In this piece, we will take a look at the 15 best hardware stocks according to Goldman Sachs.
The soaring popularity of artificial intelligence for consumer and business applications has injected fresh life into the computing industry. If we’re to rewind the hands of time and go back to 2022, the stock market environment was considerably different from what it is now. All major technology stocks, including those that are responsible for making chips that power AI workloads were down by double digit percentages in the wake of breakneck inflation and rising interest rates.
Fast forward to 2024 and the rise in valuations seems to have no end in sight. One bank that’s quite optimistic about artificial intelligence is Goldman. Goldman’s analyst teams are among the best in the world, and they spend countless hours analyzing stocks and industries for the right set of picks that could disrupt the industry.
On this front, Goldman came out with a note recently that outlined a new beginning for the computer hardware industry. According to the bank, the introduction of AI has necessitated a global shift to new hardware that can support the technology. In its note, the bank’s analysts shared:
During the pandemic, the tech hardware industry peaked as the majority of work-from-home employees purchased equipment. The space currently has fully unwind this cycle and we notice stocks like HPQ trading at 9x their 2025 earnings estimates.
Most PCs purchased during the pandemic are expected to be replaced soon. We expect discernable new features of AI, enhanced security, and stronger computational power in upcoming PC and mobile device models, incentivizing the US consumer to spend more on newer equipment than historically, creating an unusually stronger cycle.
Goldman also created a basket of stocks where the highest weighted stock has an 8% weight and there are 20 stocks in the basket. According to Goldman analyst Faris Mourad:
The basket is composed of technology hardware stocks that may benefit from PC and mobile device renovations that could include AI features. The basket can trade up to $250m in one day with no name exceeding 10% of ADV.
Considering this optimism, we decided to take a look at the top Goldman’s top 15 hardware stock picks.
Pixabay/Public Domain
Our Methodology
To make our list of the top Goldman Sachs hardware stocks, we used the top holdings of the bank’s PC & Mobile Device AI Upgrades basket (GSXUPCAI).
For these hardware stocks, we also mentioned hedge fund investors. 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).
15. CDW Corporation (NASDAQ:CDW)
Number of Hedge Fund Shareholders In Q1 2024: 31
CDW Corporation (NASDAQ:CDW) sells hardware products such as notebooks, personal computers, and data center products. It marks a strong start to our list of best hardware stocks as the average of ten one year analyst ratings is Strong Buy and the average share price target is $251.66. Citi cut CDW Corporation (NASDAQ:CDW)’s share price target to $260 from $295 in May 2024 and kept the rating at Buy. While CDW Corporation (NASDAQ:CDW)’s recent earnings performance was disappointing, Citi noted that the firm has strengths on the financial and market fronts. On the latter, CDW Corporation (NASDAQ:CDW)’s cash flows and stable debt management impressed the firm, and on the latter, it shared that a well diversified portfolio can capture the AI market.
CDW Corporation (NASDAQ:CDW)’s forward P/E of 22.08 is nearly in line with the market’s 21. This implies that investors expect it to grow in line with benchmark indexes. Wedgewood Partners mentioned the firm in its Q1 2024 investor letter where it shared:
CDW was a positive relative performer. The Company generated nearly flat gross profit growth in 2023 off difficult 2022 (+31%) comparisons (partially from M&A). The Company has done a remarkable job helping its small and medium-sized customers shift from hardware-centric IT layouts to hybrid and software-based implementations. CDW’s core customer typically has constraints in both IT department staffing and related resources, making it difficult for large enterprise-focused IT vendors to reach those customers. As a result, there are plenty of proven technologies that have been adopted by larger businesses, often long ago, that will eventually find their way into small and medium-sized businesses with the help of CDW. CDW is agnostic to the consumption models or form factors of technologies, which is why the Company has been able to maintain superior returns over many different technology cycles and innovation trends. We think helping small and medium-sized businesses setup and run their IT departments is more important than any specific technology that happens to enable those departments and should help the Company continue to grow and take share of IT budgets over time.
14. Seagate Technology Holdings plc (NASDAQ:STX)
Number of Hedge Fund Shareholders In Q1 2024: 52
Seagate Technology Holdings plc (NASDAQ:STX) is storage company that makes and sells products such as hard disk and solid state storage drives. In an analyst note that came out in May 2024, Mizuho raised the firm’s share price target to $110 from $100 and kept a Buy rating on the shares. At the heart of the increased price target was Mizuho’s belief that Seagate Technology Holdings plc (NASDAQ:STX) can continue to benefit from the growth in global cloud and enterprise computing platforms.
Seagate Technology Holdings plc (NASDAQ:STX) currently trades at a forward price to earnings ratio of 19.7. This is nearly in line with the S&P’s forward P/E of 21, and it indicates that the market expects Seagate Technology Holdings plc (NASDAQ:STX) to perform in line with the broader index. Management however is more optimistic, as during a recent earnings call, it pointed to the potential of capturing the hardware market on the edge computing segment of the data center market. According to CEO Dave Mosley:
Analysts place this among the fastest-growing sectors for VIA applications worldwide. Within China, the pace and magnitude of demand improvement in VIA and other HDD markets will be shaped by economic recovery in the region. We continue to monitor the government’s efforts to spur economic growth, including stimulus plans aimed at digital transformation and infrastructure spend. Recent economic indicators show signs of progress. However, it will take time for the benefits of these programs to take hold. Overall, we believe these constructive market trends support steady revenue growth throughout the calendar year. Our ability to deliver that growth is enhanced by our build-to-order initiative that is now in place with the majority of large mass capacity customers.
13. Skyworks Solutions, Inc. (NASDAQ:SWKS)
Number of Hedge Fund Shareholders In Q1 2024: 31
Skyworks Solutions, Inc. (NASDAQ:SWKS) is a semiconductor company that designs and sells products such as power management and signals processing systems. The firm is a key supplier to Apple for the iPhone’s hardware, and this also led to Rosenblatt reducing Skyworks Solutions, Inc. (NASDAQ:SWKS)’s share price target to $120 from $130 in May 2024. The firm shared that the hardware company faces a slowdown in the smartphone market, and the loss of a key component order from Apple should add to the woes. However, Rosenblatt reiterated a Buy rating on the shares due to Skyworks Solutions, Inc. (NASDAQ:SWKS)’s long term potential.
Unlike semiconductor stocks that are AI favorites, Skyworks Solutions, Inc. (NASDAQ:SWKS)’s forward price to earnings ratio of 15.80 is lower than the market’s 21. This indicates that investors expect it to grow slowly when compared to the broader index. Its management is also aware of the slow nature of the market right now, but it also commented on the early stage of the cycle that Goldman mentioned in its report. In a recent earnings call, management shared:
We are in the early innings of a multiyear upgrade cycle, with high end access points now being offered. Over the coming quarters, we anticipate retailers to roll out mainstream models, followed by carriers and MSOs for their gateways and router products. The wireless infrastructure and traditional data center markets remained soft. We continue to undership natural demand as we allow the distribution channel and customers to consume excess inventory. Despite near-term headwinds, we remain bullish on AI workloads, driving upgrades to Ethernet switches and optical modules, a positive long-term driver for our advanced precision timing solutions. Lastly, automotive and industrial markets remain under pressure as they continue to undergo a steep inventory correction.
12. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Number of Hedge Fund Shareholders In Q1 2024: 124
Advanced Micro Devices, Inc. (NASDAQ:AMD) is the well known computer processor and graphics card company. However, despite its rapid growth and a diverse portfolio for AI, Morgan Stanley was out with a worrying note in June 2024. In the note, the bank downgraded Advanced Micro Devices, Inc. (NASDAQ:AMD)’s shares to Equalweight from Overweight and ascribed a $176 share price target. Morgan Stanley believes that the competition in the high end AI accelerator market is tough particularly due to strong products from NVIDIA. This has led it to conclude that any market that Advanced Micro Devices, Inc. (NASDAQ:AMD) can capture is reflected in the stock, and the shares might not be fast growers in the future.
When it comes to the forward P/E, Advanced Micro Devices, Inc. (NASDAQ:AMD)’s ratio of 46.95 is more than double the market’s ratio. This implies investor expectations of a faster growth when compared to the market. Meridian Funds was quite optimistic in its Q4 2023 investor letter too, where it shared:
We invested in 2018 when it was a mid-cap value stock plagued by many years of underperformance due to lagging technology and lost market share versus competitors Intel and Nvidia. Our research identified that changes and investments made by current management under CEO Lisa Su had, over several years, finally resulted in compelling technology that positioned AMD as a stronger competitor to Nvidia and that its latest products were superior to Intel’s. We invested on the the belief that AMD’s valuation at that that time did not reflect the potential for its technology leadership to generate significant market share gains and impBroadcom Inc. (NASDAQ:AVGO)’s roved profits. This thesis has been playing out for several years. During the quarter, AMD unveiled more details about its upcoming GPU products for the AI market. The stock reacted positively to expectations that AMD’s GPU servers will be a viable alternative to Nvidia. Although we pared back our exposure to AMD into strength as part of our risk-management practice, we maintained a position in the stock. We believe AMD will continue to gain share in large and growing markets and is reasonably valued relative to the potential for significantly higher earnings.
11. Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Shareholders In Q1 2024: 115
Broadcom Inc. (NASDAQ:AVGO) is another semiconductor company, and one which designs and sells signal processing products. It’s quite a hot AI stock, and Morgan Stanley’s June 2024 analyst note which cut AMD’s share price target was careful to mention that Broadcom Inc. (NASDAQ:AVGO) might be a good play in the large cap segment. BofA concurred with the optimism in the same month, as it reiterated a Buy rating and a $1,680 share price target for Broadcom Inc. (NASDAQ:AVGO). The bank shared that Broadcom Inc. (NASDAQ:AVGO)’s earnings, which have since been released would mark a beat and a $50 billion guidance in full year sales. The actual results saw Broadcom Inc. (NASDAQ:AVGO)’s $10.96 in adjusted EPS and $12.49 billion in revenue beat analyst estimates of $10.84 and $12.03, respectively. The full year guidance sat at $51 billion, and the stock was up y 15% in aftermarket trading.
Broadcom Inc. (NASDAQ:AVGO)’s stable business and the potential to capture the AI market is also reflected in its forward price to earnings ratio of 31.85. This indicates that while investors do expect some growth in the future, when compared to other semiconductor stocks, the growth will be relatively tepid. Baron Funds mentioned Broadcom Inc. (NASDAQ:AVGO) in its Q1 2024 investor letter. Here is what the fund said:
Historically, Broadcom’s semiconductor business has been a market-leading franchise with high margins and market-level growth, but the emergence of AI-related demand has spurred stronger growth across its portfolio, specifically in its Networking business unit. Broadcom’s AI-related revenue has grown from less than 5% of its semiconductor business to an expected 35% in its fiscal 2024 as its industry-leading Ethernet switch silicon business and, more importantly its custom silicon solutions, primarily the TPU for Google but with two additional customers ramping as well, have grown significantly. While custom chips tend to be less versatile and flexible than GPUs, their adoption makes sense if customers have large scale workloads with algorithms that are relatively stable, as they allow hyperscale customers to save costs on both upfront capex as well as on energy consumption. Over time, we believe that custom silicon solutions will obtain a noticeable market share of internal AI workloads, with Broadcom as the main beneficiary given its 10-year history of working with its customers, leading to a higher proportion of sales related to AI and an above-market growth in the company’s semiconductor solutions business.
Its software business is also now a more significant portion of revenues with its recent acquisition of VMWare (40% of revenues in fiscal 2024). While Broadcom is implementing its usual strategy with software acquisitions in pursuing cost synergies, in VMWare’s case, the company is also investing in the product and reducing the hurdles for up-selling customers from the basic VSphere product (server virtualization) to the broader VMWare offering including networking, storage, and a management layer, while transitioning customers from license to subscription models. This, in our view, should drive noticeable growth for the software segment in the coming years. These tailwinds would lead, in our view, to strong earnings growth and a re-rating in the stock’s valuation, creating an attractive opportunity for long-term investors.
These tailwinds are supported by a growing stream of free cash flow, an increasing dividend, and a decline in the overall share count as Broadcom continues to repurchase its own stock.
10. Micron Technology, Inc. (NASDAQ:MU)
Number of Hedge Fund Shareholders In Q1 2024: 115
Micron Technology, Inc. (NASDAQ:MU) is one of the largest memory chip manufacturers in the world – a role that lends it a key position in the AI industry. The memory industry was dead center in a June 2024 analyst note by Bernstein who shared that advanced HBM memory revenue could touch as much as $25 billion in 2025. Consequently, Bernstein rated Micron Technology, Inc. (NASDAQ:MU)’s shares as Outperform and upgraded the share price target to $140 from $105; This note came after UBS upgraded Micron Technology, Inc. (NASDAQ:MU)’s share price target to $155 from $125 and kept a Buy rating based on a rising. trend in the industry towards HBM products.
While Micron Technology, Inc. (NASDAQ:MU) might benefit from HBM, it also ships large volumes of traditional products worldwide. This lends the stock an aura of stability not growth and a forward price to earnings ratio of 19.42 which is lower than the market’s 21 attests to this fact. Sequoia Fund mentioned Micron Technology, Inc. (NASDAQ:MU) in its Q4 2023 investor letter, where it explained the reasons behind exiting its position in the stock:
As discussed in our Q2 shareholder letter, we exited Micron after the rationale for our investment was strained by rising geopolitical tensions, which have increased investment risks in the high-performance semiconductor industry. These risks are bearable, but we felt it prudent to reduce the portfolio’s exposure to them. We think both Bank of America and Micron were purchased at conservative prices given the facts at hand, but the facts changed and we moved on.
9. Intel Corporation (NASDAQ:INTC)
Number of Hedge Fund Shareholders In Q1 2024: 77
Intel Corporation (NASDAQ:INTC) is one of the largest semiconductor manufacturers in the world. These days, it is busy investing in high technology equipment and processes to re take its crown as the world’s most technologically advanced chip maker. However, woes persist, as a recent move by the US government that stopped Intel Corporation (NASDAQ:INTC) from selling processors to China’s Huawei was followed by an analyst note from Stifel which reduced the firm’s share price target to $34 from $45 and kept a Hold rating for the shares. The decision was also influenced by slightly lower estimates for Intel Corporation (NASDAQ:INTC)’s sales performance in 2024.
Intel Corporation (NASDAQ:INTC) has a forward price to earnings ratio of 28.90. Despite the cautiousness surrounding the stock in analyst quarters, this nevertheless indicates that investors expect that the stock might grow faster than the broader market. Upslope Capital Management mentioned Intel Corporation (NASDAQ:INTC) in its Q4 2023 investor letter. Here is what the firm said:
This is not a traditional long for Upslope in any sense. Intel is outside of the box in terms of typical sector and market cap focus, and the position is really a portfolio hedge (and structured as such). The thesis is very simple: Intel is uniquely positioned to benefit in two important scenarios, both of which require “protection” for Upslope’s portfolio: a continued melt-up in technology stocks and/or rising tensions over Taiwan. Combined with expectations and sentiment around Intel that were incredibly low, this nudged me to add exposure via long-dated INTC call options. While still material in terms of delta-adjusted exposure, the position has been reduced repeatedly and is much more modest today.
8. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Number of Hedge Fund Shareholders In Q1 2024: 135
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is the world’s largest contract chip manufacturer. This places it right at the heart of the AI hardware supply chain as leading players like NVIDIA rely on it to make their products. HSBC is also aware of this, as in a May 2024 analyst note the bank raised Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)’s share price target to NT$1,025 from NT$993 and kept a Buy rating for the shares. HSBC increased Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)’s 2024 EPS forecast by 3.5%, and added that the firm’s advanced 3-nanometer process technology positions it well in the industry.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)’s larger peer Intel has a forward P/E of 28.90, and the Taiwanese firm is at level with this due to its ratio of 28.17. This shows that the market expects both firms to grow evenly in the future. Third Point Management mentioned Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q1 2024 investor letter. Here is what the firm said:
Today, TSMC derives a relatively small percentage of its revenues from AI processors, largely from NVDA, but we see that percentage quickly rising as AI compute broadens from just the GPU to custom accelerators. With Nvidia’s GPUs costing tens of thousands of dollars, the bulk of which go to Nvidia’s gross profit, hyperscalers are doubling down on their efforts to develop in-house silicon to alleviate AI compute’s economic burden. Google was the first mover to custom accelerators with the TPU almost 10 years ago, and today this is already a multi-billion dollar business for TSMC. Amazon, Microsoft, and Meta have all followed Google’s lead and have announced (and in Amazon’s case already mass producing) their own chips. As these products scale, we see TSMC’s AI revenue growing by multiples in the coming years.
While TSMC’s fundamental outlook looks bright, the market has concerns which are reflected in the stock’s 10x+ discount to the SOX, the widest in TSMC’s history. The main concern is Intel’s entry into the foundry market. While we commend Intel’s efforts to diversify the global semiconductor supply chain and have admiration for the company’s rich IP and manufacturing expertise, we think it will be difficult for Intel to challenge TSMC’s dominance in foundry. Putting aside the onerous capital requirements necessary to stand up a foundry business (TSMC’s capital budget stands at ~2x Intel’s projected EBITDA), we believe the transition from internal manufacturing to an external foundry will be a difficult one. Intel has spent the past 40+ years tailoring its manufacturing process and transistor design to suit its own narrow product suite. Broadening to a multitude of customized external customer designs across a variety of end markets, in particular mobile, we believe will prove challenging.
We believe TSMC has significant untapped pricing power which can be levered to offset (if not expand) its already admirable returns on capital.
7. QUALCOMM Incorporated (NASDAQ:QCOM)
Number of Hedge Fund Shareholders In Q1 2024: 78
QUALCOMM Incorporated (NASDAQ:QCOM) is a key player in the smartphone industry because of its CPUs, GPUs, neural processors, and other chips. This also makes it a key AI stock as QUALCOMM Incorporated (NASDAQ:QCOM)’s Arm based products are also being used in consumer notebooks. AI and QUALCOMM Incorporated (NASDAQ:QCOM) were also at the heart of a May 2024 analyst note by BofA that saw the bank raise the share price target to $245 from $180 and stick to a Buy rating. BofA believes that QUALCOMM Incorporated (NASDAQ:QCOM) could secure as much as a 70% market share of the AI PC market, and also benefit from a recovery in the Chinese market and on device AI processing for smartphones.
However, even though it might benefit from future AI trends, QUALCOMM Incorporated (NASDAQ:QCOM)’s stability that enables it to regularly ship thousands of products worldwide and earn licensing revenue is also reflected in a 18.40 forward P/E ratio. This is lower than the market’s 21, and shows muted investor growth expectations. Madison Investments mentioned QUALCOMM Incorporated (NASDAQ:QCOM) in its fourth quarter of 2023 investor letter where it shared:
Qualcomm also reported a solid fourth fiscal quarter with better than expected results. The company guided the first quarter ahead of expectations despite headwinds from Samsung as the inventory headwinds dissipate. Qualcomm remains well positioned in the mobile handset market and should benefit as Artificial Intelligence moves to edge devices which could drive an upgrade cycle.
6. Arm Holdings plc (NASDAQ:ARM)
Number of Hedge Fund Shareholders In Q1 2024: 29
Arm Holdings plc (NASDAQ:ARM) is a British semiconductor design firm whose design rules are used in products made by QUALCOMM, Samsung, and others. Speaking of Arm Holdings plc (NASDAQ:ARM) and Goldman Sachs, the bank was out with a fresh note for the stock in June 2024. This saw Goldman raise Arm Holdings plc (NASDAQ:ARM)’s share price target to $143 from $110 and keep a Buy rating for the shares. The bank explained that edge data center computing is well suited to Arm Holdings plc (NASDAQ:ARM)’s processor designs, and through its fiscal year 2027, the firm should achieve a 24% compounded annual growth rate for its revenue and a 30% growth rate for its EPS.
Looking at these growth rates, Arm Holdings plc (NASDAQ:ARM)’s forward P/E of a whopping 103.09 is unsurprising. This is nearly 5x the S&P’s 21, and hints at expectations of an explosive growth in the future. Here’s what Bireme Capital had to say for Arm Holdings plc (NASDAQ:ARM) in its Q4 2023 investor letter:
Another stock we bet against in the second half of 2023 was ARM Holdings. We nd the valuation to be far too rich at more than 20x sales and 100x FY 2023 operating income. To garner such a large multiple in the public markets, majority owner Softbank seems to have pulled out all the short-term levers at its disposal. From the FT:
“Arm is seeking to raise prices for its chip designs as the SoftBank-owned group aims to boost revenues ahead of a hotly anticipated initial public oering in New York this year. The UK-based group, which designs blueprints for semiconductors found in more than 95 per cent of all smartphones, has recently informed several of its biggest customers of a radical shift to its business model, according to several industry executives and former employees. These people said Arm planned to stop charging chipmakers royalties for using its designs based on a chip’s value and instead charge device makers based on the value of the device. This should mean the company earns several times more for each design it sells, as the average smartphone is vastly more expensive than a chip.”
In our view this was a transparent attempt to boost revenue growth ahead of the IPO. This might work as a one-time boost to sales, but it is not sustainable and will anger and alienate customers. ARM’s largest customers increasingly choose to license just the ARM instruction set architecture (ISA) rather than purchase ARM’s o-the-shelf chip designs. They prefer to design their own chips so they can better optimize their hardware with their software, as Apple has done to great effect with its custom silicon. It is hard to imagine ARM getting signicantly more revenue share while their value-add diminishes.
5. Western Digital Corporation (NASDAQ:WDC)
Number of Hedge Fund Shareholders In Q1 2024: 65
Western Digital Corporation (NASDAQ:WDC) is a hardware company that makes and sells storage devices. The average of 21 analyst share price targets for the stock is $90.32 and the shares are rated Buy on average. Western Digital Corporation (NASDAQ:WDC) also makes advanced NAND storage devices, and these were at the center of a bullish note by Susquehanna in June 2024. The firm raised Western Digital Corporation (NASDAQ:WDC)’s share price target to $88 from $80; however, it kept a Neutral rating on the shares. Susquehanna shared NAND selling prices can jump in the future, and it added that Western Digital Corporation (NASDAQ:WDC) is well positioned to capture the market.
Western Digital Corporation (NASDAQ:WDC)’s forward price to earnings ratio of 12.61 is lower than the market’s 21. This implies that investors might be looking elsewhere for growth. Commenting on its NAND products during the latest earnings call, management shared:
Our portfolio strategy to commercialize ePMR, OptiNAND and UltraSMR technologies in advance of our transition to HAMR, has proven to be the winning strategy and enables us to deliver to customers the industry’s highest capacity and leading TCO drives, all of which can be produced at scale with controlled costs. We are confident that our product strategy, which combines UltraSMR technology with upcoming advancements in nearline drives is enabling Western Digital to deliver best-in-class gross margin in HDDs all at a time when AI is emerging as another growth engine for the industry.
4. Hewlett Packard Enterprise Company (NYSE:HPE)
Number of Hedge Fund Shareholders In Q1 2024: 49
Hewlett Packard Enterprise Company (NYSE:HPE) is one of two wings of Silicon Valley’s oldest technology company, HP. It caters to the enterprise computing industry and sells products such as switches, servers, and gateways. After Hewlett Packard Enterprise Company (NYSE:HPE)’s latest quarter saw it grow AI shipments by 125% to $900 million, Evercore ISI maintained a $22 share price target and an In Line rating for the stock. Following the earnings, BofA increased Hewlett Packard Enterprise Company (NYSE:HPE)’s share price target to $22 from $19 and kept a Neutral rating. Wells Fargo also maintained an Equal Weight rating, and it increased the share price target to $22 from $19 as well.
Like other stable hardware stocks, Hewlett Packard Enterprise Company (NYSE:HPE)’s forward price to earnings ratio of 11.10 implies that investors do not see it as a growth stock. However, management is quite bullish on AI, and shared during the latest earnings call:
HP is winning in AI because we deliver an end-to-end portfolio designed for the full spectrum of enterprise and used cases spanning large scale model development, training, and inferencing. Customers are attracted to HPE’s market leading super computing capabilities, differentiated Interconnect IP, AI specific software, and services expertise. Since the start of the second quarter, we have won multiple large contracts, totaling more than $800 million from large cloud providers and enterprise customers that will develop, train, and run AI models. Most of these contracts exceed $100 million each. We expect this pipeline to continue to grow and anticipate these deals will generate significant revenue in later quarters. For example, in Q2, (ph) and AI focused deal with Crusoe Energy, a cloud provider pioneered in infrastructure that taps into stranded energy like wasted methane or tractor renewable energy to power compute resources.
3. HP Inc. (NYSE:HPQ)
Number of Hedge Fund Shareholders In Q1 2024: 46
HP Inc. (NYSE:HPQ) is HP’s personal computing division that sells computers and printers. The firm’s recent earnings performance has left much to be desired as it has beaten adjusted analyst EPS estimates in just one of its four latest quarters. However, TD Cowen slightly increased the share price target to $32 from $30 in May 2024 and kept a Hold rating on the shares. Explaining its decision, the firm outlined that HP Inc. (NYSE:HPQ)’s AI PCs are sold at higher prices, and the PC maker also stands to benefit from users refreshing their Windows computers and starting to get their hands on the latest AI products.
Like its enterprise counterparts, HP Inc. (NYSE:HPQ)’s forward price to earnings ratio of 10.55 implies that investors expect it to grow slowly than the broader market. As we mentioned above, Goldman Sachs think that the market is wrong and HPQ is a cheap stock. Greenlight Capital mentioned the firm in its Q1 2024 investor letter. Here is what the firm said:
The title of our Sohn presentation was “Solve AI,” which was a play on Solvay’s corporate name. Nonetheless, we established another new long position that actually stands to benefit from AI, which we believe is not reflected in the current stock price. HP Inc. (HPQ) sells computers, printers and adjacent products and supplies. We established an initial position at an average price of $30.76 per share, which is about 9x current year earnings estimates. Recent results reflect a two-and-a-half-year cyclical downturn in demand for computers, which followed a mini-boom driven by COVID and related demand for equipment to work-from- home. We believe that we are, at a minimum, on the cusp of a normal PC refresh cycle, which should drive earnings above estimates. HPQ has committed to return 100% of free cash flow to shareholders through buybacks and dividends. The shares have a 3.6% dividend yield and we estimate HPQ has the capacity to buy back 25-30% of the outstanding shares over the next three years.
. . . .While we have spoken with experts that are divided between being enthusiastic and skeptical of an AI PC cycle, we don’t believe any of the optimism is currently reflected in the share price. HPQ ended the quarter at $30.22 per share.
2. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Shareholders In Q1 2024: 150
Apple Inc. (NASDAQ:AAPL) is all the buzz in the AI and technology industry this June. While its shares had remained lackluster before, the stock jumped by 10% after Apple Inc. (NASDAQ:AAPL)’s WWDC conference. At the event, it introduced a slew of AI features called ‘Apple Intelligence’, which will bring on device AI capabilities to the iPhone, and also allow users to run more complex workloads on a secure cloud environment. After the event, Rosenblatt kept a $186 share price target and a Neutral rating on Apple Inc. (NASDAQ:AAPL)’s shares. At the heart of the note was a key observation, which outlined that while Apple Inc. (NASDAQ:AAPL) might have introduced AI in its products, only the latest gadgets with the A17 processor can use the features. As a result, Rosenblatt remained cautious about pricing in AI euphoria in Apple Inc. (NASDAQ:AAPL)’s shares.
Apple Inc. (NASDAQ:AAPL) has a forward price to earnings ratio of 29. This is higher than the S&P’s 21, and it shows that investors expect the stock to grow slightly faster than the market. Aristotle Atlantic Partners mentioned the firm in its Q1 2024 investor letter and shared:
Apple contributed to portfolio performance in the first quarter due to the strategy’s underweight relative to the benchmark. Investors continue to be concerned about weak handset sales globally, as well as declining market share and competitive dynamics in the Chinese market, as Huawei has returned to the market with a more competitive premium-priced handset. Apple has yet to demonstrate a competitive AI product, which could present further competitive headwinds for the company.
Apple is a tad expensive for our taste, but hedge funds disagree with us. AAPL was one of the top 10stocks on our list of the 31 Most Popular Stocks Among Hedge Funds.
1. Dell Technologies Inc. (NYSE:DELL)
Number of Hedge Fund Shareholders In Q1 2024: 82
Dell Technologies Inc. (NYSE:DELL) is one of the most well known personal and enterprise computing hardware products providers in the world. However, Wall Street’s AI euphoria wasn’t kind to the stock in June 2024 after its earnings report saw investors question AI product margins. After the earnings, Evercore ISI kept a $165 share price target and an Outperform rating on Dell Technologies Inc. (NYSE:DELL)’s shares as it outlined that the firm can rake in hefty AI server revenues, attributed earnings weakness to seasonality, and added that margins could jump to sit in between mid to high teens.
Dell Technologies Inc. (NYSE:DELL)’s forward price to earnings ratio of 16.92 means that the market expects it to grow slowly than broader indexes. Dell Technologies Inc. (NYSE:DELL) CEO Jeff Clarke was also optimistic about its AI products, sharing during the ill fated earnings call:
ISG, our AI-optimized servers orders increased to $2.6 billion, with shipments up more than 100% sequentially to $1.7 billion. We have now shipped more than $3 billion of AI servers over the last three quarters.
Our AI server backlog is $3.8 billion, growing sequentially by approximately $900 million. Our AI optimized server pipeline grew quarter-over-quarter again and remains a multiple of our backlog. We’ve seen an expansion in the number of enterprise customers buying AI solutions, which remains a significant opportunity for us given we are in the early stages of AI adoption.
We recently covered NVIDIA Corporation (NASDAQ:NVDA) in Analysts are Upgrading These 10 AI Stocks and the firm ranked 3rd in this list. If you are looking for an AI stock that is more promising than NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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