In this article, we will take a detailed look at Big Tech Funds are Buying These 10 AI Stocks.
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.
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10. Applied Materials, Inc. (NASDAQ:AMAT)
Number of Hedge Fund Investors: 79
Applied Materials, Inc. (NASDAQ:AMAT) is one of those non-fancy AI stocks that don’t get much limelight from the Wall Street. The stock, up 47% this year so far, received an upgrade from Barclays. The investment firm expects the stock to benefit from higher spending in the semiconductor equipment industry. Barclays expects wafer fab equipment spending to hit $96.3 billion in 2024 and $106.4 billion in 2025, up from its previous estimate of $80.6 billion and $89.1 billion, respectively.
In May, Applied Materials, Inc. (NASDAQ:AMAT) posted solid Q2 results. Mizuho Securities analyst Vijay Rakesh upped his price target on the stock to $245 from $225 and kept his Buy rating. Citi analyst Atif Malik also increased his price target on the stock to $250 from $170. The analyst sees “further upside” to Applied Materials, Inc.’s (NASDAQ:AMAT) 2025 estimates.
Applied Materials, Inc.’s (NASDAQ:AMAT) moat is strong and wide. The company makes equipment used to make semiconductor chips. It has a diverse equipment portfolio that addresses the high-growth ICAPS industry (IoT, Communications, Automotive, Power, and Sensors). Last year Applied Materials, Inc. (NASDAQ:AMAT) made a breakthrough announcement by launching Centura Sculpta, a machine that dramatically reduces the number of steps required in chips production. Applied Materials, Inc. (NASDAQ:AMAT) said chipmakers can save a whopping $250 million per 100K wafer starts per month of production capacity in costs.
Wall Street expects Applied Materials, Inc.’s (NASDAQ:AMAT)’ revenue to surge 11% in 2025 while earnings growth is forecasted to come in at 15.60% in the year. The stock’s forward P/E is 23.73, not much higher than the industry average of 27, when seen in the context of growth.
9. Broadcom Inc (NASDAQ:AVGO)
Number of Hedge Fund Investors: 115
Broadcom Inc (NASDAQ:AVGO) is one of the top 10 holdings of The Technology Select Sector SPDR Fund (XLK), one of the notable funds that are highly concentrated around AI tech stocks, as pointed out in the latest report by Barclays.
UBS estimated in its latest report that the AI data center business, which includes GPUs, memory chips, interconnects, is sitting on a $331 billion opportunity. Broadcom Inc (NASDAQ:AVGO), being one of the top semiconductor companies, is exposed to this opportunity.
JPMorgan in a latest report said that Broadcom Inc (NASDAQ:AVGO) can “dominate” the high-end of the custom chips market. JPMorgan expects the high-end of the application-specific integrated circuit, or ASIC, market to reach anywhere between $20 billion and $30 billion, up from its previous estimate of $20 billion to $25 billion.
While Broadcom Inc (NASDAQ:AVGO) is directly exposed to the AI semiconductor market, some believe the stock is priced for perfection, with a P/E multiple of 52 and YTD share price gain of 30%. In the first quarter Broadcom Inc (NASDAQ:AVGO) saw a 34% revenue growth, which surprised the Wall Street. However, adjusted earnings clocked in growth that was significantly less than revenues, indicating limited margins. Broadcom Inc’s (NASDAQ:AVGO) EV/EBITDA is 22.5, much higher than its five-year average of 14 and sector median of 14. Broadcom Inc’s (NASDAQ:AVGO) debt levels are also worrying for many. It has $73,429 million in long-term debt and $2,374 million in current debt. Broadcom Inc’s (NASDAQ:AVGO) revenue growth is expected to come in at 13% next year and 15.10% over the next five years on a per-annum basis. This means Broadcom Inc (NASDAQ:AVGO) is a laggard when compared to industry leaders like NVDA. The stock’s one-year average analyst price estimate set by Wall Street is $1533, representing an upside potential of just 9%.
Carillon Eagle Growth & Income Fund stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its first quarter 2024 investor letter:
Broadcom Inc. (NASDAQ:AVGO) continues to trade higher as a beneficiary of generative artificial intelligence (AI). Management recently highlighted that AI-related silicon now comprises a significant percentage of all semiconductor solution sales. The company also is focused on integrating its acquisition of VMware.
8. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Number of Hedge Fund Investors: 124
AMD is the fifth biggest holding of the The Technology Select Sector SPDR Fund (XLK), a notable Big Tech fund the likes of which were highlighted by Barclays’ analyst Venu Krishna recently. However, Morgan Stanley recently downgraded the stock, saying market expectations from its AMD business are “too high.”
Morgan Stanley’s Joseph Moore said while he likes AMD’s story, he sees “limited upward revision potential for AI from here and we move to EW, with a preference for NVDA and AVGO among large cap AI semis.”
Advanced Micro Devices Inc. (NASDAQ:AMD) is making waves with its new AI PC offerings. Earlier this month, Advanced Micro Devices Inc. (NASDAQ:AMD) revealed new AMD Ryzen™ AI 300 Series processors equipped with Neural Processing Unit (NPU)1. Advanced Micro Devices Inc. (NASDAQ:AMD) has also introduced next-gen AMD Ryzen™ 9000 Series processors for desktops. Citi recently said in a report that Advanced Micro Devices Inc. (NASDAQ:AMD) is expected to take about 10% of the data center GPU market. This market share would be worth about $15 billion according to Citi’s calculations. Citi analyst Christopher Danely reiterated a Buy rating on the stock with a $176 price target.
Advanced Micro Devices Inc. (NASDAQ:AMD) is a pioneer when it comes to AI PCs. Advanced Micro Devices Inc. (NASDAQ:AMD) announced AMD Ryzen 7040 in January last year. It was the first chip to have built-in AI acceleration. Advanced Micro Devices Inc. (NASDAQ:AMD) later launched Ryzen 8040. Laptops powered by AMD’s Ryzen AI 300 series are expected to hit the market by July this year.
Advanced Micro Devices Inc. (NASDAQ:AMD) is also a strong player in the data center space. Advanced Micro Devices Inc. (NASDAQ:AMD) has teased 5th Generation Epyc Gen CPUs (codename Turin) and their Instinct MI-300 series GPU accelerators. Advanced Micro Devices Inc.’s (NASDAQ:AMD) serve chips are built on Zen5 core CPU architecture.
Average analyst estimate for Advanced Micro Devices Inc. (NASDAQ:AMD) is $187.2, which presents an upside potential of 17%. Wall Street analysts expect Advanced Micro Devices Inc. (NASDAQ:AMD) to grow 33% this year and 59% next year. For the next five years the growth will then moderate to 32% on a per-annum basis, which is still high. Based on Advanced Micro Devices Inc.’s (NASDAQ:AMD) 2025 EPS forecast, the stock is trading at around 28.6X forward P/E ratio, which isn’t high given Advanced Micro Devices Inc.’s (NASDAQ:AMD) growth trajectory and catalysts.
Meridian Contrarian Fund stated the following regarding Advanced Micro Devices, Inc. (NASDAQ:AMD) in its fourth quarter 2023 investor letter:
“Advanced Micro Devices, Inc. (NASDAQ:AMD) is a global semiconductor chip maker specializing in central processing units (CPUs), which are considered the core component of most computing devices, and graphics processing units (GPUs), which accelerate operations running on CPUs. We invested in 2018 when it was a mid-cap value stock plagued by many years of underperformance due to lagging technology and lost market hi share versus competitors Intel and Nvidia. Our research identified that changes and investments made by current management under CEO Lisa Su had, over several years, finally resulted in compelling technology that positioned AMD as a stronger competitor to Nvidia and that its latest products were superior to Intel’s. We invested on the the belief that AMD’s valuation at that that time did not reflect the potential for its technology leadership to generate significant market share gains and improved profits. This thesis has been playing out for several years. During the quarter, AMD unveiled more details about its upcoming GPU products for the AI market. The stock reacted positively to expectations that AMD’s GPU servers will be a viable alternative to Nvidia. Although we pared back our exposure to AMD into strength as part of our risk-management practice, we maintained a position in the stock. We believe AMD will continue to gain share in large and growing markets and is reasonably valued relative to the potential for significantly higher earnings.”
7. Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM)
Number of Hedge Fund Investors: 135
Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is one of the top AI semiconductor stocks big tech funds are piling into, and for the right reasons. Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is the biggest foundry which makes chips for fabless companies, enjoying an over 50% market share. Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is behind some of the world’s most advanced chips, including 2nm and 3nm nodes. It supplies chips to major players like Apple (AAPL), Qualcomm (QCOM), and Nvidia (NVDA).
Despite these growth catalysts, analysts believe Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) valuation is depressed amid the Taiwan factor — any conflict between China and Taiwan would hamper Taiwan Semiconductor Mfg. Co. Ltd.’s (NYSE:TSM) business due to its huge reliance on international supply chains. The stock is trading at a forward P/E of 27, much lower than peers like ASML, NVDA and AMD. But some believe these concerns are overblown and there are no short-term risks to Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) from this perspective. Bank of America Brad Lin recently increased his earnings estimate and price target for the stock, saying TSMC is the “key beneficiary and enabler of AI prosperity.” Lin set a $180 price target on TSMC. Lin thinks Apple’s latest plans revealed at the WWDC event would bode well for Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) since TSMC makes 25% of its revenue from the Cupertino giant.
Baron Emerging Markets Fund stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its first quarter 2024 investor letter:
“Semiconductor giant Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) contributed in the first quarter due to investor expectations for a continued strong cyclical recovery in semiconductors and significant incremental demand for AI chips. We retain conviction that Taiwan Semiconductor’s technological leadership, pricing power, and exposure to secular growth markets, including high-performance computing, automotive, 5G, and IoT, will allow the company to sustain strong double-digit earnings growth over the next several years.”
6. 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.”
5. Alphabet Inc (NASDAQ:GOOG)
Number of Hedge Fund Investors: 165
The latest Barclays report suggests (unsurprisingly) that Alphabet Inc (NASDAQ:GOOG) is one of the stocks Big Tech funds have been piling into. The stock has gained about 45% over the past one year. Morgan Stanley in a latest note said that Alphabet Inc’s (NASDAQ:GOOG) new AI features do not pose a threat to Alphabet’s “broad-based search.”
Billionaire Ackman owns a $1.4 billion stake in Alphabet Inc. (NASDAQ:GOOG). In his 2023 letter to investors, Ackman addressed the concerns around Alphabet Inc. (NASDAQ:GOOG) amid the rise of AI language models:
The cumulative impact of AI and machine learning enhancements is perhaps most evident in Google’s core Search franchise. Google Search has evolved from its starting point as a simple results page with “10 blue links” and now provides summary answer snippets for informational and educational queries similar to AI chatbots without any of their latency. For more involved queries, for example, in travel, the company has developed specialized Google Flights and Hotels modules that offer consumers substantial utility and freedom to direct their discovery process. Innovation in Google Search has maintained its leading market position through multiple perceived “disruption” risks over time, including the platform transition from desktop-tomobile and competitive threats from social media and verticalized search. Likewise, we view the company’s integration of generative AI into a wider range of queries, not as a disruptive shift, but as a natural evolution of its Search product which will enhance the user experience and improve conversion for advertisers. We continue to believe Google is one of the most advantaged and scaled players in AI with an unmatched business model. The company’s stock currently trades at approximately 19 times forward earnings, a deep discount to its peers despite its similar rate of projected earnings growth.
Read Ackman’s letter here.
Alphabet Inc. (NASDAQ:GOOG) bulls believe the company is just getting started with AI product launches. Alphabet Inc. (NASDAQ:GOOG) is indeed in a strong position to develop an AI ecosystem around its products. For example, demos have shown that Gemini app will help people perform daily personal tasks like note taking, appointments, writing, etc. These features could easily be integrate with other Google apps. Alphabet Inc.’s (NASDAQ:GOOG) app is to urge users to sign up for ‘Google One AI Premium’ plan, which has a $19.99 price tag. Google saw advertising revenue accelerate in Q1 2024, boosted by YouTube in particular growing by almost 21% last quarter. Analysts also believe Alphabet Inc. (NASDAQ:GOOG) is in a strong position to offset any headwinds or lost market share in Google search with YouTube, which saw its ads revenue reach $8.1 billion in the first quarter, a 21% growth. Alphabet Inc.’s (NASDAQ:GOOG) net income in the period came in at $23.66 billion, up 57%, or $1.89 per share.
Lakehouse Global Growth Fund stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its April 2024 investor letter:
“Alphabet Inc. (NASDAQ:GOOG) delivered a strong quarterly result that came in well ahead of analysts’ expectations. Revenue grew 15.4% (16.0% constant currency) to $80.5 billion and operating income grew 46.0% to $25.5 billion. Revenue growth accelerated across Search, YouTube Ads, and Google Cloud, all whilst the company delivered its highest operating margin since 2021 – showing meaningful progress in the company’s efforts to durably re-work their cost structure. On the Generative AI front, management emphasised the company’s infrastructure advantages including 5th generation TPUs(chips developed by Google specifically for AI training and inference), high performance data centre architecture, and AI models that are 100x more efficient versus 18 months ago. Overall, we believe that Alphabet is well placed for the AI opportunity ahead and still has significant latent earnings power. When combined with a relatively undemanding valuation of 21x forward net profit and over $100 billion of cash on the balance sheet, it’s not hard to see why we remain positive on the range of outcomes in the years ahead.”