Below is the list of AQR Capital Management’s top 5 stock picks. For detailed analysis and discussion about AQR Capital Management’s performance and investment philosophy please see AQR Capital Management: AUM, Performance, Stock Picks.
5. Cisco Systems, Inc. (NASDAQ:CSCO)
Value of AQR Capital Management’s 13F Position: $567 million
Number of Hedge Fund Shareholders: 56
AQR Capital Management, led by Cliff Asness, increased its stake in Cisco Systems, Inc. (NASDAQ:CSCO) during the second quarter. The company’s stock has risen 12% year to date, due to solid financial results in the latest quarters. Furthermore, Cisco’s aggressive growth strategy has boosted investor confidence. In an effort to broaden its exposure to AI, the company recently announced the acquisition of Splunk Inc. (NASDAQ:SPLK) for $28 billion.
In the third quarter investor letter, Oakmark Funds, advised by Harris Associates, highlighted the reasons for adding Cisco to its portfolio. Here is what the firm said:
“Cisco Systems, Inc. (NASDAQ:CSCO) is the leading networking solutions company. Networking equipment becomes more important as businesses modernize their IT infrastructure, and Cisco is well positioned to capture this demand given its broad portfolio and highly effective go-to-market strategy. Cisco is transitioning away from selling mainly transactional hardware and toward selling more software and subscriptions. This shift is expected to accelerate revenue growth, improve operating margins and build recurring revenue. Despite these notable business improvements, Cisco still trades near a trough valuation relative to the S&P 500 Index. More recently, Cisco announced its intention to acquire Splunk, a leader in security and observability, adding to its already strong position in the increasingly important security market. At a low-teens multiple of our estimate of normalized earnings, Cisco is trading comfortably below our estimate of intrinsic value.”
4. Alphabet Inc. (NASDAQ:GOOG)
Value of AQR Capital Management’s 13F Position: $583 million
Number of Hedge Fund Shareholders: 367
Although AQR Capital Management reduced its stake in Alphabet Inc. (NASDAQ:GOOG) by 14% in the second quarter, the firm still has a massive $583 million stake in the company. Alphabet has also contributed to AQR Capital’s performance in 2023. The company’s stock has risen 55% year to date. Moreover, with healthy revenue and earnings growth expectations for the following quarters, Alphabet’s stock price is likely to extend the momentum. Wall Street expects its earnings to grow by 23% in 2023 and 17% in the following year.
In the second quarter letter, Artisan Partners, an investment management company, highlighted reasons for the outperformance of Alphabet. Here is what the firm said:
“Our best performing stocks this quarter were Meta, Alphabet Inc. (NASDAQ:GOOG) and Heidelberg Materials. The rise in Alphabet’s share performance was primarily driven by the AI frenzy. Earlier this year, there were some doubts about Alphabet’s ability to compete with OpenAI’s ChatGPT product. This was a bit ironic since Alphabet has been using AI technology to improve its Google search results and advertising business for years. Indeed, the technology that underpins OpenAI’s ChatGPT actually came from Alphabet more than five years ago. But sometimes the market needs a reminder, and Alphabet provided tangible evidence of its capabilities. At a recent developer conference, it launched Bard, a consumer-oriented generative AI version of its search engine, as well as several other concrete examples of how AI could improve its current business. As with Meta, the long-term implications of AI on Alphabet’s business model are still far from certain. But we do believe that it is a technology leader in this field and will participate in whatever direction the technology develops.”
3. Taiwan Semiconductor Manufacturing Company Limited (NASDAQ:TSM)
Value of AQR Capital Management’s 13F Position: $647 million
Number of Hedge Fund Shareholders: 125
Taiwan Semiconductor Manufacturing Company Limited (NASDAQ:TSM) has also outperformed the broader market index and is one of AQR’s top contributors. The company’s stock price has increased by around 20% year to date, owing to increased demand for the AI-powered chips it manufactures for NVIDIA. It also supplies chips to other technology companies such as Apple Inc. (NASDAQ:AAPL)
Investor confidence in the company has increased significantly. The number of hedge fund positions in Taiwan Semiconductor Manufacturing Company Limited (NASDAQ:TSM) increased to 125 at the end of the second quarter, up from 104 the previous quarter.
2. Microsoft Corporation (NASDAQ:MSFT)
Value of AQR Capital Management’s 13F Position: $1.35 billion
Number of Hedge Fund Shareholders: 310
Microsoft Corporation (NASDAQ:MSFT) shares have risen 37% year to date, owing to the company’s increasing penetration in AI markets as well as increased demand for its existing products and services. The company exceeded revenue expectations for the June quarter by $658 million and earnings expectations by $0.14 per share. In the earnings call, Microsoft (MSFT) CEO Satya Nadella emphasized the rapidly increasing demand for artificial intelligence.
In the second quarter investor letter, ClearBridge Investments, an investment management company, made comments about Microsoft. Here is what the firm stated:
“We initiated a small position in Microsoft Corporation (NASDAQ:MSFT) during the quarter, which may seem surprising given our concerns about index concentration. However, we seized the opportunity on a compelling entry point below our business value estimate, due to an anticipated acceleration of demand for Microsoft’s Azure cloud business and incremental revenues from integration of Microsoft’s AI Copilot program into its office platform. We believe this could support double-digit growth, while simultaneously solidifying Microsoft’s competitive position as an AI winner. Even as a small position, we believe Microsoft provides a large portfolio construction benefit given low correlation to the rest of the portfolio.”
1. Apple Inc. (NASDAQ:AAPL)
Value of AQR Capital Management’s 13F Position: $1.71 billion
Number of Hedge Fund Shareholders: 138
Apple Inc. (NASDAQ:AAPL) is the largest holding in Cliff Asness’ AQR Capital Management’s 13F portfolio. Apple shares, like those of other tech titans, skyrocketed in 2023, contributing to AQR’s performance. Apple shares are up 40% year to date, fueled by positive broader tech market trends and solid financial growth.
In the second quarter investor letter, Choice Equities Capital Management, a hedge fund manager, pointed out reasons for a sharp surge in Apple’s market value. Here is what the firm stated:
“Dramatic valuation differences across market cap sizes continue. This has been the case for some time now. Perhaps I have spent too much time discussing these dichotomies, as generally, I feel like if we pick the right stocks and manage market exposures thoughtfully, our equities- oriented portfolio will prosper across various market cycles. However, when markets become as lopsided as they have lately, I feel additional discussion on the market environment is worthwhile, if only to help highlight the opportunities that are available and the likely path forward. I expect future discussions to soon be focused again on our moderately concentrated portfolio. But for now, let’s take one last in-depth look at how far reaching these valuation dichotomies have again become.(Please note: charts that accompany the following can be found in the Appendix.)
Take Apple Inc. (NASDAQ:AAPL) for example. It is the largest stock by market cap, and fairly considered one of the best companies in the world. The company has been extraordinarily successful and improved standards of living everywhere in the process with their ubiquitous products. Along the way, shareholders have been richly rewarded, with shares increasing nearly fourteen-fold over the last ten years while generating an annualized total shareholder return of 31%, including dividends.
On the back of another big quarter for large cap tech, it is now the first stock to surpass the $3T market cap threshold. This makes its weighting in the ~$37T market cap of the S&P 500, ~8%. It also means this one stock’s market cap is larger than that of the entire ~$2.98T market cap of the Russell 2000 index, the first time in history a single stock has outweighed the Russell 2000 – aside from two brief days in September 2020 when Apple’s market cap then accomplished the same…” (Click here to read the full text).
You can also take a look at the What Ray Dalio Is Doing These Days? – Top 10 Stock Picks in 2023 and 15 Stocks Dumb Money’s Steve Cohen Is Betting On Now.
