In this article, we will take a look at the 5 most promising AI stocks. To see more such companies, go directly to 10 Most Promising AI Stocks.
5. Salesforce, Inc. (NYSE:CRM)
Number of Hedge Fund Holders: 117
Salesforce, Inc. (NYSE:CRM) offers various AI features in its Cloud platforms. Salesforce, Inc. (NYSE:CRM) recently launched Einstein GPT, which it says is the world’s first generative AI CRM technology.
As of the end of the fourth quarter of 2022, 117 hedge funds had stakes in Salesforce, Inc. (NYSE:CRM). The biggest hedge fund stakeholder of Salesforce, Inc. (NYSE:CRM) is Harris Associates which owns an over $1 billion stake in the company.
OpenAI recently rolled out support for Salesforce, Inc. (NYSE:CRM)’s Slack.
Polen Focus Growth Strategy made the following comment about Salesforce, Inc. (NYSE:CRM) in its Q1 2023 investor letter:
“Salesforce, Inc. (NYSE:CRM) shares increased over 50% in the quarter, despite the slowing macroeconomy, putting some pressure on the company’s revenue growth in the short term. We believe the strong share price performance was due to resilient revenue growth, despite the tough selling environment in recent quarters, and management’s actions to improve governance structures and streamline operations, including reducing headcount and overall operating expenses as a percentage of sales on a go-forward basis.
While we have long admired Salesforce’s market leading enterprise software across several cloud offerings, we have also believed that the company’s cost structure was bloated. We applaud management’s decision to become a more streamlined and profitable business without sacrificing product development efforts, especially as we also continue to expect healthy revenue growth over the coming five years. The investment case for companies that have solid revenue growth along with disciplined expense management and strong capital allocation can often be, in our experience, a strong combination. And, if it also happens to include accelerating revenue growth and a highly attractive valuation, it can provide for unusually strong shareholder returns. We believe Amazon (see later below) and other companies in the Portfolio are similarly positioned.”
4. Meta Platforms, Inc. (NASDAQ:META)
Number of Hedge Fund Holders: 194
The tech industry’s dramatic pivot to AI is already forcing Meta Platforms, Inc. (NASDAQ:META) to have second thoughts about its strategy of becoming a metaverse-first company. Mark Zuckerberg was quick to announce several AI projects at Meta Platforms, Inc. (NASDAQ:META). Meta Platforms, Inc. (NASDAQ:META) announced its owned large language model, called LLaMA, (for Large Language Meta AI).
Mark Zuckerberg in an internal message also announced the formation of a dedicated team focused on generative AI to “turbocharge” its efforts in the area. Zuckerberg said Meta Platforms, Inc. (NASDAQ:META)’s long-term goal is to develop “AI personas that can help people in a variety of ways.”
A total of 194 hedge funds tracked by Insider Monkey were bullish on Meta Platforms, Inc. (NASDAQ:META) as of the end of the fourth quarter o 2022.
Giverny Capital made the following comment about Meta Platforms, Inc. (NASDAQ:META) in its Q1 2023 investor letter:
“Meta Platforms, Inc. (NASDAQ:META) was our leading performer, up 76% for the quarter. I have written quite a bit about Meta in prior letters and I feel like I got the basics right: Meta never had an earnings or engagement problem so much as an expense management problem. Once founder and CEO Mark Zuckerberg announced layoffs and a new commitment to efficiency, the stock doubled in a few months.”
3. Alphabet Inc. (NASDAQ:GOOGL)
Number of Hedge Fund Holders: 209
Alphabet Inc. (NASDAQ:GOOGL) is clearly under pressure on several fronts. On the one hand MSFT is outflanking Alphabet Inc. (NASDAQ:GOOGL) by taking a lead in the AI race by partnering with OpenAI. On the other hand reports are suggesting that Samsung might replace Google search engine with Bing as the default search engine in its mobile device. But the reality is that Alphabet Inc. (NASDAQ:GOOGL) remains a giant in the AI space and is working on several long-term projects that will prove their worth.
A latest report by Financial Times says Alphabet Inc. (NASDAQ:GOOGL) is starting to roll out AI features for advertisers. Alphabet Inc. (NASDAQ:GOOGL) is also reportedly working on a foldable phone to take on Samsung.
A total of 209 hedge funds tracked by Insider Monkey had stakes in Alphabet Inc. (NASDAQ:GOOGL) as of the end of the fourth quarter of 2022.
Polen Focus Growth Strategy made the following comment about Alphabet Inc. (NASDAQ:GOOG) in its Q1 2023 investor letter:
“One area we are watching regarding Alphabet Inc. (NASDAQ:GOOG) and Adobe is AI systems and their capabilities, including generative AI. Interestingly, both Adobe and Alphabet could see benefits or threats from the emergence of generative AI and large language models (LLMs). Both companies already use generative AI to the benefit of their users in anticipating how content creators edit their work (Adobe) and in how search results are anticipated and generated (Google). At the same time, breakthrough technologies like AI can open the door to additional competition and/or impact a company’s profitability levels. We now see AI systems others are developing, including LLMs and generative AI offerings, that could be more competitive in the future. While we think it remains early days for ChatGPT and the capabilities of these types of LLMs and generative AI programs like DALL-E, the technology seems to be progressing at a fast rate and will at least require a strong response from incumbents.
As of now, we believe Alphabet and Adobe are leaders in their own right in these areas and have a clear path to improving their existing offerings with AI advancements, which would allow them to be net beneficiaries of AI. There are also significant barriers to building leading AI offerings in these areas. As a result, our position sizes in Adobe and Alphabet remain sizeable. For Adobe, the status of its pending $20 billion-plus Figma acquisition is also uncertain. There is a good chance, in our view, that it will be blocked by regulators, which would mean the future opportunity to expand its offerings to the developer community (beyond designers) may not occur.”
2. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 240
Amazon.com, Inc. (NASDAQ:AMZN) recently launched Bedrock, an AWS service that will allow companies to build generative AI applications. Amazon.com, Inc. (NASDAQ:AMZN)’s Cloud platform is already widely used by companies to develop AI and machine learning applications.
In a letter to shareholders, Amazon.com, Inc. (NASDAQ:AMZN)’s CEO Andy Jassy earlier this month explained at length the AI offerings of AWS and concluded the letter by saying:
“I could write an entire letter on LLMs and Generative AI as I think they will be that transformative, but I’ll leave that for a future letter. Let’s just say that LLMs and Generative AI are going to be a big deal for customers, our shareholders, and Amazon.”
A total of 240 hedge funds tracked by Insider Monkey were bullish on Amazon.com, Inc. (NASDAQ:AMZN) at the end of the fourth quarter of 2022. The net worth of these hedge fund stakes was about $28 billion. The biggest hedge fund stakeholder of Amazon.com, Inc. (NASDAQ:AMZN) was Natixis Global Asset Management’s Harris Associates which owns a $1.6 billion stake in the company.
Polen Global Growth Strategy made the following comment about Amazon.com, Inc. (NASDAQ:AMZN) in its Q1 2023 investor letter:
“We raised our position in Amazon.com, Inc. (NASDAQ:AMZN). During 2022, Amazon’s business experienced revenue deceleration from pre-pandemic levels combined with higher expenses resulting from inflation pressures as well as costs in their fulfillment segment. The fulfillment costs were set in motion during the pandemic when demand overwhelmed their network. More recently, AWS – along with Azure and GCP – experienced a deceleration in growth as customers globally feel pressure to optimize their usage in this tough macroeconomic environment. We don’t expect this deceleration to persist for the long-term given the secular trend of companies transitioning to the cloud.
For long-term investors, we believe this combination provides an opportunity and that Amazon is now poised to re-accelerate revenue growth, of which we are already seeing signs, while expanding margins and free cash flow. With respect to margins, given the fast growth in AWS and advertising, the latter generating almost $40 Billion in sales and growing at greater than 30% recently, the resulting mix-shift could result in operating margins of 10% or higher over time. This level would represent a 5x increase over 2022 levels. In sum, we are capitalizing on what we believe is arguably one of the most competitively advantaged business in the world, which is growing well, poised to accelerate that growth and expand margins, and is trading at an attractive price.”
1. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 259
Microsoft Corporation (NASDAQ:MSFT) is a no-brainer AI stock at this point, given the company’s rapid implementation of AI plans and its long-term vision for integrating AI in its key products like search, productivity and enterprise apps.
Recently, Morgan Stanley analyst Keith Weiss said that Microsoft Corporation (NASDAQ:MSFT) is “best positioned to gain market share” among major tech companies that are pushing into AI and Cloud. The analyst has a $307 price target on Microsoft Corporation (NASDAQ:MSFT).
Hedge funds agree with the market sentiment. As of the end of the fourth quarter of 2022, Microsoft Corporation (NASDAQ:MSFT) was the most popular stock among the 943 hedge funds tracked by Insider Monkey. Microsoft Corporation (NASDAQ:MSFT) beats giants like Alphabet, Apple and Meta Platforms when it comes to hedge fund sentiment.
Polen Global Growth Strategy made the following comment about Microsoft Corporation (NASDAQ:MSFT) in its Q1 2023 investor letter:
“Microsoft Corporation (NASDAQ:MSFT)’s fundamentals have largely stayed intact despite the headwinds many technology companies are facing due to the macroeconomic environment. While growth has decelerated below our longer-term target (we expect low-double-digit revenue growth over the next 3-5 years), we believe the deceleration should prove to be ephemeral. Azure and Office Commercial remain bright spots, while Windows OEM has been and will continue to be a drag over the next few quarters. With respect to Azure, even at a decelerated rate, the business continues to grow well. After eight consecutive quarters of Azure’s top line growth being in the mid-to-high-40s range, over the last two quarters, growth has been 42% and 38%, respectively. Microsoft is a scaled business with multiple and interlocking competitive advantages, and we believe the company will compound at high rates for a long period of time.”
You can also take a peek at 10 Most Profitable Small Businesses in 2023 and 10 Best April Dividend Stocks To Buy.
