In this article, we will take a detailed look at the Analysts are Recommending These 10 AI Stocks.
The past several months of market activity and tech innovation has proved that the AI trends that started with the launch of ChatGPT are here to stay and all of this was not something that’d fizzle out after making headlines for some time. Companies are investing billions in AI and they expect to see the results of their investments in the coming months and years. Analysts at UBS said in a report earlier this year that if the launch of ChatGPT was the “iPhone moment” for the AI industry, apps like Copilot signify the “App Store moment.”
UBS also increased its revenue estimates for the AI industry in the report by 40%. The firm said at the time that it now expects revenue in the AI industry to increase from $28 billion in 2022 to $420 billion in 2027. This would represent a CAGR of over 70%.
UBS justified its growth projections by drawing an analogy from the past growth cycles of mainframes, smartphones and PCs.
“Annual shipments for mainframes were only about 1mn units until the 1980s, when they ballooned to around 10mn as microcomputers became mainstream computing devices. This was followed by a sharp increase during the PC era, when annual PC shipments shot up to more than 100mn units, with PC shipments eventually reaching an annual run-rate of nearly 300mn. Smart devices, which include smartphones and tablet PCs, crossed 1bn shipments during the mid2010s. Currently, annual shipments are close to 1.5bn units. With AI, we expect this 10x growth trend to continue, with annual AI chatbots and applications potentially crossing 10bn units.”
For this article we took a look at the latest analyst rating actions around AI stocks and picked the 10 most important AI companies that recently received positive comments or ratings from notable Wall Street analysts. 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).
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10. Texas Instruments Inc (NASDAQ:TXN)
Number of Hedge Fund Investors: 50
Citi Research recently upgraded Texas Instruments Inc (NASDAQ:TXN) to Buy, pointing to the company’s lowering of capital expenditure and margins bottoming.
Recently, Texas Instruments in a capital management call revised its 2026 capital expenditure forecast, lowering the range to $2 billion to $5 billion from a previous $5 billion estimate. Texas Instruments Inc (NASDAQ:TXN) also suggested that gross margins might be nearing their lowest point.
Citi increased its price target on the stock to $235 from $200 and adjusted its earnings forecasts. The bank now expects EPS for 2025 to be $5.98, up from $5.81, and for 2026 to rise to $6.59 from $6.41, reflecting anticipated improvements in gross margins.
Citi said Texas Instruments Inc (NASDAQ:TXN) has indicated that its capital expenditures will be at the lower end of the range unless it achieves a 30% increase in revenue. The company projects that 2026 gross margins will exceed the 2024 level of 57.8% by at least 5%.
Analysts at Citi said Texas Instruments’ stock has historically traded at a 20% to 30% premium compared to its peers.
The London Company Large Cap Strategy stated the following regarding Texas Instruments Incorporated (NASDAQ:TXN) in its Q2 2024 investor letter:
“Texas Instruments Incorporated (NASDAQ:TXN) – TXN rallied in 2Q despite declining revenue in its latest update. TXN is beginning to see some encouraging signs of destocking nearing an end and some sub segments of the market are experiencing improving demand. TXN continued to spend on capex and should begin to see positive benefits to cash flow next year from the CHIPS Act.”
9. Oracle Corp (NYSE:ORCL)
Number of Hedge Fund Investors: 93
According to CNBC, an analyst at Bernstein recently gave bullish commentary about Oracle Corp (NYSE:ORCL).
“The best mix of downside protection and upside opportunity driven by idiosyncratic growth acceleration at a reasonable valuation,” the analyst reportedly said of Oracle.
Dan Ives of Wedbush is also bullish on the stock following the AI revolution and its trickle-down effects. Ives named Oracle Corp (NYSE:ORCL) among the stocks he thinks could benefit from the AI wave.
Oracle Corporation (NYSE:ORCL) earlier this month posted weak fiscal Q4 results, but the stock remained steady after the company said it signed multiple AI deals with leading horses in the industry. Oracle Corporation (NYSE:ORCL) said it reached a deal with OpenAI and Microsoft to extend Azure Al platform to Oracle Cloud Infrastructure (OCI) to provide additional capacity for OpenAl. Oracle also revealed a partnership with Google after which Google Cloud will offer Oracle Cloud Infrastructure database services and high-speed network interconnect.
Despite the weak fiscal Q4 results, Oracle’s Cloud business was strong. Cloud infrastructure (IaaS) revenue jumped 42% year over year. For fiscal first quarter, Oracle Corporation (NYSE:ORCL) expects its revenue to rise by 6% to 8% in constant currency, while adjusted EPS growth is expected in the range of 11% and 15%. One of the metrics in Oracle’s Q4 report that impressed the Street was Remaining Performance Obligations (RPOs), which surged 44% YoY in the period. Management expects 39% of this amount to come in the next twelve months. Oracle’s Cloud is exposed to the IaaS market, which is projected to grow to $738.11 billion by 2032, according to some estimates. Oracle Corporation (NYSE:ORCL) management said the company is building data centers and analysts believe the company’s automated OCI services will grow amid rising demand. Given Oracle’s partnerships with major AI players and its dominance in the niche OCI market, it’s forward P/E ratio of 22.03 looks attractive when compared to peers.
Invesco Growth and Income Fund stated the following regarding Oracle Corporation (NYSE:ORCL) in its Q2 2024 investor letter:
“Stock selection in communication services, financials and consumer discretionary added to relative performance during the quarter; several of the fund’s largest contributors came from these sectors. Oracle Corporation (NYSE:ORCL): Despite weaker-than-expected earnings, Oracle shares rose after management announced a significant increase in Oracle Cloud Infrastructure (OCI) bookings, including deals with OpenAI, Microsoft and Google.”
8. ServiceNow Inc (NYSE:NOW)
Number of Hedge Fund Investors: 97
Jefferies analyst Brent Thill said during his latest interview with CNBC that he likes ServiceNow Inc (NYSE:NOW) among other software stocks as he believes money will begin to move from AI infrastructure to AI software in the second half of this year.
Bank of America’s Savita Subramanian recently said in a latest note that AI “hype days are over” as he pointed out major AI tech companies that are spending huge amounts of money. The analyst said the AI has transitioned from “tell me” to “show me” and from now on companies that are monetizing AI will lead. The analyst named ServiceNow Inc (NYSE:NOW) as one of the companies that have already started monetizing AI.
ServiceNow Inc (NYSE:NOW) impressed the market with strong second-quarter results which have proved the company’s AI potential. Morgan Stanley’s Keith Weiss maintained his Overweight rating on the stock and a $900 price target, saying the AI momentum is real and continues to build. ServiceNow Inc (NYSE:NOW) said additional annual revenue from new Pro Plus edition contracts, which include generative AI features, doubled from the previous quarter. The company secured 11 new contracts worth over $1 million each. Analysts believe ServiceNow Inc (NYSE:NOW) strength is its NOW platform as it makes it easier for companies to integrate all tools and software at one place, including Salesforce, Microsoft, and SAP. The company’s portfolio has 168 digital workflow solutions with a 98% renewal rate.
In a tough environment for SaaS companies, ServiceNow Inc (NYSE:NOW) managed to raise its full-year guidance. It also raised its operating income by 50 basis points.
NOW is trading at 40 times its estimated earnings for 2025, which is not a high multiple when compared with over 20% revenue growth estimates for ServiceNow Inc (NYSE:NOW) and an increasing number of growth catalysts.
Lakehouse Global Growth Fund stated the following regarding ServiceNow, Inc. (NYSE:NOW) in its April 2024 investor letter:
“US-based software company,ServiceNow, Inc. (NYSE:NOW), provided another strong result, continuing its long and consistent track record of 20%-plus revenue growth combined with healthy profitability. Subscription revenues grew 25% year-on-year to $2.5 billion and free cash flow grew 47% year-on-year to $1.2 billion. The company’s core operating metrics were also impressive with remaining performance obligations growing 26% year-on-year to $17.7 billion (i.e. roughly 2x 2023 revenue) and renewal rates holding steady at 98%. Performance was evenly spread across segments, products, and geographies, with notable strength in the US federal government. The company now boasts 1,933 customers generating in excess of $1 million in Annual Contract Value (ACV), which is pleasing to see as it implies multiple solutions are involved and that the company’s platform model is increasingly resonating with customers. In our view, ServiceNow is one the highest quality software businesses globally as the combination of consistent growth at scale, robust free cash flow generation and a large addressable market make it a compelling opportunity.”
7. Salesforce Inc (NYSE:CRM)
Number of Hedge Fund Investors: 117
Jefferies analyst Brent Thill recently reiterated his Buy rating on Salesforce Inc (NYSE:CRM) and set a $350 price target on the stock.
BofA Securities believes Salesforce Inc (NYSE:CRM) is one of the best beaten-down tech stocks presenting an attractive entry point following the latest selloff.
According to Yahoo Finance data, Salesforce Inc (NYSE:CRM) is expected to see earnings growth of about 16% on a per-annum basis over the next five years. Data also shows the company is expected to deliver double-digit YoY EPS growth in the next ten out of eleven quarters.
While Salesforce Inc (NYSE:CRM) is primarily a customer relationship software company, with notable tools and platforms like Sales Cloud, Service Cloud, Marketing Cloud, Tableau, MuleSoft, and Slack, its most promising platform is Data Cloud when it comes to AI and software. The platform has 90% year-over-year growth and clocking in $400 million in FY2024. What does this platform do? It helps organizations process data from various departments and third-party cloud solutions. Powered by an AI-driven data engine, it analyzes metadata in real time to provide valuable insights, supporting sales, marketing, and customer service workflows.
As of the end of Q1 Salesforce Inc (NYSE:CRM) had $17.7 billion in cash and low financial leverage.
Polen Focus Growth Strategy stated the following regarding Salesforce, Inc. (NYSE:CRM) in its Q2 2024 investor letter:
“Salesforce, Inc. (NYSE:CRM) declined nearly 20% due to a slowdown in revenue and bookings growth, part of a wider trend we’ve observed across enterprise software as companies defer spending on large projects given the uncertain macroeconomic environment. As mentioned, there has been an emerging narrative about prioritized spending on AI, cloud, and security over enterprise software spending that could eventually impair seat-based software over the longer term. Though there may be some near-term shifts in dollars toward GenAI, we believe the market for mission-critical enterprise software will remain robust well into the future. We will monitor the position closely, but we continue to believe that Salesforce is well-placed with its mission-critical software and high customer retention rates to weather these headwinds, lean on pricing power, and effectively monetize generative AI in its product suite.”
6. Alphabet Inc (NASDAQ:GOOG)
Number of Hedge Fund Investors: 165
Jefferies analyst Brent Thill said in a latest interview with CNBC that he’s bullish on Alphabet following the pullback on antitrust concerns. The analyst does not see Google “breaking up or paying a big fee.”
Thill said that Alphabet is trading at around 12x EBITDA which makes the stock a “pretty cheap” story.
Thill has a $220 price target on the stock. He thinks the antitrust case could take up to 8 months to resolve.
Artisan Select Equity Fund stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q2 2024 investor letter:
“The top contributors to performance for the quarter were Alphabet Inc. (NASDAQ:GOOG), Lam Research and Elevance. Alphabet shares rose by 21% during the quarter, making it the largest contributor to our performance. The company reported excellent Q1 earnings, highlighting accelerating revenue growth, strong profitability and effective capital allocation. Alphabet’s core search business is growing at a mid-teens rate—the fastest growth rate in nearly two years. Importantly, its non-search businesses have reached significant scale, with its cloud and YouTube businesses expected to reach a combined run-rate of $100 billion by the end of 2024
During the quarter, Alphabet also displayed meaningful progress in its AI initiatives, and we believe it is well positioned to be a leader in this field. The capital allocation is solid. It is returning all the free cash flow to shareholders and announced that it will start paying a dividend. Alphabet’s shares are trading at just over 20X next year’s earnings, which is a very reasonable valuation for a business with such high-quality characteristics and growth potential.”
5. NVIDIA Corp (NASDAQ:NVDA)
Number of Hedge Fund Investors: 179
Oppenheimer Asset Management recently gave a Buy rating to Nvidia (NASDAQ:NVDA).
“Key positives for NVDA remain the stock’s bullish trend, high-momentum score, and portfolio tailwinds from a relatively strong Technology sector. In terms of trading, NVDA has inflected positively above the bullish slope of its 200-day average indicating a resumption of the stock’s uptrend, in our view,” the firm said.
However, Aswath Damodaran, NYU Stern School of Business Professor of Finance, reiterated his NVIDIA Corp (NASDAQ:NVDA) thesis on a latest program on CNBC, calling the stock overvalued.
“NVIDIA Corp (NASDAQ:NVDA) is an amazing company, great growth, amazing cash flow, superb margins, but you are paying a premium price even given all of those pluses,” Damodaran said.
Asked what’d be a better buy than NVDA, Damodaran said AMZN is a better stock.
“Given the earnings and their cash flows if I had to buy a stock now and you forced me to a buy a big tech, I’d rather own Amazon I’d buy Amazon than buy Nvidia right now,” Damodaran added.
Baron Opportunity Fund stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2024 investor letter:
“NVIDIA Corporation (NASDAQ:NVDA) sells semiconductors, systems, and software for accelerated computing, gaming, and generative AI. NVIDIA’s stock continued its run, rising 36.9% in the second quarter and finishing the first half of 2024 up 149.9%. NVIDIA continued to report unprecedented growth at scale, with quarterly revenues of $26 billion growing 262% year-over- year, datacenter segment revenues of $22.6 billion up 427% year-on-year, and operating margins of 69.3%. NVIDIA’s growth is even more impressive as it is nearing a new product cycle with Blackwell going into production in the third quarter, which speaks to the urgency of demand for GPUs as customers are not willing to wait for the next generation architecture despite its improved performance-to-cost ratio. The Blackwell architecture, and in particular, the new GB200 NVL72/36 racks, which the company believes would become “the new unit of compute,” would in our view:
(1) increase the company’s content per server (for example an NVL72 rack would have 18 compute trays with 4 Blackwell GPUs and 2 Grace CPU in each, and 9 switch trays with NVIDIA content); and (2) further strengthen its competitive advantages as the demand for datacenter-scale computing grows due to scaling laws (models become more capable with size and as they are trained on more data), new model types (such as Mixture of Experts that increase the demand on sharing of data between GPUs) and model optimization mechanisms (such as tensor parallelism, pipeline parallelism, and expert parallelism – which also increase the demands from the connectivity layer), and increase the relative importance of NVIDIA’s networking and full-system capabilities (in particular the capabilities enabled with the latest generation of NVLink–connecting up to 576 GPUs together, up from 8)…” (Click here to read the full text)