASDAQ:AVGO) and Meta Platforms. We initiated a position in Broadcom in Q2. As a skilled aggregator, Broadcom acquires firms, streamlines their operations, and invests R&D dollars in mission critical products that generate industry leading profit margins, robust cash flows and high returns on invested capital. Its primary markets include AI accelerators targeting generative AI applications, networking & wireless semiconductors, and mission-critical infrastructure software solutions.
Broadcom is well-positioned to benefit from the rapidly expanding demand for custom AI accelerator chips that support the evolution of the generative AI market. The company is the second-largest producer of AI accelerator chips behind Nvidia and leads the market in custom AI ASIC chips. Its customers include leading hyper scalers like Alphabet and Meta who are turning to Broadcom for custom silicon due to its performance and cost advantages. We believe the company is a direct beneficiary of a multi-year capital cycle driven by hyper scalers building out next-generation AI factories.
Broadcom recently acquired VMware, the leader in virtualization software targeting the enterprise market. The integration of VMware is tracking ahead of plan as management has simplified its product bundles, transitioned to a subscription revenue model, and reduced operating costs. We believe this simplified go-to-market structure will result in strong top-line revenue growth and expanding operating margins. We believe Broadcom will compound intrinsic value per share in the mid-20% range over the intermediate term as it benefits from the AI-infrastructure build-out, a cyclical recovery in its legacy semiconductor business, and modestly accelerating growth from its infrastructure software business as VMware is successfully integrated.”
5. Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM)
Number of Hedge Fund Investors: 156
Scientech Corp. Chief Executive Officer Hsu Ming-Chi recently gave an interview to Bloomberg, dismissing concerns regarding huge AI spending on chips and an apparently unattractive return on these investments.
“This booming of the AI industry has just begun. For the most prominent company, the equipment we sold to them probably increased two to three times in a year,” Hsu said.
Scientech makes equipment used in TSMC’s Chip-on-Wafer-on-Substrate technology, which is used to make chips for major companies like Nvidia.
Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is one of the best AI semiconductor stocks big tech funds are piling into, and for the right reasons. Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is the biggest foundry that makes chips for fabless companies, enjoying an over 50% market share. Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is behind some of the world’s most advanced chips, including 2nm and 3nm nodes. It supplies chips to major players like Apple (AAPL), Qualcomm (QCOM), and Nvidia (NVDA).
Despite these growth catalysts, analysts believe Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) valuation is depressed amid the Taiwan factor — any conflict between China and Taiwan would hamper Taiwan Semiconductor Mfg. Co. Ltd.’s (NYSE:TSM) business due to its huge reliance on international supply chains. The stock is trading at a forward P/E of 27, much lower than peers like ASML, NVDA and AMD. But some believe these concerns are overblown and there are no short-term risks to Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) from this perspective. Bank of America’s Brad Lin recently increased his earnings estimate and price target for the stock, saying TSMC is the “key beneficiary and enabler of AI prosperity.” Lin set a $180 price target on TSMC. Lin thinks Apple’s latest plans revealed at the WWDC event would bode well for Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) since TSMC makes 25% of its revenue from the Cupertino giant.
Baron Technology Fund stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q2 2024 investor letter:
“Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), the world’s leading semiconductor foundry, contributed to performance in the second quarter, driven by continued strong data center AI accelerator demand, optimism on a potential edge AI replacement cycle for smartphones and PCs, and expectations for price hikes next year (“selling our value,” in the words of C.C. Wei, TSMC’s CEO). In contrast with the sluggish broader semiconductor foundry market, TSMC is enjoying a record[1]breaking year, with management guiding for revenue to grow in the low to mid-20% range year-over-year in 2024, thanks to the company’s near[1]monopoly in manufacturing the world’s most advanced chips. According to C.C. Wei, “almost all the AI innovators are working with TSMC to address the insatiable AI-related demand for energy-efficient computing.” This strong AI demand, coupled with TSMC’s unrivaled competitive position, is driving “a high level of customer interest and engagement at N2” (TSMC new process node which will start production in 2H25), with N2 revenue expected to “certainly be larger” and with a “better margin profile” than N3 (TSMC’s most advanced node today). We believe TSMC will sustain strong double-digit earnings growth for years to come, driven by rapidly growing demand for advanced chips and continued market share gains enabled by its superior technology, reliability, and customer service.”
