Investment bank Goldman Sachs recently organized its Communacopia + Technology Conference, an annual event that brings together innovators and business leaders from the technology and communications industries to discuss the latest developments related to their fields and pursue mega deals. Several prominent companies working in the artificial intelligence (AI) space were headliners this year, but none grabbed more attention than Simon Mays-Smith, a senior executive at Autodesk, an engineering firm, who urged investors to pay closer attention to the unsexy AI stuff that companies were pursuing.
Read more about these developments by accessing 33 Most Important AI Companies You Should Pay Attention To and 20 Industrial Stocks Already Riding the AI Wave.
The remarks made by Mays-Smith echo to a certain extent the comments made by Eric Sheridan, a senior research analyst covering the US Internet sector within the research division of the bank, who said on the sidelines of the event that he believed that AI had the potential to be a significant driver of the financial results of tech companies, even though much more was unknown than known right now about the emerging technology. Sheridan noted that historically, tech product cycles underwent periods of capturing imagination, a build cycle, and disillusionment on the time between the build cycle and applications that have utility.
Sheridan highlighted that if you listened to the companies broadly at the conference, the market was moving deeper into the build cycle, which was putting an upward pressure on capital expenditures. He also underlined that for AI, companies needed a lot of capital, a lot of engineering talent, and a lot of data. These created enormous barriers to entry in the AI space. Thus, per the analyst, even some of the most interesting private companies had found their way to partnerships with some of the incumbents just because of the sheer scale of capital, the sheer need for engineering talent, and then the data required to scale these models.
Read more about these developments by accessing 30 Most Important AI Stocks According to BlackRock and AI News You Should Not Have Missed.
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Our Methodology
We selected AI stocks by combing through the proceedings of the latest Communacopia and Technology Conference. We’ve also added the hedge fund sentiment for these stocks, as of Q2 2024.
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. Lumen Technologies, Inc. (NYSE:LUMN)
Number of Hedge Fund Holders: 18
Lumen Technologies, Inc. (NYSE:LUMN) is a technology and communications firm. Chris Stansbury, the CFO of the company, spoke at the Communacopia and Technology Conference earlier this month, saying that his company viewed the AI TAM opportunity as 3 phases. Per Stansbury, the market was in the first phase right now where the race was for companies that were developing large learning algorithms. He stressed that these firms needed to train those algorithms and there was a race to see who could build the best algorithms the fastest, primarily because in the next phase, larger enterprises would start to use those to run their businesses. He noted that a lot of the connectivity being acquired was really to support the data center builds that were there to support that training.
The senior executive at Lumen Technologies, Inc. (NYSE:LUMN) further underlined that AI needed data, data needed data centers, and data centers needed connectivity, pointing out that this was where his firm excelled. He revealed there was a $7 billion revenue opportunity for his company in the networking domain of data centers, with clients like hyperscalers, large tech firms, and cloud providers.
9. Iron Mountain Incorporated (NYSE:IRM)
Number of Hedge Fund Holders: 24
Iron Mountain Incorporated (NYSE:IRM) is a real estate investment trust that focuses on storage and information management services. Barry Hytinen, the CFO of the firm, spoke at the Communacopia and Technology Conference earlier this month, giving details about the data center business of the company. Hytinen noted that his company was one of the key trusted partners with the largest hyperscalers in the market and had lots of room to grow in this space. He revealed that his firm was operating 265 megawatts of data center capacity, which was 96% to 97% leased, and had under construction another 305 megawatts, which would be complete in phases over the next few quarters. He said his firm was in business with the best credit quality tenants with leases that are 10 years to 15 years in duration.
The senior executive at Iron Mountain Incorporated (NYSE:IRM) further added that the data center business of the firm was growing at 25% or 30% plus compounded, and his firm had the ability to more than double the megawatts it was operating over the next two or three years just by finishing the construction on pipeline projects. He noted that the data center business had a run rate around $600 billion, lending credence to the 30% growth claims.
8. SoFi Technologies, Inc. (NASDAQ:SOFI)
Number of Hedge Fund Holders: 29
SoFi Technologies, Inc. (NASDAQ:SOFI) is a fintech firm based in California. Anthony Noto, the CEO of the firm, spoke at the Communacopia and Technology Conference earlier this month, noting that the biggest need in the fintech industry was upgrading core technologies. The second biggest need, per the CEO, was for brands to be able to scale AI products related to financial services with modern technologies. Noto claimed that his firm was already in conversations with many large brands that wanted to build on their existing capabilities and also offer product extensions.
Commenting on the macro environment, the SoFi Technologies, Inc. (NASDAQ:SOFI) Chief predicted that the Federal Reserve would reduce interest rates by 75 basis points in 2024, a move he said would benefit loan demand for his company and free up investment cash for other companies. Noto remarked that policymakers should jumpstart rate cuts with a big reduction of 50 basis points as it would spur more economic activity next year because corporations were making decisions about next year now.
7. Okta, Inc. (NASDAQ:OKTA)
Number of Hedge Fund Holders: 50
Okta, Inc. (NASDAQ:OKTA) owns and runs an identity management platform. Todd McKinnon, the CEO of the firm, spoke at the Communacopia and Technology Conference earlier this month, underlining that technology was forcing companies to improve their cloud infrastructure. In response to a question about his firm innovating in AI to get to a faster normalized growth rate, he underlined that companies in the cybersecurity domain were tackling questions like the way in which AI workloads were run, in the cloud or on-premises, driving modernization and upgrades. He said this was a positive trend for his company since it had built a brand value on the ability to adapt to change.
McKinnon highlighted some of the AI capabilities of an identity platform marketed by Okta, Inc. (NASDAQ:OKTA), noting that at core of Identity Threat Protection was Okta AI, which was a mixture of machine learning and GenAI algorithms. He detailed that it detected anomalous activity as it was highly integrated, with context form from login info, other layers of the security stack, risk scores from endpoint, and network security risk figures. He added his firm was also working on a governance analyzer with Okta AI that trained the model on the anonymous policy setups and configurations of thousands of Okta customers and generated a suggested setup for a company.
6. MongoDB, Inc. (NASDAQ:MDB)
Number of Hedge Fund Holders: 54
MongoDB, Inc. (NASDAQ:MDB) provides a general purpose database platform worldwide. Dev Ittycheria, the CEO of the firm, spoke at the Communacopia and Technology Conference earlier this month, outlining future growth plans. He said that over the next five years, AI would be more seen at the high end of the market, unlike other platform shifts of the past. He noted how customers were saddled with thousands and thousands of legacy apps where the cost to run and manage those apps was very high, and a confluence of factors were convincing customers to be more receptive to modernizing these applications with AI.
The MongoDB, Inc. (NASDAQ:MDB) bigwig remarked that his firm aimed to become a core ingredient of the future AI tech stack, and was architecturally well positioned to do that for inference workloads. Ittycheria said this was an important distinction because for AI workloads, there was even more requirement to be able to query and manage complex rich data structures, and firms needed a lot of flexibility and agility in their schema as data was always changing, while maintaining the performance and scale of a natively distributed system.
5. Autodesk, Inc. (NASDAQ:ADSK)
Number of Hedge Fund Holders: 55
Autodesk, Inc. (NASDAQ:ADSK) provides design and engineering software services. Simon Mays-Smith, a senior executive at the firm, spoke at the Communacopia and Technology Conference earlier this month, remarking that everyone in the marketplace had been focused on the sexy AI stuff but there was a bunch of unsexy AI stuff that investors needed to focus on more. Giving an example of the sexy AI stuff, the executive outlined that his company had built Bernini, an AI multi-mobile model that was developed from scratch. This remark alluded to competitors using models like Anthropic or OpenAI.
Referring to the unsexy AI stuff, the Autodesk, Inc. (NASDAQ:ADSK) executive noted that his company was focused on 3D AI, and not just AI. To illustrate the importance of this endeavor, he outlined that most major AI models could use commands to generate certain specific images, like water jugs, using available water jug pictures. Few of them, however, would be able to provide 3D renditions of this, and this is where his firm was ahead of competitors.
4. Verizon Communications Inc. (NYSE:VZ)
Number of Hedge Fund Holders: 67
Verizon Communications Inc. (NYSE:VZ) is an integrated telecommunications services firm. Hans Vestberg, the CEO of the firm, spoke at the Communacopia and Technology Conference earlier this month, remarking that his team was very advanced in AI as it had been working on the tech for more than a decade. He noted that his firm was using AI to focus on three key areas, improving efficiency for customers, personalizing plans for consumers, and for revenue generation. The CEO highlighted how his firm had been one of the first established businesses to realize the potential of edge computing, and was working with large firms like Google, Amazon, and Microsoft in this domain.
The Verizon Communications Inc. (NYSE:VZ) CEO stressed that with many generative AI companies, turning models into products and applications that companies and customers could use was the main conversation. He also noted that his firm was well-positioned to capitalize on mobile edge compute as it had the processing, compute storage, and power capabilities to help large firms with their edge needs.
3. Workday, Inc. (NASDAQ:WDAY)
Number of Hedge Fund Holders: 86
Workday, Inc. (NASDAQ:WDAY) markets enterprise cloud applications and is headquartered in California. Carl Eschenbach, the CEO of the firm, spoke at the Communacopia and Technology Conference earlier this month, highlighting the growth plans and AI strategies of the company. The CEO remarked that when the company talked to customers and the topic of AI came up, he believed that an investment in Workday was an investment in AI, as his company has one of the most highly curated datasets in the industry to train off of. He said with AI, his company could lead the enterprise through both HR and Finance to show true business value and true business impact.
The Workday, Inc. (NASDAQ:WDAY) CEO further reiterated the company plans to grow at 15% through fiscal year 2027, and expand operating margins 30% over the next couple of years. He also said his firm had a significant opportunity to push the business more international, noting that 25% of the business of the firm was from outside the US, yet that represented more than 50% of the total addressable market.
2. Dell Technologies Inc. (NYSE:DELL)
Number of Hedge Fund Holders: 88
Dell Technologies Inc. (NYSE:DELL) designs, develops, manufactures, markets, sells, and supports various comprehensive and integrated solutions, products, and services. Jeff Clarke, the COO of the firm, spoke at the Communacopia and Technology Conference earlier this month, giving his opinion on the transformative nature of AI technology and how it compared to tech revolutions of the past. Clarke provided some context first, noting that it took 50 years for all US households to get electricity, roughly 30 years to get a 90% adoption rate for the Internet, 35 years to get adoption of PCs to 90%, and 25 years for phones to make it to 90%. AI, per Clarke, was moving faster than anything previously seen in the tech world. One example cited was of his own firm.
Clarke, who has been at Dell Technologies Inc. (NYSE:DELL) since 1997, noted how a year ago in Q2, his firm had essentially 0% revenue from AI. In the most recently reported Q2, however, 40% of the server and networking revenues for Dell had been AI revenues, per the executive. He remarked that AI was moving incredibly fast, as in the last 12 months or four quarters, his company had sold nearly $9.5 billion of AI infrastructure and shipped $6.5 billion of AI infrastructure.
1. Uber Technologies, Inc. (NYSE:UBER)
Number of Hedge Fund Holders: 145
Uber Technologies, Inc. (NYSE:UBER) develops and operates proprietary technology applications worldwide. Dara Khosrowshahi, the CEO of the firm, spoke at the Communacopia and Technology Conference earlier this month, highlighting that his company was already working with over 10 autonomous players in the mobility delivery categories. These included Waymo, Cruise, and firms like Wayve in the UK. Elaborating on Wayve, Khosrowshahi said the company was building a kind of underlying, newer AI-based technology, akin to self-driving technology. He said it was the absolute best-of-breed technology.
Khosrowshahi, who took over the Uber Technologies, Inc. (NYSE:UBER) CEO job two years ago, encouraged people to take a ride in one of their vehicles. He also referenced China and the UK, as well as other places around the world, in a comment about mobility software, noting that technically the software was going to get to a very good place over the next three to five years.
While we acknowledge the potential of Uber Technologies, Inc. (NYSE:UBER) 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 Uber Technologies, Inc.(NYSE:UBER) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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