We recently published a list of the Big Tech Funds are Buying These 10 AI Stocks. Since Apple Inc (NASDAQ:AAPL) ranks 6th on the list, it deserves a deeper look.
As mega-cap technology stocks continue to soar to new highs, the number of Wall Street analysts highlighting the “concentration of gains” problem are increasing. It’s more than evident now that just a handful of technology companies account for most of the gains in the market, thanks to the AI-fueled rally that is favoring only those companies that are leading in the AI arms race. Barclays analyst Venu Krishna recently said in a report that “Big Tech” has “largely carried the broader U.S. equity market through 1Q24 earnings results.” Krishna said that Q1 results showed the “ongoing dominance” of Big Tech over earnings revisions and margin upside.
“This makes it difficult to argue for a broadening of overweight allocations,” Krishna added. The analyst said this dominance comes at the expense of other sectors as funds cut their exposure to cyclical sectors like industrials, financials and discretionary to go overweight on tech.
Billionaire Steve Cohen’s New AI Fund
Billionaires and VCs are now planning to create their own AI-focused funds to attract money from investors and tap into the unprecedented opportunities unlocked by AI. Bloomberg recently reported that Steve Cohen’s Point72 Asset Management is planning to raise about $1 billion to make a new AI-focused hedge fund. The fund will bet “on and against” companies in AI hardware and semiconductor industries. The report said that billionaire Cohen will be overseeing the fund along with Eric Sanchez. The fund’s expected launch date is later this year or early 2025.
Billionaire Cohen is already ramping up his bets on AI. To see his AI investments this year, click 10 Best AI Stock Picks of Billionaire Steve Cohen.
Since Krishna of Barclays talked about the rise of big tech funds and their concentration into AI, in this article we will take a look at the major AI stocks that form the portfolios of these funds and discuss their growth catalysts and long-term outlook. For that we first listed down all holdings of major tech funds like Technology Select Sector SPDR Fund and iShares Global Tech ETF and picked 10 AI stocks with the highest 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).
Apple Inc (NASDAQ:AAPL)
Number of Hedge Fund Investors: 150
Apple Inc (NASDAQ:AAPL) has finally entered the AI party with a bang, announcing new AI plans that many believe would create a strong ecosystem around the company’s software and hardware products. As a result, Apple Inc (NASDAQ:AAPL) shares added over $215 billion in market cap and closed at a record high on June 11. TF International Securities analyst Ming-Chi Kuo said in a fresh note that Apple Inc (NASDAQ:AAPL) has a competitive edge over peers with its on-device AI.
“Consumers may find purchasing Microsoft’s AI PC confusing (calculating whether it reaches 40 TOPS before purchase), whereas Apple directly tells consumers which models can support Apple Intelligence. Regardless of whether on-device AI applications meet consumer needs, Apple has a clear selling advantage from the start,” Kuo said.
Apple Inc (NASDAQ:AAPL) is also one of the stocks Big Tech funds are buying like crazy, according to Barclays.
Morgan Stanley said in a report last month that Apple Inc (NASDAQ:AAPL) is one of the stocks that could benefit from the rise of AI PCs. Apple Inc (NASDAQ:AAPL) skeptics have long believed that Apple Inc (NASDAQ:AAPL) is a laggard in the AI race, but experts say Apple Inc (NASDAQ:AAPL) almost always makes its own way and Apple Inc (NASDAQ:AAPL) will come roaring back in the AI competition and surpass Microsoft and Alphabet. The first signs of Apple Inc’s (NASDAQ:AAPL) AI capabilities are here. Last month, Apple Inc (NASDAQ:AAPL) revealed new M4-powered iPad Pro and claimed that its devices, powered by Neural Engine, will be “more powerful than any neural processing unit in any AI PC today.” Apple Inc’s (NASDAQ:AAPL) Neural Engine is Apple Inc’s (NASDAQ:AAPL) neural processing unit (NPU) that accelerates AI workloads.
Notable Wall Street analyst and Deepwater Asset Management Managing Partner Gene Munster recently made waves when he said in a post on Twitter that Apple Inc (NASDAQ:AAPL) is a better investment than Nvidia for the long term. Munster believes owning Apple Inc (NASDAQ:AAPL) over the next year will have a higher return because the market is in “denial” about Apple’s AI potential.
Apple Inc (NASDAQ:AAPL) is trading at 26X its 2025 EPS estimate ($7.22). This multiple, though higher than the industry average of 30, does not show the stock’s overvalued, given Apple Inc (NASDAQ:AAPL) sales growth expectation of 6.40% for fiscal 2025 and 10.50% growth for the next five years on a per-annum basis.
RiverPark Large Growth Fund stated the following regarding Apple Inc. (NASDAQ:AAPL) in its first quarter 2024 investor letter:
“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.”
Overall, Apple Inc (NASDAQ:AAPL) ranks 6th on Insider Monkey’s list titled Big Tech Funds are Buying These 10 AI Stocks. While we acknowledge the potential of Apple Inc (NASDAQ:AAPL), our conviction lies in the belief that 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 Apple Inc (NASDAQ:AAPL) 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. This article is originally published at Insider Monkey.
