In this article, we will take a detailed look at 9 Buzzing AI Stocks to Watch on Latest News.
Doug Clinton, Intelligent Alpha founder, talked recently about the issue of scaling in AI on CNBC and said that in the past the improvement of AI models was surging based on the data inputs. However, Clinton referred to the recent reports of AI models hitting a plateau in performance. He believes this issue will be important for AI investors in the coming months and years.
“Just to give the quick 101: Over the last few years, what we’ve seen in AI model development is that the more data you put into these models and the more compute you use to train them, the better the models get—very predictable. However, recent reports from OpenAI and Google show that the latest models they’ve trained haven’t been as good as expected based on scaling laws. This has sparked debate in Silicon Valley. Even Sam Altman tweeted about it last week, saying, “There is no wall,” so maybe it’s not an issue—we’ll see. But I think Jensen really needs to address that question because the 18 to 24-month picture hinges on whether these companies will need to invest in something beyond just compute.”
However, the analyst is bullish on the broader AI market in the long term and believes companies are just getting started in this bull market.
“I think if you take a longer-term view—2 to 4 years—we’re still very confident we’ll be in an AI bull market. That doesn’t mean there won’t be pullbacks here and there, but I think we have a long way to go. Companies are really just starting to adopt AI, and we’ll begin to see those revenues over the next year and beyond.”
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For this article we picked 10 AI stocks trending on latest news and analyst ratings. With each stock we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Stocks
9. SoundHound AI Inc (NASDAQ:SOUN)
Number of Hedge Fund Investors: 15
In May this year, Jim Cramer was asked about SoundHound AI Inc (NASDAQ:SOUN) on during a program on CNBC. Here is what he said:
“It’s losing money, it’s been around forever, and it’s not making money. That’s no good for me.”
SoundHound AI Inc (NASDAQ:SOUN) shares fell recently despite the company reporting impressive third-quarter 2024 financial results and raising its full-year revenue forecast.
“SOUN raised its FY24 revenue forecast and provided more details on its FY25 projections, as the company expands its target market and is well-positioned to benefit from the increasing demand for its voice-enabled ecosystem, which is expected to drive both growth and profit margins,” stated Wedbush analysts, led by Daniel Ives, in a note to investors.
One of the reasons why SoundHound AI Inc (NASDAQ:SOUN) fell is the details around its acquisitions.
In its 10-Q filing, SoundHound AI Inc (NASDAQ:SOUN) revealed some surprising details, particularly regarding the impact of its recent acquisitions. SoundHound AI Inc (NASDAQ:SOUN) had announced a deal with Amelia during the quarter and completed its acquisition of SYNQ3 at the beginning of the year, meaning the reported metrics do not fully reflect organic or pro forma growth.
Initially, the Q3 guidance indicated that Amelia would only provide a modest boost to revenues. SoundHound AI Inc (NASDAQ:SOUN) had claimed significant progress with voice AI ordering deals in the restaurant sector and boasted a large backlog of over $723 million from automotive voice AI contracts.
However, when factoring in the contributions from Amelia and SYNQ3, the actual pro forma numbers are more concerning. Revenues for Q3 dropped 15%, falling to $33.7 million from $39.7 million in the same quarter last year.
8. Marvell Tech Inc (NASDAQ:MRVL)
Number of Hedge Fund Investors: 74
Tony Wang, T. Rowe Price portfolio manager, explained his bull case thesis on Marvell Tech Inc (NASDAQ:MRVL) during a program on CNBC:
“I think Marvel’s, you know, I like that company long term. Right now, they are gaining a lot of traction in their custom chip products, specifically with Amazon. As these workloads become really big and these hyperscale players are spending a lot of capex, naturally, workloads are going to mature, and part of those AI workloads will shift to custom and in-house solutions. So, I do think there’s a really strong future for Marvel. In addition, they have strong networking chips, and the rest of their semiconductor business is probably bottoming out here. I like the company long term, and Matt Murphy, the CEO there, has done a really nice job.”
Wall Street analysts are bullish on Marvell Technology Inc (NASDAQ:MRVL) because the company’s products are used in key products sold by major companies. Its 1.6T optical DSP is used in Nvidia’s (NVDA) Blackwell GPU platform while AI ASICS are used in Amazon’s (AMZN) Trainium 2 AI processor and Google’s (GOOG)(GOOGL) Axion CPU processor.
Artisan Mid Cap Fund stated the following regarding Marvell Technology, Inc. (NASDAQ:MRVL) in its Q2 2024 investor letter:
“During the quarter, we initiated new GardenSM positions in CCC Intelligent Solutions, Marvell Technology, Inc. (NASDAQ:MRVL) and Insmed. Marvell Technology is a semiconductor company offering networking, secure data processing and storage solutions to customers worldwide. We believe Marvell has among the broadest range of intellectual property in technological areas (e.g., high-bandwidth data switching and storage applications) that position it well for the growing requirements of data centers, wireless networks and autos. Several of the company’s product lines (e.g., custom silicon, optical connectivity and switching) are benefiting from the growth of AI data centers. And we believe a significant opportunity exists for the company to help design and manufacture cost-effective custom data center chips that would help cloud providers reduce their reliance on expensive graphics processing units (GPUs). Furthermore, like many other semiconductor companies, a portion of its business may be poised for a cyclical recovery after the industry’s recent inventory correction.”
7. Tesla Inc (NASDAQ:TSLA)
Number of Hedge Fund Investors: 85
Dan Niles, Niles Investment Management founder and portfolio manager, said while talking during a CNBC program that Tesla Inc (NASDAQ:TSLA) shares are appealing to its buyers because of future growth catalysts more than the EV business. The analyst also pointed to Tesla Inc (NASDAQ:TSLA)’s high valuation.
“It’s very hard with over 100 PE for me to make a good risk-reward case in the name because people aren’t really focused on that so much. They’re looking at the optionality of what’s in the future, and that’s energy and storage, which is less than 10% of revenues but growing over 50% a year. You’ve got robo-taxis, you’ve got full self-driving over the next couple of years, and that’s what people are really owning the stock for, Joe. It’s not as much on the EV side; obviously, that’s the base business that gives them the money to fund all the rest of this. But yeah, I have the same concerns you do.”
The Tesla Robotaxi event disappointed investors. Notably absent was the discussion of a “more affordable” model that Musk had previously mentioned to boost confidence in Tesla’s vehicle sales growth outlook.
There is a lot of hype around Tesla Inc (NASDAQ:TSLA) robo taxis but many believe they will not be enough to fix the company’s long-term challenges.
What are these challenges?
Tesla Inc (NASDAQ:TSLA) product lineup is showing signs of stagnation, with over 95% of sales still coming from the Model 3 and Model Y. Meanwhile, competitors are rolling out more advanced models. Even Rivian’s CEO suggested Tesla Inc (NASDAQ:TSLA) could be nearing market saturation for these models. According to Reuters, Tesla’s market share in Europe is slipping as legacy automakers like BMW post stronger sales. Chinese competitor BYD is also gaining ground in Europe, despite talk of tariffs.
Polen Focus Growth Strategy stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its Q3 2024 investor letter:
“The largest relative detractors during the quarter were Apple, Airbnb, and Tesla (not owned). We’ve spoken at length about our rationale for not owning Tesla, Inc. (NASDAQ:TSLA). In short, the market seems to be pricing in a lot of positive optionality for this company in the near-to-intermediate term (and particularly a fully autonomous fleet of electric vehicles in the medium term). What exists today is an automobile manufacturer limited to the higher-income segment that is increasingly challenged to sell vehicles when interest rates are not zero. We continue to question the company’s long-term growth profile and governance.”
6. ServiceNow Inc (NYSE:NOW)
Number of Hedge Fund Investors: 97
Tony Wang, T. Rowe Price portfolio manager, recently talked about his top tech picks on CNBC. ServiceNow Inc (NYSE:NOW) is one of the stocks he’s bullish on.
ServiceNow Inc (NYSE:NOW) impressed the market with strong Q3 results. But can the stock keep going higher? ServiceNow Inc (NYSE:NOW) recently launched its Now Platform Xanadu, adding more than 350 out-of-the-box generative AI capabilities to Now Assist. These features include data visualization automation, chat- and email-reply generation, change summaries, and LLM-based proactive prompts in Virtual Agent.
ServiceNow Inc (NYSE:NOW) also released RaptorDB Pro, a high-performance database enabling customers to centralize operational data and analytics onto ServiceNow platforms. These platforms are expanding the company’s abilities in the IT market.
ServiceNow Inc (NYSE:NOW) bulls believe the company’s organic revenue growth after fiscal 2025 could clock in between 20% to 22%. ServiceNow Inc (NYSE:NOW) can also expand its margins by 250bps annually, driven by 100bps from gross profits, 100bps from R&D reductions, and 50bps from SG&A leverage.
ServiceNow Inc (NYSE:NOW) will also benefit from organic growth catalysts. Grand View Research predicts that the global information technology service management (ITSM) market will grow at a CAGR of 9.3% from 2023 to 2030.
Polen Focus Growth Strategy stated the following regarding ServiceNow, Inc. (NYSE:NOW) in its Q3 2024 investor letter:
“In the third quarter, the top relative contributors to the Portfolio’s performance were NVIDIA (not owned), Shopify, and ServiceNow, Inc. (NYSE:NOW). ServiceNow reported better-than-expected sales and bookings during the quarter, with subscription sales up +23%. Encouragingly, GenAI offerings within its product suite, rolled out in late 2023, already appear to be an incremental driver of this growth. In our view, ServiceNow is a great example of a consistent grower, with a strong moat serving diverse and growing end markets with expanding margin opportunities over time.”
5. Nvidia Corp (NASDAQ:NVDA)
Number of Hedge Fund Investors: 179
Mark Yusko, Morgan Creek Capital Management CEO & CIO, is recommending investors sell Nvidia Corp (NASDAQ:NVDA) shares. Yusko explained his bear thesis on Nvidia Corp (NASDAQ:NVDA) during a program on CNBC:
“I’m old enough to remember that Intel stock went up 20 fold over 10 years because their chip was going to revolutionize AI in 2000 and today that stock is 63% lower than it was 24 years ago. So you don’t stay on top forever and Nvidia came along and invented GPU and now we got TPUs and VPUs and LPUs. So I think innovation will keep rolling but the thing I’m most worried about with Nvidia, their third largest customer is about to get delisted. That’s a big story.”
Asked how Super Micro delisting could impact Nvidia Corp (NASDAQ:NVDA), the analyst said:
“Well if it’s your third largest customer and they actually haven’t, they don’t have the capacity to continue to be your third largest customer, what happens to your revenue growth and profits growth? I, you know, we’ve seen this movie before with Nell and Cisco back in 2020. So I don’t know, that makes me nervous.”
Simply beating earnings estimates is not enough for Nvidia anymore. The stock fell despite reporting better-than-expected numbers for the latest quarter. However, analysts are sensing a growth slowdown. Nvidia’s Q4 revenue guidance missed the buy-side whisper number of $39 billion, and the company expects gross margins to keep shrinking next quarter. For Q4, non-GAAP gross margin is projected at 73.5%, down from 75% in Q3. Nvidia’s biggest customers, cloud hyperscalers — which account for 50% of its revenue — are increasingly developing in-house AI chips and collaborating with competitors like AMD. This raises concerns about Nvidia’s medium-to-long-term growth in demand and margins.
Polen Focus Growth Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q3 2024 investor letter:
“In a reversal from the past two quarters, NVIDIA Corporation (NASDAQ:NVDA) represented our top relative contributor this quarter, despite the modest underperformance, declining -1.7%. In many ways, NVIDIA was a microcosm of the broader market’s heightened volatility. Beneath the placid surface, the company experienced a 27% drawdown followed by a +31% rally, only to repeat the cycle with a -21% drawdown followed by a subsequent 20% rally to finish the quarter. In our view, the stock’s volatility goes beyond fundamental business drivers, but the company in turn benefitted from increasing capital spending budgets from cloud service providers and large enterprises for generative AI (“GenAI”) infrastructure spending. Simultaneously, the stock endured weakness related to the delayed next-generation Blackwell chip, and an earnings forecast that exceeded expectations, albeit not as much as some investors hoped. While we continue to believe NVIDIA is a highly advantaged business, with significant demand for their chips and servers ahead of the need for that hardware from real-world businesses, we are cautious about its growth sustainability since it lacks recurring revenue.”
4. Apple Inc (NASDAQ:AAPL)
Number of Hedge Fund Investors: 184
Apple (NASDAQ:AAPL) could face a reduction in its prized gross margins if President-elect Trump imposes tariffs on Chinese imports, according to research firm Jefferies. However, there remain many uncertainties at this stage, the firm said.
Analyst Edison Lee, who holds a “Hold” rating on Apple Inc (NASDAQ:AAPL), noted that the company was exempt from import tariffs during Trump’s first term from 2016 to 2020. Since then, Apple Inc (NASDAQ:AAPL) has taken steps to diversify its production outside of China, such as shifting some manufacturing to India. Despite these efforts, only about 10% of iPhones are produced outside of China. While it’s possible that Apple Inc (NASDAQ:AAPL) could secure another exemption, Lee suggested that if it doesn’t, the impact on gross margins could be significant.
“[Our] analysis indicates AAPL’s [gross margins] could potentially be impacted by 3.0-6.7ppt, and our DCF value by ~5% to 10%, assuming no ASP/vol change,” Lee wrote in a note to clients.
Polen Focus Growth Strategy stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q3 2024 investor letter:
The largest relative detractors during the quarter were Apple Inc. (NASDAQ:AAPL), Airbnb, and Tesla (not owned). We added a new position in Apple during the period, which we discuss further in the following section. While Apple is a roughly average-sized position in Focus Growth, it is the largest holding in the Russell 1000 Growth Index, at over 12%, and the stock’s outperformance in the quarter weighed on relative results.
In the third quarter, we purchased new positions in Apple. We owned Apple from early 2009 through late 2016, a period characterized by the massive iPhone-driven growth phase propelling the company’s revenue and earnings to levels almost unseen previously. We moved on from the position in 2016 as we felt Apple had nearly fully penetrated the high end of the smartphone market, which by and large proved correct. Revenue growth has since compounded in the mid-to-high single digits, with earnings growth modestly higher, driven by heavy share buybacks. In the last two years, the company’s revenue and earnings growth has slowed to essentially 0%.
Apple can now upgrade Siri to the true helpful digital assistance consumers hoped it would be all along. Not to mention, the new operating system brings useful new features to not only Apple apps and services but also seamlessly across third-party apps. We believe this means a multi-year upgrade cycle is coming for iPhones that will be unveiled later in 2024 and into 2025. The elongation of the iPhone replacement cycle over the last few years is likely to stop or even reverse, pulling forward stronger revenue, earnings, and free cashflow growth for Apple over the next few years. We expect this to not only accelerate iPhone volume growth but also likely a product mix shifting to higher-priced, higher-margin iPhones. We also expect the AI functionality to be more impactful with bigger screens, processing, and memory. With consumer budgets getting tighter, we feel the new Apple phones with GenAI functionality will become a top priority for consumers versus other areas of spend, which we expect could give a safety-like quality to the acceleration. While the company’s valuation at just under 30x forward earnings is not cheap, we feel the earnings acceleration will allow Apple to generate at least double-digit returns (possibly even mid-teens) over the next few years, earning its place in our Focus Growth Portfolio.”
3. Meta Platforms, Inc (NASDAQ:META)
Number of Hedge Fund Investors: 235
Dan Niles, Niles Investment Management founder and portfolio manager, discussed Meta earnings in a program on CNBC and said the stock remains among his favorites for the rest of this year.
“Meta came out, had solid results, but they always guide conservatively in the September quarter for the outlook, and the stock sold off, which is what we expected it to do.”
Despite posting strong quarterly results, Meta Platforms (NASDAQ:META) shares fell as rising AI-related expenses yet again spooked investors about ROI. However, Meta platforms (NASDAQ:META) bulls believe Zuckerberg’s plan to keep spending on AI is totally justified.
Meta Platforms (NASDAQ:META) is driving usage and ads revenue by improving its algorithms and user experience thanks to AI. Meta also reported strong adoption of its Llama AI model, attracting over 500 million monthly active users across its platforms. This progress positions Meta well for robust profitability in the next two years as it scales its AI infrastructure.
Meta Platforms (NASDAQ:META)’s advancements in Reels and WhatsApp are helping manage CapEx growth as the company strives to stay competitive in AI.
Meta Platforms (NASDAQ:META)’s clear monetization strategy for its generative AI, especially with Llama3, makes it a strong contender against rivals like OpenAI’s ChatGPT. Meta Platforms (NASDAQ:META)’s substantial user base of 3.3 billion provides a data and distribution edge that could capture a significant share of the GenAI market. Although short-term investors may be concerned about Meta Platforms (NASDAQ:META)’s increased AI spending, its forward P/E ratio of 24x, based on FY 2025 EPS estimates of $24.62, makes it the second-most affordable big tech stock, after Google, within its peer group (Apple, Amazon, Microsoft, and Google).
According to some estimates, Meta Platforms (NASDAQ:META) is on track to potentially achieve $25-26 per share in EPS next year, slightly above the consensus estimate. Factors such as a strong U.S. economy, lower inflation, favorable online ad pricing, and AI investments could fuel earnings growth. If Meta’s valuation aligns with the industry average P/E of 26.6x, shares could reach over $600.
Alger Spectra Fund stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q3 2024 investor letter:
“Meta Platforms, Inc. (NASDAQ:META) operates the world’s largest social network, with over 3 billion monthly active users. The company generates more than 95% of its revenue from advertising, evenly split between North America and international markets. During the quarter, shares contributed to performance following the release of strong fiscal second quarter operating results, with revenues and earnings beating analyst estimates. Management also raised their fiscal 2024 revenue guidance, citing improved advertising monetization. CEO Mark Zuckerberg stated that AI has played a key role in these successes, as the company is leveraging AI to enhance targeting, measurement, ranking, and ad delivery. Higher user engagement, driven by video ranking, content recommendations, and single video views, has also supported growth. Additionally, the optimization of ad placements within videos and automation of ad campaigns are further boosting monetization.”
2. Microsoft Corp (NASDAQ:MSFT)
Number of Hedge Fund Investors: 279
Dan Niles, Niles Investment Management founder and portfolio manager, in a recent program on CNBC discussed Microsoft Corp (NASDAQ:MSFT) and said the stock should “worry” you amid declining Cloud growth and valuation.
“The one that should worry you is Microsoft, and the reason I say that is we’ve all heard of OpenAI and ChatGPT, which really kicked all this off at the end of calendar 2022. Obviously, Microsoft has a huge stake in OpenAI. But if you look at the numbers for Microsoft, their June quarter Azure, which is their cloud business, was growing 35%. Then that went to 34% in the September quarter, and they guided to 31% to 32%. So the numbers are going down. If you look at Amazon, their cloud business has actually accelerated over the last five quarters, from 12% to 19% growth. They’re the biggest. And if you look at Google, which is the smallest of them, their growth accelerated from 29% last quarter to 35% in the quarter they just reported. So you’ve got to ask yourself: is Microsoft actually getting a return for all this money that they’re investing?”
Niles said Microsoft Corp (NASDAQ:MSFT) P/E of 33 is also higher than the market’s 24 and that should also concern investors.
Microsoft Corp (NASDAQ:MSFT) shares recently fell after the company reported its latest quarterly results. Analysts believe most of the revenue beat came from PC segment, while investors were paying more attention to AI and Azure. Azure’s 34% growth met expectations, though guidance for next quarter fell short, projecting between 31% and 32% growth—1 percentage point below forecasts. This dip is attributed to delays in data center capacity from third-party providers, though Azure’s consumption trends remained steady.
Investors hoping for a rebound in IT spending were likely disappointed, as stable Azure consumption suggests no significant uptick in the second half of the year. In addition, the lower-than-expected Q2 guidance underscored tempered growth expectations.
AI services, however, contributed a robust 12 points to Azure’s growth, a steady continuation from the previous quarter. Microsoft’s management confirmed strong demand for AI services, although supply constraints are limiting further expansion. Microsoft Corp (NASDAQ:MSFT) anticipates AI-related revenues, including M365 Copilot and Azure AI, could reach $10 billion annually by next quarter—making it one of the fastest-growing segments in Microsoft Corp (NASDAQ:MSFT)’s history.
Carillon Eagle Growth & Income Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q3 2024 investor letter:
“Microsoft Corporation (MSFT) traded lower following concerns about the sustainability of its data center buildout for generative artificial intelligence (AI). The company continues to show strong growth in its cloud segment, and management highlighted optimism surrounding demand signals.”
1. Amazon.com (NASDAQ:AMZN)
Number of Hedge Fund Investors: 308
Talking about Big Tech earnings in a latest program on CNBC, Dan Niles, Niles Investment Management founder and portfolio manager, said that Amazon.com (NASDAQ:AMZN) earnings brought a “surprise” for him.
“Amazon was the real surprise to me, where eCommerce guidance was actually pretty strong even though you have one less weekend this year between Thanksgiving and Christmas for people to go shopping. That didn’t seem to matter. Business is really good for them.”
Amazon.com Inc (NASDAQ:AMZN) threw it out of the park with its latest quarterly results amid strong Cloud growth. Amazon Web Services has generated $27.5 billion in revenue, marking a 19% year-over-year increase. The segment’s operating income is expanding at nearly 2.5 times the rate of its revenue growth, boosting Amazon.com Inc (NASDAQ:AMZN)’s overall operating income. At this pace, AWS is on track to deliver $110 billion in annualized revenue. If it maintains its ~20% growth rate, AWS could reach $125-130 billion in revenue in FY 2025.
For the ongoing quarter, Amazon.com Inc (NASDAQ:AMZN) expects revenue between $181.5 billion and $188.5 billion, implying growth of up to 11%. Amazon.com Inc (NASDAQ:AMZN)’s stock currently trades at a forward P/E of 32.9, higher than the big tech average of 25.5. If Amazon.com Inc (NASDAQ:AMZN) grows its earnings per share (EPS) by an average of 25% annually over the next three years, it could achieve an EPS of around $9.25 by FY 2027 (up from an estimated $4.74 in FY 2024). Applying a 35x P/E ratio in line with Amazon.com Inc’s (NASDAQ:AMZN) historical average suggests a fair stock value of over $300. The primary catalyst for this target would be AWS’s robust operating income growth.
Polen Focus Growth Strategy stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q3 2024 investor letter:
“The largest absolute detractors were Alphabet, Airbnb, and Amazon.com, Inc. (NASDAQ:AMZN). Amazon’s position as a notable detractor speaks more to the size of the position than the magnitude of the underperformance, as the company delivered a solid set of results during the quarter.
We trimmed our positions in Amazon, Alphabet, and Microsoft during the quarter. As we have previously, we trimmed Amazon slightly to bring the weight back to 15% for risk management purposes. We remain very positive on our investment thesis of strong revenue growth and even stronger earnings and free cash flow growth continuing over the next few years.”
While we acknowledge the potential of Amazon.com, Inc. (NASDAQ:AMZN), our conviction lies in the belief that under the radar 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 AMZN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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