In this piece, we will take a look at the 15 best hardware stocks according to hedge funds.
With the first half of 2024 nearly over, artificial intelligence continues to play a dominant role in the stock market. Stocks that either design semiconductors that are used for AI applications, or those that use them to either streamline their internal operations such as coding or offer products to customers have also made significant gains. These show the optimism in Wall Street for accelerated computing technologies, which are collectively called artificial intelligence.
In fact, the impact of AI has been so strong that not only has it upended the status quo of the most valuable firms in terms of market capitalization, but it also allowed some of the top AI companies to post triple digit percentage share price returns over the course of the past twelve months. Some of the top performing AI stocks are up by 213% over the past twelve months and have appreciated by 773% since November 2022. Back then, the stock market was whimpering in the aftermath of rapid interest rate hikes by the Federal Reserve, which had hit technology stocks particularly hard since they benefit from a fast growth and low rate environment.
However, AI’s impact on the stock market has fueled the triple digit percentage gains in some stocks since then. At the same time, it has also meant that major indexes continue to demonstrate robust performance that is fueled by the share price performance of mega cap technology stocks.
In 2024, the market has moved forward from investing in AI companies that can change the world with their hardware or software to evaluating whether these firms are delivering. The first quarter of the 2024 earnings season was the clearest example of this phenomenon, and it saw Wall Street take an unforgiving approach to large and small firms that presented even the slightest hint of being unable to either grow their revenues by targeting AI or control the costs of investing in the new technologies.
Within the AI industry, there are different categories of firms. Most of these, such as OpenAI, operate on the software side. This industry subsegment develops applications such as chat bots and other assistants along with expanding the use of AI to existing software such as image editing tools. AI hardware companies power these applications, and when compared to the software firms, not only do they command stable valuations, but they also see investors take comfort in the fact that the demand for their products is far more stable and predictable when compared to software demand. Recently Goldman Sachs published a bullish report on hardware stocks due to AI, which we covered in 15 Best Hardware Stocks According To Goldman. In this article we are going to approach the same theme from a different angle and there are vast differences between both rankings of hardware stocks.
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Our Methodology
To make our list of the top hedge fund hardware stock picks, we ranked personal computing, semiconductor, and computer hardware by the number of hedge funds that had bought the shares in Q1 2024. Out of these, the stocks with the highest number of hedge fund investors were selected. Basically our article listed the best hardware stocks to buy according to the 900+ equity hedge funds tracked by Insider Monkey. Why do we care about what hedge funds do? 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. Western Digital Corporation (NASDAQ:WDC)
Number of Hedge Fund Shareholders In Q1 2024: 65
Western Digital Corporation (NASDAQ:WDC) makes and sells hardware products that are used to store data. These include solid state and hard disk drives. The firm has been performing well on the earnings front lately, as it has beaten adjusted analyst EPS estimates in all four of its latest quarters. Western Digital Corporation (NASDAQ:WDC) also expanded its AI portfolio in June 2024 when it revealed three new SSD and HDD products optimized for AI performance. Mizuho was out with a bullish note for the firm in May 2024, when it increased Western Digital Corporation (NASDAQ:WDC)’s share price target to $90 from $80 and kept a Buy rating on the shares. Explaining its decision, the research firm shared that the company’s decision to spin off its NAND business could end up accreting value.
By Q1 2024 end, 65 hedge funds part of Insider Monkey’s database had bought a stake in Western Digital Corporation (NASDAQ:WDC). Ken Griffin’s Citadel Investment Group owned the most valuable stake which was worth $395 million.
Western Digital Corporation (NASDAQ:WDC)’s forward price to earnings ratio of 12.6 is lower than that of the S&P 500’s 21. CEO David Goeckeler commented on the business spinoff during Western Digital Corporation (NASDAQ:WDC)’s latest earnings call as he outlined:
Before I dive further into the demand environment, I want to briefly comment on the status of the separation of our flash and HDD businesses. I am proud of the team’s ongoing efforts as we drive towards completion of the separation in the second half of the calendar year. We remain focused on achieving the separation as soon as possible, and we’ll continue to provide further updates on our progress as appropriate. Moving on to end market commentary. I am pleased to report that during the quarter, revenue in all of our major end markets returned to year-over-year growth. In cloud, we experienced 29% growth in revenue from a year ago, highlighting the incredible success of our industry-leading HDD product line. In addition, we began to experience an increase in demand for our flash-based solutions, signaling a long-awaited recovery in this end market.
14. Arista Networks, Inc. (NYSE:ANET)
Number of Hedge Fund Shareholders In Q1 2024: 69
Arista Networks, Inc. (NYSE:ANET) provides networking hardware products used in AI applications. The firm has been doing well financially, as it has beaten adjusted analyst EPS estimates in all four latest quarters. Like other AI stocks, Evercore ISI was quite bullish on Arista Networks, Inc. (NYSE:ANET) in a May 2024 analyst note. This note saw a price target increase to $340 from $320, along with the reiteration of an Outperform rating. Evercore believes that Arista Networks, Inc. (NYSE:ANET) can meet its target to bring $750 million in revenue by fiscal year 2025, allowing it to compete with AI king NVIDIA on the networking hardware front.
As March 2024 ended, 69 hedge funds tracked by Insider Monkey were Arista Networks, Inc. (NYSE:ANET)’s stakeholders. Rajiv Jain’s GQG Partners held the most valuable stake which was worth $881 million.
Like other AI stocks, Arista Networks, Inc. (NYSE:ANET)’s forward P/E ratio of 41 shows that investors expect it to grow faster than the benchmark S&P 500. At the firm’s latest earnings call, CEO Jayshree Ullal talked about the importance of networking in the AI era as she outlined:
We are witnessing an inflection of AI networking and expect this to continue throughout the year and decade. Ethernet is emerging as a critical infrastructure across both front-end and back-end AI data centers. AI applications simply cannot work in isolation and demand seamless communication among the compute nodes consisting of back-end GPUs and AI accelerators, as well as the front-end nodes like the CPUs alongside storage and IPWAN [ph] systems as well. If you recall, in February, I shared with you that we are progressing well in four major AI Ethernet clusters that we won versus InfiniBand recently. In all four cases, we are now migrating from trials to pilots, connecting thousands of GPUs this year, and we expect production in the range of 10K to 100K GPUs in 2025.
13. ASML Holding N.V. (NASDAQ:ASML)
Number of Hedge Fund Shareholders In Q1 2024: 75
ASML Holding N.V. (NASDAQ:ASML) is one of the most consequential computer hardware companies in the world even though it does not sell any hardware products directly to businesses or consumers. This is because growth in hardware demand means chip manufacturers need more machines to build semiconductors, which benefits ASML Holding N.V. (NASDAQ:ASML) since it is the only firm in the world that makes the equipment. June 2024 was a crucial month for the firm, as BofA set a new street high share price target for ASML Holding N.V. (NASDAQ:ASML) at €1,302. The upgrade came on the back of the bank upgrading the firm’s 2025 and 2026 by 6% to 9% on the back of strong performance by ASML Holding N.V. (NASDAQ:ASML)’s advanced EUV chip making machines.
For their first quarter of 2024 investments, 75 hedge funds tracked by Insider Monkey had bought stakes in ASML Holding N.V. (NASDAQ:ASML). Ken Fisher’s Fisher Asset Management owned the biggest stake which was worth $3 billion.
The strong demand for its machines, the fact that it is the only company that makes them, and an expected surge in AI demand means that investors expect ASML Holding N.V. (NASDAQ:ASML) to outpace the broader market when it comes to growth. This is because its forward P/E ratio of 46 is higher than the market’s 21. Polen Capital mentioned the firm in its Q4 2023 investor letter where it shared:
Netherlands-based ASML and Japan-based Lasertec play dominant roles within different segments of the global semiconductor industry. In both cases, shares rallied significantly in the fourth quarter of 2023, prompting our positions to grow as a percentage of the overall portfolio. We believe both companies will see demand for their products as extreme ultraviolet (EUV) lithography and soon high-numerical aperture lithography must be utilized to manufacture the world’s smallest chips. However, in our estimation, 2024 could deliver a year of less exciting growth for the semiconductor industry, which prompted us to trim these positions back.
12. Intel Corporation (NASDAQ:INTC)
Number of Hedge Fund Shareholders In Q1 2024: 77
Intel Corporation (NASDAQ:INTC) is a household name and the largest chip manufacturer in the world. While the firm has struggled with keeping the lead in manufacturing technologies as of late, it is emerging as a competitor to NVIDIA in AI hardware. Intel’s Gaudi accelerator is designed to compete with NVIDIA’s latest AI products, and May 2024 was a good month for the stock as it saw Wolfe Research upgrade Intel Corporation (NASDAQ:INTC)’s share rating to Peer Perform from Underperform. At the heart of the upgrade was the firm’s belief that Intel Corporation (NASDAQ:INTC)’s margins should improve in the future now that it has absorbed the cost and geared up to move more production in house.
For their Q1 2024 investment stakes, 77 funds out of the 919 part of Insider Monkey’s database were Intel Corporation (NASDAQ:INTC)’s stakeholders. Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital owned the most valuable stake that was worth $905 million.
When compared to other AI hardware stocks, Intel Corporation (NASDAQ:INTC)’s forward price to earnings ratio of 28 means that investors understand that Intel’s earnings are temporarily depressed as the company invests large amounts of capital into its business and the company will eventually post large EPS growth numbers. Ariel Investments mentioned the firm in its Q4 2023 investor letter, citing optimism in the stock and sharing:
New holding, Intel Corporation, one of the world’s largest semiconductor chip manufacturers by revenue, outperformed in the quarter. Intel is benefitting from the near-term rebound in semiconductor demand driven by the cyclical recovery of personal computers (PCs) and central processing units (CPUs). Shares also traded higher following the company’s Artificial Intelligence (AI) Everywhere launch event. Intel introduced its capabilities across cloud, edge and client hardware and showcased it can benefit from an enterprise upgrade cycle as both cloud-based and traditional enterprises look to incorporate AI features into core technology platforms. In our view, the market is also overlooking the progress Intel has made towards regaining its manufacturing technology advantage and believe the foundry business will continue to experience strong momentum as it grows its customer base and revenue.
11. Lam Research Corporation (NASDAQ:LRCX)
Number of Hedge Fund Shareholders In Q1 2024: 78
Lam Research Corporation (NASDAQ:LRCX) is a backend AI hardware stock as it makes and sells machines used in semiconductor fabrication. Like other AI stocks, it has held its ground on the financial front by having beaten adjusted analyst EPS estimates in all four of its latest quarters. Adding to the AI and chip boom, Raymond James increased Lam Research Corporation (NASDAQ:LRCX)’s share price target to $1,060 from $950 in June 2024, as it shared that AI demand, robust data center growth in H2 2024, and government subsidies like those promised by the CHIPS and Science Act should prove to be tailwinds to the stock.
As of March 2024, 78 hedge funds part of Insider Monkey’s database had bought a stake in Lam Research Corporation (NASDAQ:LRCX). Rajiv Jain’s GQG Partners owned the most valuable stake which was worth $2 billion.
Lam Research Corporation (NASDAQ:LRCX) is one of the more controversial AI stocks since it is caught in the middle of tensions between US and China. The US has sanctioned China from buying advanced chip equipment due to national security concerns, but despite this, Lam Research Corporation (NASDAQ:LRCX)’s first quarter earnings report saw the firm earn $3.76 billion in revenue from China. Baron Funds’ Q4 2023 investor letter was also quite optimistic for Lam Research Corporation (NASDAQ:LRCX) as it shared:
Lam Research Corporation is a leading global supplier of wafer fabrication equipment (WFE) and services to the semiconductor industry. Lam’s products tend to focus on etch and deposition process steps and its tools are critical in the production of NAND and DRAM memory chips as well as logic devices. While the share of overall WFE spending looks relatively fragmented across the top four to five players in the industry, each of these leading companies tends to have significant share within smaller slices of the industry, creating a stable and favorable industry structure, with share shifts tending to only happen at times of technology transition in the broader industry. We purchased shares of Lam in the quarter as we believe we are at one of those key transition points in the industry that will disproportionately benefit Lam, with a move to gate-all-around transistors in logic creating an increasing need for complex deposition and etch process stops and the emergence of high-bandwidth memory and advanced packaging requiring increasingly complex high-aspect-ratio (i.e., very deep) etches, where Lam has virtually 100% market share. We also believe the market is underestimating the pent-up earnings power in the company as NAND WFE spending recovers in the coming years from one of its worst downcycles ever in 2023.
10. QUALCOMM Incorporated (NASDAQ:QCOM)
Number of Hedge Fund Shareholders In Q1 2024: 78
QUALCOMM Incorporated (NASDAQ:QCOM) is an American semiconductor designer that makes products such as GPUs, CPUs, and neural processors. The average of 30 one year analyst share price targets for the firm is $206.62 and the shares are rated Buy on average. TD Cowen was optimistic for QUALCOMM Incorporated (NASDAQ:QCOM)’s future in June 2024 as it raised the firm’s share price target to $235 from $200. Sticking with a Buy rating, the firm shared that QUALCOMM Incorporated (NASDAQ:QCOM)’s decision to diversify its business to also include AI will prove to be a growth driver in the future.
For their first quarter of 2024 investments, 78 hedge funds tracked by Insider Monkey had bought a stake in QUALCOMM Incorporated (NASDAQ:QCOM). Among these, the one with the most valuable stake was David Goel and Paul Ferri’s Matrix Capital Management as it owned a $1.1 billion stake. QCOM ranked 7th on Goldman’s top hardware stocks to buy list.
QUALCOMM Incorporated (NASDAQ:QCOM)’s relatively stable business model which benefits from predictable contracts with smartphone manufacturers is also visible in its forward P/E of 18.18. This implies that investors are looking elsewhere for growth, and in its Q4 2023 investor letter, Madison Investments mentioned the stock and 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.
9. Applied Materials, Inc. (NASDAQ:AMAT)
Number of Hedge Fund Shareholders In Q1 2024: 79
Applied Materials, Inc. (NASDAQ:AMAT) is another semiconductor manufacturing equipment provider. Like its peers, it’s also at the center of US and China trade tensions, as the firm received a subpoena from the US government in May 2024 which asked it to disclose its sales to Chinese customers. Reuters’ sources believe that Applied Materials, Inc. (NASDAQ:AMAT) is currently being investigated for having sold equipment to China’s largest chipmaker SMIC. However, the same Chinese sales were at the center of a Barclays share price upgrade in June. It raised Applied Materials, Inc. (NASDAQ:AMAT)’s share price target to $225 from $165 and bumped the stock to Equal Weight.
By Q1 2024 end, 79 hedge funds part of Insider Monkey’s research were Applied Materials, Inc. (NASDAQ:AMAT)’s stakeholders. David Blood and Al Gore’s Generation Investment Management owned the most valuable stake which was worth $1 billion.
While Applied Materials, Inc. (NASDAQ:AMAT) is benefitting from a growth in Chinese spending, its forward P/E of 26.53 is only slightly higher than the market’s 21. This implies that investors expect moderate growth in the future. Commenting on these trends, CEO Gary Dickerson shared during the firm’s latest earnings call:
AI datacenter is just one example that illustrates how the major inflections that underpin the next generation of semiconductors are enabled by Applied Materials. Materials science and materials engineering are increasingly important to the industry’s roadmap. Applied has invested early to develop a broad, unique, and connected portfolio of materials engineering solutions that are critical to enable major semiconductor inflections from AI high-performance computing to ICAPS edge computing. We are translating those investments into consistent outperformance. Recent TechInsights data confirms that in 2023 Applied grew faster than the wafer fab equipment market for the fifth year in a row. We accomplished this despite headwinds created by trade rules that we estimate restricted us from more than 10% of the China market during that period.
8. Dell Technologies Inc. (NYSE:DELL)
Number of Hedge Fund Shareholders In Q1 2024: 82
Dell Technologies Inc. (NYSE:DELL) is an iconic computer company that sells laptops and equipment used in data centers and cloud computing platforms. AI was at the heart of its stock story in May 2024 when the shares fell by 18% to set a new record. This drop followed a growth in costs for Dell Technologies Inc. (NYSE:DELL)’s AI server division. The dip came when a Bernstein analyst pointed out during the call that AI margins were effectively zero. However, the average of 16 one year analyst share price targets for Dell Technologies Inc. (NYSE:DELL) is $155.52, which prices in a hefty upside over the current share price of $129.
As March 2024 ended, 82 hedge funds covered by Insider Monkey’s research were Dell Technologies Inc. (NYSE:DELL)’s stakeholders. Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital owned the most valuable stake which was worth $891 million.
Looking at Dell Technologies Inc. (NYSE:DELL)’s latest share price trends, a guidance reduction, and the stable nature of its business, a forward P/E ratio of 16 isn’t surprising as it shows slower growth expectations compared to the broader market. As for the non existent AI margins, here’s the full snippet from the earnings call that led to the share price drop:
Toni Sacconaghi: Yes, thank you for the question. If I just look year over year at the ISG business, storage was perfectly flat. AI servers went from zero to 1.7 billion, which sort of suggests that traditional servers were flat. So really the only thing that changed was you added 1.7 billion in AI servers, and operating profit was flat. So does that suggest that operating margins for AI servers were effectively zero? And if that’s not the case, how do you square the circle with what I just outlined? Thank you.
Yvonne McGill: Okay, Toni, I’ll take that one. So when I look at the overall ISG performance from an operating income standpoint, storage, I’ll start with storage, right? So if the operating income was low in storage, you know that Q1 is seasonally our lowest revenue quarter from a storage perspective. When the revenue declines, the business descales, and so we saw that evidenced in the Q1 results. And while OpEx remained unchanged to the points you’re making, the operating rates declined. In traditional servers, we saw strength in large enterprise and large bid mix, so a shift there a bit, which, as you know, that drives lower margin rates. And when I look into Q2 and FY’25, though, I tell you that we expect ISG Opinc rates to improve, as we talked about in the guide, over the year and really deliver against our long-term framework, that 11% to 14%.
So, I think what we saw in the first quarter was multifaceted, but we do continue to expect recovery as the year goes on. And those AI-optimized servers, we’ve talked about being margin rate diluted, but margin dollar accretive. And so you’ll continue to see that evidenced in the results also.
7. Marvell Technology, Inc. (NASDAQ:MRVL)
Number of Hedge Fund Shareholders In Q1 2024: 87
Marvell Technology, Inc. (NASDAQ:MRVL) sells signal processors, networking equipment, and other associated hardware products. The firm’s first quarter results, which saw it beat analyst revenue estimates of $1.15 billion by $10 million but miss EPS estimates of -$0.24 by posting -$0.25 impressed Needham which set a Buy rating and a $95 share price target. Needham’s decision was based on strong performance by Marvell Technology, Inc. (NASDAQ:MRVL)’s data center division, as well as the belief that full year AI revenue can now sit at $1.6 billion – higher than the previous estimate of $1.5 billion.
For their first quarter of 2024 shareholdings, 87 out of the 933 hedge funds tracked by Insider Monkey were Marvell Technology, Inc. (NASDAQ:MRVL)’s stakeholders. Rajiv Jain’s GQG Partners owned the most valuable stake which was worth $533 million.
Marvell Technology, Inc. (NASDAQ:MRVL) has a forward price to earnings ratio of 53.48, which is more than twice the market’s 21. CEO Matt Murphy was quite optimistic about his firm’s AI plays during Marvell Technology, Inc. (NASDAQ:MRVL)’s first quarter of fiscal 2025 earnings call where he shared:
The outperformance was driven by strong demand from cloud AI applications for our electro-optics portfolio, including PAM, DSPs, TIAs and drivers as well as our ZR data center interconnect products. Data center revenue grew 87% year-over-year and 7% sequentially, with double-digit growth from cloud more than offsetting a higher than seasonal decline in revenue for enterprise on premise data centers. Strong revenue growth was driven by cloud AI as well as standard cloud infrastructure. In addition to strong contributions from our market leading electro-optics products, we also benefited in the first quarter from the initial shipments of our custom AI compute programs. Turning to the second quarter of fiscal 2025, we expect our overall data center revenue to grow in the mid-single digits sequentially on a percentage basis as our custom AI silicon continues ramping.
I’m very pleased with our results and projected guidance for our data center end market. Our continued growth in data center and AI in particular is being driven by our leading portfolio of connectivity and custom compute products. Starting with our interconnect solutions. Our 100 gig per lane, 800 gig PAM products are the primary interconnect enabler for state-of-the–art AI deployments today, and customers have already started qualifying our first to market next generation 200 gig per lane 1.6T solutions. Our 1.6T solutions are poised to enable the next generation of AI accelerators. We are seeing similar success with our DCI products with 400 gig ZR shipping high volume, strong interest for our next generation 800 gig products and an expanding DCI customer base with design wins at multiple new data center customers.
6. Micron Technology, Inc. (NASDAQ:MU)
Number of Hedge Fund Shareholders In Q1 2024: 115
Micron Technology, Inc. (NASDAQ:MU) is a chip designer that makes and sells memory products. These chips work along with GPUs to process and power AI workloads. Another highly rated AI stock, the average of 30 one year analyst share price targets for Micron Technology, Inc. (NASDAQ:MU) is $145.05 and the shares are rated Strong Buy on average. Morgan Stanley was out with some good news for Micron Technology, Inc. (NASDAQ:MU)’s investors in May 2024 when it raised the share rating to Equalweight from Underweight and increased the share price target to $130 from $98. At the heart of this upgrade are advanced HBM memory products, and Morgan Stanley believes Micron Technology, Inc. (NASDAQ:MU) can benefit from a HBM ramp up for AI.
As of Q1 2024 end, 115 hedge funds tracked by Insider Monkey were Micron Technology, Inc. (NASDAQ:MU) ‘s stakeholders. Rajiv Jain’s GQG Partners owned the most valuable stake that was worth $533 million.
While Morgan Stanley is optimistic for Micron Technology, Inc. (NASDAQ:MU), the AI hardware stock’s forward P/E ratio of 18.45, which is lower than the market’s 21, suggests that it might grow more slowly than the broader index. Sequoia Fund commented on the firm in its Q4 2023 investor letter and shared:
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.
5. Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Shareholders In Q1 2024: 115
Broadcom Inc. (NASDAQ:AVGO) provides networking chips used in AI and other products. Bernstein’s well known semi analyst Stacy Rasgon explained in June 2024 why Broadcom Inc. (NASDAQ:AVGO) is a top AI hardware stock. According to him, Broadcom Inc. (NASDAQ:AVGO) has the “second best AI story in the space” after NVIDIA, since it plays in the lucrative AI networking market. Rasgon believes that the networking market is just as important as the compute market led by NVIDIA. The average of 28 one year analyst share price targets for Broadcom Inc. (NASDAQ:AVGO) is $1,533 and the shares are rated Buy on average.
For their first quarter of 2024 shareholdings, 115 hedge funds polled by Insider Monkey had held a stake in Broadcom Inc. (NASDAQ:AVGO). Rajiv Jain’s GQG Partners owned the most valuable stake that was worth $3.9 billion.
Broadcom Inc. (NASDAQ:AVGO) has a forward price to earnings ratio of 29.94, which implies that AI has led to investors expecting it to outpace broader markets for growth. Baron Funds commented on the stock in its Q1 2024 investor letter and shared:
We also initiated a new position in Broadcom Inc., a global technology leader that designs, develops, and supplies a broad range of semiconductor and infrastructure software solutions. Its semiconductor solutions focus on complex digital, mixed signal, and analog products across a variety of end-markets while its software products help customers plan, develop, automate, manage, and secure applications across various platforms.
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.
4. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Number of Hedge Fund Shareholders In Q1 2024: 124
Advanced Micro Devices, Inc. (NASDAQ:AMD) designs and sells GPUs and accelerators used for AI. June 2024 has been an important month for the firm as it joined NVIDIA at Computex to announce a slew of new products for AI processing. At the event, Advanced Micro Devices, Inc. (NASDAQ:AMD) announced its Ryzen AI 300 series chips, which it believes offer the “fastest APU performance” in the world. The average of 41 one year analyst share price targets for Advanced Micro Devices, Inc. (NASDAQ:AMD) is $187 and the shares are rated Strong Buy on average.
For their first quarter of 2024 investment stakes, 124 hedge funds covered by Insider Monkey were Advanced Micro Devices, Inc. (NASDAQ:AMD)’s stakeholders. Ken Fisher’s Fisher Asset Management held the most valuable stake which was worth $5.2 billion.
Advanced Micro Devices, Inc. (NASDAQ:AMD)’s story on the stock market has been one of constant growth over the past couple of years. The future might be bright too, as the market has set a forward P/E ratio of 49 for the company. Compared to the market’s ratio of 21, the stock maintain its strong growth in the future. Meridian Funds commented on Advanced Micro Devices, Inc. (NASDAQ:AMD) in its Q4 2023 investor letter and shared:
Advanced Micro Devices, Inc. is a global semiconductor chip maker specializing in central processing units (CPUs), which are considered the core component of most computing devices, and graphics processing units (GPUs), which accelerate operations running on CPUs. 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 hishare 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 improved 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.
3. 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 that makes AI chips for firms like AMD and NVIDIA. A growth in AI shipments worldwide proved to be quite a catalyst for the firm in May 2024. During May, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)’s revenue grew by a strong 30% to sit at $7.1 billion. This growth comes just as ASML, the world’s leading chip manufacturing equipment company, confirmed that it will ship its advanced high NA EUV scanner to TSMC. These machines are crucial for future manufacturing technologies, and TSMC plans to upgrade its roadmap to 2-nanometer chips in 2025.
During Q1 2024, 135 hedge funds covered by Insider Monkey’s research were Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)’s stakeholders. Ken Fisher’s Fisher Asset Management owned the most valuable stake which was worth $3.9 billion.
Looking at the future, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is trading at a forward P/E of 26, implying that growth should be only slightly faster than the market’s. Baron Funds remained convinced for the Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)’s leadership potential in its Q1 2024 investor letter as it stated:
Semiconductor giant Taiwan Semiconductor Manufacturing Company Limited contributed in the first quarter due to investor expectations for a continued strong cyclical recovery in semiconductors and significant incremental demand for AI chips. We retain conviction that Taiwan Semiconductor’s technological leadership, pricing power, and exposure to secular growth markets, including high-performance computing, automotive, 5G, and IoT, will allow the company to sustain strong double- digit earnings growth over the next several years.
2. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Shareholders In Q1 2024: 150
Apple Inc. (NASDAQ:AAPL) is the world’s biggest consumer technology company. Despite its limited actions on the front, Apple has been seeing a lot of coverage for its potential AI initiatives. Most of these have covered its Siri virtual assistant, and some quarters expect an AI revamp for Siri. The average of 39 one year analyst share price targets for Apple Inc. (NASDAQ:AAPL)’s shares is $204.31 and the stock is rated Buy on average. Well known Apple Inc. (NASDAQ:AAPL) analyst Gene Munster shared optimism for Apple Inc. (NASDAQ:AAPL)’s AI potential recently when he shared that the market was in “denial” about its AI potential. He was joined by Wedbush’s Dan Ives, who believes that Apple Inc. (NASDAQ:AAPL)’s stock could jump by as much as $40 because of AI.
During Q1 2024, 150 hedge funds part of Insider Monkey’s database were Apple Inc. (NASDAQ:AAPL)’s stakeholders. Warren Buffett’s Berkshire Hathaway owned the most valuable stake which was worth $135 billion.
RiverPark Large Growth fund shared in its Q1 2024 investor letter that a strong installed user base is one of Apple Inc. (NASDAQ:AAPL)’s biggest strengths. According to the fund:
Apple Inc. (NASDAQ:AAPL): Apple shares were a top detractor in the quarter. The company’s stock was pressured by negative news items including a government antitrust case, an Apple Watch patent dispute, and slowing China iPhone sales. Ultimately the company’s fiscal 1Q24 earnings report delivered a slightly better than expected quarter, but with guidance that disappointed investors. 1Q24 revenue and gross margin were better than feared, buoyed by stronger than expected worldwide iPhone sales which grew 6% despite a slight decline in China iPhone sales. Services revenue in the quarter was as expected and signaled the third quarter in a row of accelerating growth. Gross margins were also stronger than expected at 45.9%, the highest level in more than a decade. Guidance of $90 billion of revenue for 2Q24 was light however, due to weaker than expected iPhone sales in the current period and year-over-year declines in other hardware products facing difficult year-over year comps.
Although near-term trends are a bit muted, Apple is carrying lean inventory into an iPhone refresh cycle later this year. With an installed base of 2.2 billion active devices and significant growth of the company’s recurring revenue Services segment, we believe that Apple remains one of the most innovative, best positioned and most profitable companies in the mobile technology industry.
1. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Shareholders In Q1 2024: 186
NVIDIA Corporation (NASDAQ:NVDA) is the unsurprising leader of our list of the best AI hardware stocks. The firm is showing no signs of slowing down, as it announced its next generation AI chips for 2026 in June 2024 at Computex in Taiwan. The resulting stock market frenzy saw NVIDIA Corporation (NASDAQ:NVDA) cross Apple in market valuation, but this was short lived, as a report next day outlined that the US government is investigating NVIDIA Corporation (NASDAQ:NVDA), Microsoft, and OpenAI for anti trust violations. This could prove to be a significant headwind to NVIDIA Corporation (NASDAQ:NVDA), but as of now, the shares are rated Strong Buy on average and the average analyst share price target is $1,208.
For their first quarter of 2024 investments, 186 hedge funds tracked by Insider Monkey were NVIDIA Corporation (NASDAQ:NVDA)’s stakeholders. Rajiv Jain’s GQG Partners owned the most valuable stake that was worth $12 billion.
Looking toward the future, the expected annual and five year revenue growth rate for NVIDIA Corporation (NASDAQ:NVDA) is currently 32.6% and 46.53%. The forward P/E is 46.73, which implies that the firm can outpace the broader market in growth. Baron Funds commented on NVIDIA Corporation (NASDAQ:NVDA)’s “disruptive” potential in its Q1 2024 investor letter where it shared:
We believe we are in the early stages of a multi-decade disruption. Jensen Huang, NVIDIA’s co-founder, president, and CEO suggested at the conference that similar to how in the industrial revolution, raw materials came into the plant and final products came out, in the GenAI era, companies would become AI factories with data as a raw material and tokens as the output. Tokens can represent words, images, videos, or controls of a robot. Over time, as models continue to improve, and the cost of running them declines, an increasing number of human tasks could be augmented or replaced entirely by AI. We expect decision making to become much more data-driven, enabled by AI, as consumers, corporations, and governments alike, take advantage of the vast amounts of unstructured data we generate, which is estimated to represent 90% of all data generated.
With increasingly challenging demographics across many economies (especially in developed markets), a greater proportion of global growth must come from productivity enhancements. AI, in our view, is likely to be a key driver behind these productivity gains, and potentially, the basis for technological breakthroughs that help humanity solve a host of the most difficult challenges from climate change to finding cures for diseases that have remained unsolved. We believe this disruptive change will be truly profound.
While we understand hedge funds’ and investors’ enthusiasm towards NVDA (we have been recommending a position in the stock for more than a year now), 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 NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None.
