In this article, we will discuss the 12 Best Quality Stocks to Invest in Now.
Tom Lee, co-founder of Fundstrat Global Advisors, believes that a significant rebound is in the offing, despite the tough start to the year. The strategist opines that there is a possibility of ~10% – 15% bounce over the coming months. In an interview with CNBC, he stated his expectations about March, April, and May witnessing the rally. Therefore, missing critical trading days can be a mistake for investors.
What Lies Ahead?
Lee believes that investors can consider buying as the markets are unsettled. In an interview with CNBC, he went on to explain that the market’s 10 best days last year resulted in the addition of up to 20 percentage points for the broader S&P 500. However, if we exclude these 10 days, the index increased by only 4%. According to him, the best days might be around the corner. If there are tensions related to the growth or related to the employment market, Trump or the US Fed can intervene to bring some stability. These are the favourable catalysts for the upcoming weeks, says Lee. Overall, he believes that a large chunk of the bad news has been priced in as markets have seen a significant decline.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
Signs of Economic Strength Remain
Morningstar, while echoing the views of Adam Hetts (Janus Henderson Investors portfolio manager), mentioned that the longer-term perspective is expected to provide investors a silver lining. Hetts believes that there are bright spots in the international markets such as Europe and China, that have surpassed the performance of the US stocks since the beginning of the year. Even though the mega-cap tech stocks have been declining, they are getting cheaper as compared with the elevated valuations just a few months ago.
According to experts, there are several signs of economic strength. Gus Faucher, chief economist for PNC Financial Services Group, told Morningstar that consumers continue to spend amidst weakness in the sentiment data. Also, the labor market has been holding up. Overall, the chief economist doesn’t see any sort of fundamental weaknesses in the broader economy that can signal a problem. As per Morningstar chief US market strategist David Sekera, the investors are required to focus on the fundamentals and valuations, while maintaining a long-term view.
With this in mind, we will now have a look at the 12 Best Quality Stocks to Invest in Now.
A financial planner carefully scrutinizing company’s investment portfolio.
Our Methodology
To list the 12 Best Quality Stocks to Invest in Now, we sifted through the holdings of iShares MSCI USA Quality Factor ETF. Next, we chose the stocks that are popular among hedge funds. Finally, the stocks were arranged in ascending order of their hedge fund sentiment, as of Q4 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
12 Best Quality Stocks to Invest in Now
12. Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Holders: 96
Costco Wholesale Corporation (NASDAQ:COST) is engaged in the operation of membership warehouses. Bank of America Securities analyst Robert Ohmes reiterated a “Buy” rating on the company’s stock, setting a price objective of $1,095.00. The analyst rating is backed by factors highlighting the company’s strong performance and strategic positioning. Costco Wholesale Corporation (NASDAQ:COST) reported healthy financial results for Q2 2025, with EPS exceeding expectations despite the foreign exchange challenges, says the analyst.
Costco Wholesale Corporation (NASDAQ:COST)’s e-commerce segment demonstrated strong expansion, and the company managed to improve its gross margin. In Q2 2025, the company saw e-commerce comparable sales growth of 20.9%. Its gross margin came in at 10.85%, reflecting an increase of 5 bps YoY. As per the analyst, the positive membership trends further aid the favourable outlook on the Costco Wholesale Corporation (NASDAQ:COST)’s stock. Collectively, all these factors, together with the company’s ability to attract consumers amidst the high-price environment and its strategic investments towards supply chain and wages, place it well for continued growth. The company’s investments in digital initiatives offer strong opportunities for future growth. Given its progress in enhancing the e-commerce platform, online profitability as well as expansion of digital offerings, the company remains well-placed to capture a significant share of the growing online retail market.
Madison Investments, an investment advisor, released its Q3 2024 investor letter. Here is what the fund said:
“Costco Wholesale Corporation (NASDAQ:COST) continues to demonstrate its commitment to sustainability by lowering its emissions. For example, it has converted its Kirkland Signature laundry packs from plastic tubs to a pouch. This has reduced plastic packaging by 80%. It has also moved to localize production of bulky items such as water, paper, and laundry detergents. Manufacturing these goods closer to the countries in which they are sold reduces emissions associated with shipping.”
11. Eli Lilly and Company (NYSE:LLY)
Number of Hedge Fund Holders: 115
Eli Lilly and Company (NYSE:LLY) discovers, develops, and markets human pharmaceuticals. Morgan Stanley reaffirmed the positive stance on the company’s stock, maintaining an “Overweight” rating and a price objective of $1,146.00. The firm’s reaffirmed rating and price target demonstrate confidence in the company’s position and prospects within the industry. The company has announced its plans to strengthen its domestic medicine production throughout therapeutic areas by building 4 new pharmaceutical manufacturing sites in the US. This results in Eli Lilly and Company (NYSE:LLY)’s total US capital expansion commitments to over $50 billion since 2020.
The company’s optimism regarding the potential of its pipeline throughout therapeutic areas – cardiometabolic health, oncology, immunology and neuroscience – fuels its unprecedented commitment to the domestic manufacturing build-out. Notably, Bernstein analysts reaffirmed an “Outperform” rating on Eli Lilly and Company (NYSE:LLY)’s stock with the price objective of $1,100, highlighting its strategic orientation and robust pipeline. Eli Lilly and Company (NYSE:LLY)’s focus on expanding the manufacturing footprint and advancing development pipeline cements its focus on growth and innovation.
RiverPark Advisors, an investment advisory firm and sponsor of the RiverPark family of mutual funds, released its “RiverPark Large Growth Fund” Q4 2024 investor letter. Here is what the fund said:
“Eli Lilly and Company (NYSE:LLY): LLY was a top detractor in the fourth quarter following a rare revenue miss in the company’s 3Q update. The greater than $1 billion miss in the tirzepatide complex (Mounjaro/Zepbound) was caused by a combination of factors, including wholesaler stocking patterns (2Q inventory build, 3Q sell through), refrigerated supply chain constraints, timing of the company’s direct-to-consumer efforts, and the pace of international market launches. We believe the diabetes/obesity/weight-loss market is enormous and that current GLP-1 drugs, though no longer supply constrained, are greatly in demand. We are confident that LLY’s recent sales shortfall was supply chain-related and that the company’s tirzepatide franchise growth will soon reaccelerate.
LLY discovers, develops, manufactures, and markets pharmaceutical products. The company manufactures and distributes products through facilities in the United States and seven other countries and sells into 110 countries. The company has a broad and deep portfolio of products including a focus on diabetes, oncology, immunology and neuroscience. More recently, LLY’s GLP-1 diabetes drug Mounjaro and obesity drug Zepbound, have delivered strong revenue growth, and investors are optimistic that the company’s recently approved Alzheimer drug, Kisunla, will add to that growth.
LLY has a stable portfolio of franchise products, which enables it to invest heavily in its product pipeline. We believe that this combination of franchise and growth products will drive high teens revenue growth and a four-fold increase in free cash flow in the next five years.”
10. Adobe Inc. (NASDAQ:ADBE)
Number of Hedge Fund Holders: 117
Adobe Inc. (NASDAQ:ADBE) carries out its operations as a technology company. Analyst Keith Weiss from Morgan Stanley maintained a “Buy” rating on the company’s stock, maintaining the price objective of $660.00. The analyst’s rating is backed by factors highlighting the company’s current market position and future growth potential. The analyst sees a favourable risk/reward scenario because of Adobe Inc. (NASDAQ:ADBE)’s strategic initiatives. The company’s plans to roll out new subscription tiers and add-ons, like a higher-priced Firefly offering, can enhance monetization efforts.
These initiatives, together with the potential for a back-end-loaded year, demonstrate that Adobe Inc. (NASDAQ:ADBE) remains well-placed to capitalize on its strengths and address market challenges. Elsewhere, Stifel analysts reiterated a “Buy” rating with the price objective of $600.00. As per the analysis conducted by the firm, even though competitive text-to-media GenAl models are abundant, Adobe Inc. (NASDAQ:ADBE)’s Firefly provides strong value propositions. The company’s GenAl capabilities offer an opportunity to further monetize the GenAl offerings. Overall, the firm’s analysis highlights the importance of the integrations and new features in sustaining Adobe Inc. (NASDAQ:ADBE)’s competitive edge in the broader market.
RiverPark Advisors, an investment advisory firm and sponsor of the RiverPark family of mutual funds, released its Q4 2024 investor letter. Here is what the fund said:
“Adobe Inc. (NASDAQ:ADBE): ADBE was a top detractor in the quarter after giving disappointing FY2025 guidance despite reporting strong FY4Q24 earnings. Better revenue growth (+11% versus expectations of +10%), operating margins (47% versus expectations of 46%), and Digital Media Net New Annual Recurring Revenue (“DM NNARR,” a key metric,$578 million versus expectations of $555 million) were driven by both new customers and expansion of existing relationships. Despite these strong numbers, the company guided the current year DM NNARR to $1.9 billion, below expectations of $2.0 billion, leading some investors to speculate on the maturity of Adobe’s business and its competitiveness against emerging AI solutions.
Some investors believe that AI, and Open AI’s Sora product specifically, pose an existential threat to Adobe’s Creative Cloud Suite. We do not share these concerns and believe that AI is a tremendous growth opportunity for Adobe, a view shared by ADBE management. ADBE is the leading software and solutions provider in the content creation and content management space. The company offers a line of products and services used by creative professionals, communicators, businesses of all sizes, and consumers for creating, managing, delivering, measuring and optimizing content and experiences across personal computers, smartphones, other electronic devices and digital media formats. The company has grown revenues in the double-digit percent range for the last decade, and as it enters its 43rd year since its founding, we expect ADBE to continue to grow revenue greater than 10% per year through 2028. The company generates 41% EBITDA margins, which we think can expand to nearly 50%, and we believe the company will more than double last year’s roughly $7.9 billion of free cash flow over the next five years.”
9. Netflix, Inc. (NASDAQ:NFLX)
Number of Hedge Fund Holders: 144
Netflix, Inc. (NASDAQ:NFLX) offers entertainment services. Bernstein analysts, including Laurent Yoon, maintained an “Outperform” rating on the company’s stock with a price objective of $1,200.00. In a bid to continue its growth trajectory, the company has been seeking ways to expand its total addressable market (TAM) and improve user engagement. Netflix, Inc. (NASDAQ:NFLX)’s recent ventures into live events and sports are being considered as part of the growth strategy. Elsewhere, Rosenblatt Securities analyst upped the company’s stock from “Neutral” to “Buy,” placing a price target of $1,494.
As per the analyst, Netflix, Inc. (NASDAQ:NFLX)’s pivot to sports content has been benefiting the streaming giant and continues to put pressure on traditional TV rivals. The company’s ad-supported tier offers a strong opportunity for revenue growth and market expansion. By providing a lower-priced option, Netflix, Inc. (NASDAQ:NFLX) is well-placed to attract price-sensitive consumers who were earlier hesitant to subscribe. Also, the ad-supported tier can help the company maintain its competitive edge by offering a more affordable option in markets.
RiverPark Advisors, an investment advisory firm and sponsor of the RiverPark family of mutual funds, released its Q4 2024 investor letter. Here is what the fund said:
“Netflix, Inc. (NASDAQ:NFLX): NFLX was a top contributor in the fourth quarter powered by a 3Q earnings report that included stronger-than-expected revenue and operating income, solid subscriber additions, and positive forward commentary. Anti-password sharing and ad tier initiatives continue to drive subscriber growth while improving revenue per user trends, from recent price increases, drive margin expansion. The company was optimistic about future revenue growth, margin expansion, free cash flow generation and future return of capital programs.
The recent re-acceleration of subscriber growth, plus price increases on premium memberships and a stabilization of content investments, should position the company for low double digit annual revenue growth over the next few years while driving operating margin to more than 25%. We also believe that the stabilization of content spend should allow the company to continue to scale its free cash flow.”
8. UnitedHealth Group Incorporated (NYSE:UNH)
Number of Hedge Fund Holders: 150
UnitedHealth Group Incorporated (NYSE:UNH) operates as a health care company in the United States and internationally. TD Cowen analyst Ryan Langston maintained a “Buy” rating on the company’s stock, setting the price target of $609.00. The rating stems from factors, including the company’s ability to surpass market anticipations and the confidence in financial outlook. As per the analyst, UnitedHealth Group Incorporated (NYSE:UNH)’s strategic initiatives and pricing strategies can fuel growth. The company has affirmed its 2025 performance outlook, including revenues in the range of $450 billion – $455 billion and net earnings of between $28.15 – $28.65 per share.
The analyst also highlighted that UnitedHealth Group Incorporated (NYSE:UNH) managed to improve its operating cost ratio, mainly because of the strategic portfolio initiatives, which remains a positive indicator for future profitability. The FY 2024 operating cost ratio came in at 13.2% as compared to 14.7% in 2023. Overall, the reaffirmed price target demonstrates confidence in the projected earnings growth and strategic positioning. UnitedHealth Group Incorporated (NYSE:UNH)’s diversified portfolio, which includes health insurance, pharmacy benefits management, and healthcare services, places it well for long-term growth. Notably, the synergies between the segments enable cross-selling and integrated care delivery models.
Bretton Capital Management, an investment management company, released its Q4 2024 investor letter. Here is what the fund said:
“We invest in UnitedHealth Group Incorporated (NYSE:UNH) because we believe this revealed preference is real. The regulatory landscape changes constantly, there is plenty of noise in the system, and it is possible to imagine a world where health insurers would not be necessary. However, the massive healthcare system we’re in today structurally relies on private companies to play the crucial role of managing care and negotiating prices, and we don’t think the US government is prepared to take all that over. It was a bad year for our investment, as the stock returned a negative 2.4%, but it trades for a meaningful discount to the market despite consistently delivering double digit earnings growth for years, including 10% last year.
First, the elephant in the room. On December 4, Brian Thompson, who ran UnitedHealth’s insurance business, was assassinated in New York City. Shell casings had the words “deny” and “depose” written on them, a bullet was inscribed with “delay.” Five days later, Luigi Mangione was arrested in Pennsylvania with what appears to be the murder weapon and a manifesto criticizing the American healthcare system. Mangione has since become a cult celebrity.
Healthcare is not a normal market. Governments have decided that healthcare is worth intervening in to achieve noneconomic outcomes, most notably providing care for people who can’t afford it. Each country’s regulatory system designs its system and rations healthcare in its own way: the UK employs providers directly and attempts a central triage function to allocate care; continental European systems typically have private providers but some version of all-payer rate setting; and the US has a decentralized model where providers can charge whatever they want, but payers can choose not to pay it, plus government-run systems like Medicare and Medicaid that cover about 35% of Americans. Every system implements some type of brake on costs, usually a combination of the government and private companies, and the US system leans more on the private sector for this than others. Our system is not without its benefits. It is vastly more lucrative for providers like surgeons and medical device companies. It also allows for some measure of money signal; if you are a rich weekend warrior with an orthopedic issue, the American system will offer a dizzying array of cutting-edge specialists where the UK would suggest getting used to the feeling of aging and stiffening one’s upper lip. However, our system violates the social expectation of the word “insurance…” (Click here to read the full text)
7. Mastercard Incorporated (NYSE:MA)
Number of Hedge Fund Holders: 151
Mastercard Incorporated (NYSE:MA) offers transaction processing and other payment-related products and services in the US and internationally. Morgan Stanley analyst James Faucette maintained a “Buy” rating on the company’s stock, setting a price objective of $644.00. The analyst’s rating is backed by factors, which mainly focus on the company’s strategic expansion in the Value-Added Services (VAS) segment. This segment, which consists of security solutions, continues to witness significant growth. Furthermore, Mastercard Incorporated (NYSE:MA)’s recent acquisitions, including Brighterion, Recorded Future, Ekata, and RiskRecon, cemented its capabilities in AI, digital identity verification, threat intelligence, and cybersecurity.
The analyst believes that such acquisitions are expected to enhance Mastercard Incorporated (NYSE:MA)’s ability to offer comprehensive security solutions, which remain crucial in the current digital landscape. Overall, its focus on integrating such services throughout the transaction lifecycle places it well for future growth. Elsewhere, Tigress Financial Partners maintained a “Strong Buy” rating on Mastercard Incorporated (NYSE:MA)’s stock, raising the price objective to $685. The firm lauded its robust market position and innovations in electronic payments and cybersecurity.
Bretton Capital Management, an investment management company, released its Q4 2024 investor letter. Here is what the fund said:
“Visa and Mastercard Incorporated (NYSE:MA) kept doing their thing, increasing earnings per share by 15% and 12%, respectively, with their stocks returning 22% and 24%. We continue to closely watch the evolving payments space as it seems like everyone’s always trying to displace the card networks. For now, we don’t see anything gaining much traction.”
6. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 166
As per Bloomberg, Apple Inc. (NASDAQ:AAPL) has been readying itself for a significant update to its operating systems, utilized in the devices including iOS for iPhones, macOS for Macs, and iPadOS for iPads. This is expected to be rolled out later this year. Notably, the redesign focuses on changing the interface and functionality of its systems in a bid to meet the requirements of new generations of users. As a result of this move, Apple Inc. (NASDAQ:AAPL) targets boosting demand for the devices after a period of slower sales. Also, the company’s AI initiatives are expected to fuel strong future growth and market share gains.
Through the integration of advanced AI features in the devices and services, Apple Inc. (NASDAQ:AAPL) is expected to enhance user experiences throughout its product lineup, resulting in the series of upgrades and attracting new customers to its ecosystem. The company’s strong emphasis on on-device AI processing remains in line with the emphasis on privacy and security, which can be appealing to privacy-conscious consumers and enterprises.
Greenlight Capital, an investment management firm, released its Q4 2024 investor letter. Here is what the fund said:
“We continue to be concerned about the overall valuation of the market and have maintained a lower-than-average net market exposure. In fact, our daily correlation to the S&P 500 last year was 0.01. Cyclically and interest rate adjusted valuations are as high as we can remember.
A look at a prior favorite company of ours, Apple Inc. (NASDAQ:AAPL), shows that the stock at times sported a single digit P/E ratio and achieved 19.2% compounded revenue growth during the eight years we owned it. The last couple of years AAPL has had no revenue growth, but the P/E multiple has expanded from 22x to 37x. In this environment, we can’t say the multiple won’t expand to 45x a year from now. It might. But we don’t see why it should or what the investment appeal is at this valuation.”
5. Visa Inc. (NYSE:V)
Number of Hedge Fund Holders: 181
Visa Inc. (NYSE:V) operates as a payment technology company in the US and internationally. Analyst Iris Gao of DBS maintained a “Buy” rating on the company’s stock with a price objective of $330.00. The analyst’s rating is backed by factors reflecting the company’s robust market position and growth potential. Visa Inc. (NYSE:V) enjoys a dominant position in the digital payment industry, which is expected to see significant expansion with cash transactions declining globally.
The analyst believes this pivot to electronic payments provides significant opportunity for Visa Inc. (NYSE:V)’s core business, mainly with the increasing shift towards e-commerce and cross-border transactions, which can fuel growth in international transaction volumes. Furthermore, the company’s Network of Networks strategy and Visa Direct platform are well-placed to capitalize on vast new flows throughout various payment types, expanding its market reach. The analyst further noted that Visa Inc. (NYSE:V) benefits from increased operating margins, mainly because of a healthy competitive moat and a significant network of merchants and cardholders, offering significant network effects.
Alluvium Asset Management, an asset management company, released its Q4 2024 investor letter. Here is what the fund said:
“Last quarter we wrote about the credit card companies and the Fund’s latest investment, Visa Inc. (NYSE:V) (up 15.2%). With its strong share price performance, that position had grown to be greater than 5%. As we had discussed here, we consider there to be negligible differences in investment merits when compared to Mastercard (up 6.8%). Whilst Visa appears a little cheaper on traditional price metrics, our view is that Mastercard has marginally higher growth prospects. Irrespective, both are deserving positions in the portfolio, and given their similarities, and the 5/10/40 rule, in order for us to maintain maximum portfolio flexibility it made sense to sell a little Visa and buy a little Mastercard, and their combined position is 6.2%.”
4. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 223
American investment banking firm TD Cowen reiterated a “Buy” rating on NVIDIA Corporation (NASDAQ:NVDA)’s stock. Analyst Joshua Buchalter at TD Cowen has maintained the price objective of $175 on the company’s stock based on the factors that demonstrate its dominance in accelerated computing. The firm opines that with healthcare emerging as a major AI opportunity, NVIDIA Corporation (NASDAQ:NVDA) remains well-placed to play a critical role in advancing the industry. TD Cowen hosted the company’s VP of Healthcare, Kimberly Powell, at the 45th Annual Health Care Conference.
Powell mentioned that NVIDIA Corporation (NASDAQ:NVDA)’s Blackwell architecture, given its performance boost as well as cost efficiencies, is expected to fuel further adoption in the healthcare sector. Furthermore, NVIDIA Corporation (NASDAQ:NVDA) sees 3 critical AI-driven healthcare growth areas. These include drug discovery, digital health, and digital devices. Overall, TD Cowen believes that the company continues to evolve from a GPU-focused company to a comprehensive hardware and software platform provider, with a focus on integrating AI, deep learning solutions, and cloud computing.
RiverPark Advisors, an investment advisory firm and sponsor of the RiverPark family of mutual funds, released its Q4 2024 investor letter. Here is what the fund said:
“NVIDIA Corporation (NASDAQ:NVDA): NVDA was a top contributor in the fourth quarter following blowout 1Q results and guidance driven by strong data center sales (+427% year-over-year). The company reported revenue of $26 billion, up 262% year-over-year, and EPS of $6.12, up 462% year-over-year and 9% ahead of expectations. Revenue guidance for 2Q of $28 billion was 5% above very high expectations. The artificial intelligence arms race, kicked off by ChatGPT and Alphabet’s Bard, among others, has generated tremendous demand for Nvidia’s next generation graphic processors.
NVDA is the leading designer of graphics processing units (GPU’s) required for powerful computer processing. Over the past 20 years, the company has evolved through innovation and adaptation from a predominantly gaming-focused chip vendor to one of the largest semiconductor/software vendors in the world. Over the past decade, the company has grown revenue at a compound annual rate of over 20% while expanding operating margins and, through its asset light business model, producing ever increasing amounts of free cash flow. Following recent results, Jensen Huang, founder and CEO of NVIDIA stated in the company’s press release, “a trillion dollars of installed global data center infrastructure will transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service and business process.”
3. Alphabet Inc. (NASDAQ:GOOGL)
Number of Hedge Fund Holders: 234
Alphabet Inc. (NASDAQ:GOOGL)’s aggressive AI integration throughout its product lineup possesses the potential to significantly improve user experiences and establish new revenue opportunities. In the cloud segment, Alphabet Inc. (NASDAQ:GOOGL)’s AI-powered solutions are expected to differentiate Google Cloud Platform from competitors, which can help attract more enterprise customers and fuel revenue growth. Its AI advancements are expected to result in new product categories and services, resulting in additional revenue streams over and above traditional advertising.
Morningstar sees the company’s full-stack approach to AI—including infrastructure, software, applications, and ads—as a strong long-term strategy. On the generative AI side, the firm remains optimistic about Alphabet Inc. (NASDAQ:GOOGL)’s ability to leverage the video and image generation models (Veo and Imagen) to empower creators on YouTube to create/edit the engaging content. Apart from offering creators with numerous tools to generate content, Alphabet Inc. (NASDAQ:GOOGL)’s investments in AI can improve the advertising business through better ad targeting, content recommendations, and ad pricing.
Qualivian Investment Partners, an investment partnership focused on long-only public equities, published the Q3 2024 investor letter. Here is what the fund said:
“Alphabet Inc. (NASDAQ:GOOGL): Q2 2024 revenues and EPS beat expectations, with total revenues growing 14%, Search ad revenues growing 14%, YouTube ads growing 13%, and Google Cloud revenues growing 29%. Revenue growth in the quarter constituted a continued sequential improvement from earlier quarters in the year, suggesting a continued rebound in Alphabet’s core business except for YouTube ad revenues, which missed expectations and showed deceleration in the growth rate as compared to Q1 when it grew 21%. Operating margins improved by 310 bps vs. the same quarter last year.
Management continued to highlight developments with their generative AI program, which is seen as a foundational platform with opportunities across their businesses but particularly in search and cloud. However, this comes with material capex investment well ahead of the expected economic benefits from Gen AI, and the level of spending is leading investors to worry about the ROI on that spend for Alphabet, as well as the other hyperscalers (Microsoft and Amazon). We continue to have confidence in Alphabet’s ability to generate strong revenue, earnings, and cash flow growth well above the S&P 500’s in the years to come and view it as a core holding for the long term.”
2. Meta Platforms, Inc. (NASDAQ:META)
Number of Hedge Fund Holders: 262
Analyst Justin Post from Bank of America Securities reiterated a “Buy” rating on Meta Platforms, Inc. (NASDAQ:META)’s stock, setting a price objective of $710.00. The analyst’s rating is backed by a combination of factors that demonstrate the company’s expanding AI capabilities, which can enhance ad revenues and fuel higher advertiser ROI. Furthermore, Meta Platforms, Inc. (NASDAQ:META) remains focused on monetizing its messaging services and exploring new revenue streams from untapped assets such as Threads and Marketplace.
As per the analyst, Meta Platforms, Inc. (NASDAQ:META)’s disciplined cost management further strengthens its favourable outlook. There remains a potential for an ad spend shift because of disruptions from competitors, which can benefit Meta Platforms, Inc. (NASDAQ:META). As per FT, the company has reduced its equity-based awards for the bulk of its employees amidst its focus on significant investments into AI projects and infrastructure. The company anticipates FY 2025 capital expenses in the range of $60 billion – $65 billion. The development of generative AI tools such as Llama and Meta AI results in fresh possibilities for user engagement and content creation.
Rowan Street Capital, an investment management company, published the Q4 2024 investor letter. Here is what the fund said:
“Meta Platforms, Inc. (NASDAQ:META): Investment Initiated: April 2018: Internal Rate of Return (IRR*): 22% *IRR represents the annualized rate of return on an investment, accounting for the timing and magnitude of cash flows over the holding period.
For META, our 22% IRR aligns closely with the company’s compounded growth in earnings per share (EPS) and free cash flow per share during the 6 years holding period.
Looking ahead, Meta is expected to grow its revenues, earnings, and free cash flow per share at mid-teens rates over the next two years. There’s a good possibility that it could exceed these estimates, considering the breadth of growth initiatives currently in place, such as advancements in Al, monetization of Reels, expansion into business messaging, and the ongoing development of the metaverse…” (Click here to read the full text)
1. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 317
TD Cowen reiterated a “Buy” rating on Microsoft Corporation (NASDAQ:MSFT)’s stock, maintaining a price objective of $475.00. As per the analyst, J. Derrick Wood, there has been continued strong demand for the company’s Azure AI services. While the company’s data center buildout strategy has been entering a different phase, there has not been a significant shift in the overall approach. Microsoft Corporation (NASDAQ:MSFT) remains focused on maintaining a healthy balance between AI and non-AI workloads.
The tech giant continues to experience robust demand for its Azure AI solutions and remains optimistic about the prospects for the Copilot offering. Microsoft Corporation (NASDAQ:MSFT) is also focused on developing new routes for adoption and monetization of Copilot. Such efforts form part of its broader strategy to capitalize on the elevated demand levels for AI-powered solutions and services. The reaffirmation of the rating and price target comes amidst Microsoft Corporation (NASDAQ:MSFT)’s emphasis on expanding the cloud and AI services. The company’s focus on AI has been intensified as it continues to make strategic moves to integrate AI throughout its product portfolio.
Mairs & Power, an investment advisor, released the Q4 2024 investor letter. Here is what the fund said:
“Unlike the dot-com companies that operated at the turn-of-the-century, many of today’s technology companies are established businesses with significant cash flows. We have argued, and continue to argue, that many of these investments are perfectly aligned with our investments process in that they embody durable competitive advantages, above-average growth prospects, and excellent management teams.
A perfect example is Microsoft Corporation (NASDAQ:MSFT), which has grown to become the largest holding in the Growth Fund. Microsoft has a near monopoly on the office software productivity market with its Microsoft Office Suite. The company’s Azure platform is a leader in cloud computing and has been steadily gaining share. Thanks to its Office and Azure products, the company is deeply embedded within many enterprise IT ecosystems. Therefore, it should be well-positioned to expand its presence within its customer base, as it rolls out premium-price AI solutions. The company is not resting on its laurels and plans on spending an astounding $80 billion in 2025 to build out AI data centers.”
While we acknowledge the potential of MSFT as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued AI stock that is more promising than MSFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
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