In this article, we will take a detailed look at the Billionaire Ken Fisher’s 10 Favorite AI Stocks for the Rest of 2024.
Billionaire Ken Fisher regularly shares his investing wisdom on his YouTube channel, sharing market insights and lessons he’s learned over the decades. Commenting about the Fed’s rate cut, Fisher recently advised investors not to focus on what the central bank is doing and instead pay attention to long-term investing.
“The fact is, and I’ve said this for a long time, I won’t live forever, but I hope to live a long time and keep saying it: central bankers are crazy. Throughout my life, central banks have operated on flawed ideas and groupthink, which is an inefficient way to manage markets.”
Fisher gave an example of how you could end up losing money following the herd mentality when it comes to central bank moves.
“If you had followed the common belief that when the Fed and other central banks hike rates, you should get out of stocks, that would have worked for a couple of months in 2022. By the middle of the summer of 2022, during the height of rate hikes, you would have been on the wrong side of the market. From June 2022 onward, as the Fed hiked rates by 75 basis points nearly every month, the market was just a few months away from rising, leading to the bull market we’re in now, in 2024.
The basic belief that central bank hikes are bad for stocks was wrong from the start because it was already priced in. As soon as central bank hikes were visible, the market had already accounted for them. We saw a bull market begin in October 2022, which has continued despite repeated rate hikes.”
For this article, we scanned Ken Fisher’s hedge fund’s Q2 holdings and picked its top AI investments. We have analyzed the AI-related growth catalysts for each stock. 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).
10. Meta Platforms Inc (NASDAQ:META)
Billionaire Ken Fisher’s Stake: $3,164,448,477
The market has been reluctant about Meta Platforms Inc (NASDAQ:META) massive spending on AI. What does Meta want to achieve with its AI spending? The company wants to use AI to improve engagement and language models like Llama 3 to improve user interactions, boost engagement, and better monetize its 3.2 billion daily active users.
But can Meta Platforms Inc (NASDAQ:META) sustain this high spending? The company’s free cash flow margin is around 30%, and it’s well on track to report $50 billion in free cash flow this year. Based on this target the stock is trading at around 26 times this year’s free cash flow. Given the current trajectory continues Meta Platforms Inc (NASDAQ:META) can post $58 billion in free cash flow by next year, which means the stock is trading at 21 times next year’s free cash flow. With a whopping $35 billion in net cash, a strong user base, and a key position in the consumer-facing side of the AI industry, Meta Platforms Inc (NASDAQ:META) could be a solid long-term investment.
Polen Focus Growth Strategy stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q2 2024 investor letter:
“In the second quarter, the top relative contributors to the Portfolio’s performance were all names we do not hold: Home Depot, Meta Platforms, Inc. (NASDAQ:META), and AbbVie. Meta Platforms delivered robust results in the period, with revenue growth accelerating in the first quarter. However, revenue comparisons for Meta will become more difficult from here, and its guidance for 2Q revenue fell below market expectations. After the company’s “year of efficiency,” where it cut costs in its core business, management is now indicating another ramp-up in GenAI and metaverse spending, spurring concerns about future profit margins. Metaverse spending, by our calculations, is now over $20 billion per year with little to no expected return on the foreseeable horizon.”
9. ASML Holding NV (NASDAQ:ASML)
Billionaire Ken Fisher’s Stake: $3,226,042,315
ASML Holding NV (NASDAQ:ASML) has a near monopoly in the semiconductor industry as its machines are used by chip manufacturers to make physical chips. The company’s focus on maintaining leadership in lithography is evident from its increased R&D expenses of €4.16 billion (+13.3% sequentially, +112.2% from FY2019) and a rising R&D-to-revenue ratio of 16.3%.
ASML Holding NV (NASDAQ:ASML) supplies ultraviolet lithography photolithography machines used to manufacture advanced 3nm and 5nm chips. Jim Kelleher of Argus has set a $1,000 price target on the stock.
ASML was one of the stocks pitched during the SOHN Conference this year. Vijay Shilpiekandula of Dilation Capital, who was named the Sohn Idea Contest Winner, presented ASML as his best stock idea.
“What I find like good opportunity for investors in the market to think about right now is to be creative about the long-term capacities and the long-term earnings potential of this company based on this gold rush that all these memory makers and large language models are chasing,” Shilpiekandula said.
During the second quarter, the company’s revenue rose about 18% quarter over quarter. The company plans to expand production capacity by over 50% by 2025/2026, enhancing its ability to monetize both its existing installed base and new deliveries. The company has a backlog of €39 billion and counting. With projected top- and bottom-line growth rates of 13.3% and 20.3% CAGR through FY2026, compared to initial estimates of 11% and 18.4%, the stock looks positioned to benefit in the future.
Polen International Growth Strategy stated the following regarding ASML Holding N.V. (NASDAQ:ASML) in its fourth quarter 2023 investor letter:
“Netherlands-based ASML Holding N.V. (NASDAQ:ASML) and Japan-based Lasertec play dominant roles within different segments of the global semiconductor industry. In both cases, shares rallied significantly in the fourth quarter of 2023, prompting our positions to grow as a percentage of the overall portfolio. We believe both companies will see demand for their products as extreme ultraviolet (EUV) lithography and soon high-numerical aperture lithography must be utilized to manufacture the world’s smallest chips. However, in our estimation, 2024 could deliver a year of less exciting growth for the semiconductor industry, which prompted us to trim these positions back.”
8. Broadcom Inc (NASDAQ:AVGO)
Billionaire Ken Fisher’s Stake: $3,619,968,667
Broadcom Inc (NASDAQ:AVGO) recently posted quarterly results and while they beat estimates on both EPS and revenue, guidance failed to impress the Street, resulting in a share price decline. However, Jefferies said the dip was a buying opportunity.
“Guidance came in a bit lighter than expected, but management has been messaging lumpiness in AI revenue and growth is set to reaccelerate in 4Q,” said Jefferies analyst Blayne Curtis, in a note. “The cyclical correction in non-AI revenue is in-line with peers, and our view is the long-term trend in AI still favors an industry shift to custom ASICs, where Broadcom Inc (NASDAQ:AVGO) remains well-positioned. Factor in the added benefit of the VMware acquisition running ahead of schedule on both revenue and earnings, and it’s easy to look past one minor bump in the road.”
Broadcom Inc (NASDAQ:AVGO) continues to be a leader in the AI ASCI and networking chips market. The company expects about $12 billion in AI revenue in fiscal 2024, which means 20% of its total revenue will come from AI and counting.
Broadcom Inc (NASDAQ:AVGO) has 3nm AI ASIC chip deals with Alphabet and Meta in addition to many other tech giants aiming massive spending for AI hyperscaling.
The company’s Ethernet business is also strong amid partnerships with Arista Networks (ANET), while the company is also collaborating with Dell (DELL), Juniper (JNPR), and Super Micro (SMCI) in the networking business and other segments.
Baron Opportunity Fund stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its Q2 2024 investor letter:
“Broadcom Inc. (NASDAQ:AVGO) is a global technology leader that designs, develops, and supplies a broad range of semiconductor and infrastructure software solutions. The stock rose during the quarter as it reported strong earnings on the back of its two key growth drivers, AI semiconductors and its acquired VMware software business. The company once again increased its outlook for AI-related revenue, now expecting $11 billion or more this year (versus prior guidance for $10 billion), on the back of strength in both hyperscale custom compute and networking chips, where Broadcom maintains dominating share. In networking, Broadcom’s solutions are critical to enabling AI training factories to scale towards 100,000 chip clusters in the near term and 1 million chip clusters over the coming years. In AI custom compute, Broadcom designs custom accelerators for large consumer- internet AI companies (such as Google and Meta), who are building increasingly large AI clusters to drive improvements in user engagement and targeted advertising on their consumer media platforms. VMware remains on track to continue rapid sequential growth while simultaneously reducing operating expenses, driving faster-than-expected margin expansion and accretion, as management has simplified the product offering and is converting customers from a license model to subscriptions. We believe VMware will grow beyond the $4 billion near-term quarterly target, well above current analyst expectations. These two factors combined have caused a re-rating to the growth profile for the overall company. To quote CEO Hock Tan, “there is only one Broadcom. Period.”
7. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Billionaire Ken Fisher’s Stake: $3,755,355,818
Advanced Micro Devices, Inc (NASDAQ:AMD) impressed Wall Street with solid second-quarter results amid strong data center revenue. Data center revenue in the period grew 49% year over year.
But can Advanced Micro Devices, Inc (NASDAQ:AMD) continue gaining in the coming months? Analysts are hopeful amid the launch of its Instinct™ MI300 Series accelerators that are designed for AI and HPC workloads. The new chip competes with Nvidia’s H100 AI chip. Advanced Micro Devices, Inc (NASDAQ:AMD) now plans to release new AI chips annually, including the MI325X in Q4 this year, the MI350 in 2025, and the MI400 in 2026. Advanced Micro Devices, Inc (NASDAQ:AMD) said MI350 would be a competitor to Nvidia’s Blackwell.
Advanced Micro Devices, Inc (NASDAQ:AMD) data center business doubled its revenue but this growth was not at the cost of profits. The segment’s operating income increased by 405% compared to the year-earlier period. However, Advanced Micro Devices, Inc (NASDAQ:AMD) data center business is still very small compared with NVDA. It generated about $2.8 billion in revenue vs. $22.6 billion in quarterly revenue for NVDA. However, Advanced Micro Devices, Inc (NASDAQ:AMD) CPU and GPU businesses are also thriving. Ryzen CPU sales increased 49% over year and slightly quarter over quarter. Although gaming revenue declined 59% due to decreased PlayStation and Xbox sales, Advanced Micro Devices, Inc (NASDAQ:AMD) Radeon 6000 GPUs saw a year-over-year sales increase.
Advanced Micro Devices, Inc (NASDAQ:AMD) is trading 17% below its 3-year average P/E ratio. The company is estimated to grow its EPS by 43% in the long term, compared to 33% for Nvidia. During the third quarter, its revenue growth is expected to come in at 15% on a QoQ basis. Amid growth forecasts based on new chips and an expected increase in AI spending by other companies, Advanced Micro Devices, Inc (NASDAQ:AMD) forward P/E of 38 makes the stock undervalued at the current levels.
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.”
6. Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM)
Billionaire Ken Fisher’s Stake: $4,937,464,673
Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is one of the best 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 that 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’s 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.
Cooper Investors Global Equities Fund stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q2 2024 investor letter:
“Unsurprisingly the portfolio’s best performers in the very short term reflect this pattern, having narrowed to those most obviously exposed to the AI story – Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) and Alphabet. While the portfolio has owned semiconductor companies for years it remains diversified and is underweight the group from an active risk perspective, dragging on relative performance in the last six months. The portfolio is currently positioned to take advantage of the Value Latency we see in smaller sized companies, and the performance of the quarter has been more aligned with those factors.
While this positioning is painful in the short-term, we see considerable embedded value in our portfolio. We also see considerable risks and uncertainties existing in the AI theme that are not reflected in the Value Latency on offer in many stocks that have surged.
Returning to the AI story, today the portfolio has around 10% of capital invested across TSMC and Alphabet. We think TSMC has a tremendous opportunity to extract more value from the profit pool currently being enjoyed by its downstream customers.”
5. Amazon.com Inc (NASDAQ:AMZN)
Billionaire Ken Fisher’s Stake: $8,460,561,806
Cantor Fitzgerlad recently initiated coverage of Amazon.com Inc (NASDAQ:AMZN) with an Overweight rating and said in a broader industry note that despite strong performance, many tech stocks remain attractively valued.
“Despite strong performance over the last 18 months, valuations in internet names are fairly reasonable and should benefit from the expectation for upcoming rate cuts, tempered by decelerating top-line growth and as benefits from widespread cost-cutting fade,” Cantor said.
AWS’s revenue growth accelerated from 17.2% in Q1 to 18.8% in Q2, driven by a shift from on-premises infrastructure to cloud solutions and increasing demand for AI capabilities. Amazon.com Inc (NASDAQ:AMZN) advertising segment added over $2 billion in revenue year-over-year, indicating significant potential in video advertising and opportunities within Prime Video offerings.
Like other tech companies, fears stemming from high CapEX are keeping investors on the sidelines. Amazon.com Inc (NASDAQ:AMZN) spending is expected to rise amid broadband project Project Kuiper and AI growth. Investors are still figuring out whether AI monetization and ROI will come anytime soon. Amazon.com Inc (NASDAQ:AMZN) is also facing a slowdown in consumer spending, especially for higher-ticket items like electronics and computers.
Based on Amazon.com Inc (NASDAQ:AMZN) Q3 guidance, its revenue growth would be 11%. The stock is trading 35x its fiscal 2025 earnings estimates set by Wall Street. This shows the stock is fairly priced and investors looking for strong growth could look elsewhere.
Diamond Hill Select Strategy stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q2 2024 investor letter:
“Among our top individual contributors in Q2 were Amazon.com, Inc. (NASDAQ:AMZN), Texas Instruments and Mr. Cooper Group. Internet retail and cloud infrastructure company Amazon is benefiting from strong profitability, particularly in its Amazon Web Services (AWS) business. Shares also received a boost amid growing optimism around the demand for AWS as Amazon customers’ investments in generative AI projects continue growing.”
4. Alphabet Inc (NASDAQ:GOOG)
Billionaire Ken Fisher’s Stake: $8,856,226,893
Despite constant alarms going off about its search business, Alphabet Inc Class C (NASDAQ:GOOG) search revenue jumped about 13.7% in the second quarter year over year. As of the end of June, Google has about 91.06% share of the search engine market, just 1.65% lower than the December 2019 levels. With AI overviews and other search initiatives, Alphabet Inc Class C (NASDAQ:GOOG) will be able to stave off any competitors given its dominance in the market. According to StatCounter report, Bing search engine’s market share only increased from 3.03% in August 2023 to 3.91% in August 2024. This shows MSFT has not been able to make any notable dent in Google’s market share.
Cloud and YouTube are two key strong catalysts for Alphabet Inc Class C (NASDAQ:GOOG) shares. During the second quarter, Alphabet’s Cloud revenue rose 28.8% to $10.35 billion, crushing past analysts’ forecasts of $10.16 billion. Alphabet Inc Class C (NASDAQ:GOOG) is on the path to reach a $100 billion revenue run-rate from YouTube Ads and Google Cloud by the end of 2024.
Pershing Square Holdings stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q2 2024 investor letter:
“Alphabet Inc. (NASDAQ:GOOG), the parent company of Google, delivered stellar business results in the first half of 2024. Revenues grew 14% powered by Google’s dominant position in the fast-growing digital advertising market as well as certain company-specific tailwinds including the increasing adoption of AI automation tools by advertisers and YouTube’s continued success in the Connected TV Medium. Strong revenue growth coupled with cost control initiatives and stable staffing levels (headcount has remained flat year-to-date), resulted in strong operating leverage. Operating profit margins expanded approximately 340 basis points, excluding one-time severance and real estate charges. In the second quarter, the company’s Cloud segment outpaced its major competitors with 29% revenue growth and achieved 11% profit margins, after first reaching profitability just 18 months ago.
Amidst solid financial performance, Google is achieving notable milestones in its AI product development roadmap. At its annual developer conference in early May, the company unveiled the broad rollout of “AI Overviews”, which are AI-powered summary responses for certain types of queries. Early results from AI Overviews highlight how thoughtful integration of AI into Search not only improves the user experience, leading to more frequent and detailed queries, but also creates opportunities for greater ad monetization through context-rich responses and higher conversion rates…” (Click here to read the full text)
3. NVIDIA Corp (NASDAQ:NVDA)
Billionaire Ken Fisher’s Stake: $11,543,247,605
Nvidia’s declines after the latest quarterly results were more or less expected amid Blackwell delay reports confirmed by management. However, the delays were mainly due to a change in Blackwell GPU mask. That does not affect the main functional logic or design of the chip, according to analysts. While Blackwell has been delayed for a few months, it does not change the core growth thesis for Nvidia.
Nvidia is set to see huge growth on the back of the data center boom amid the AI wave.
At Nvidia’s GPU Technology Conference in March 2024, CEO Jensen Huang estimated annual spending on data center infrastructure at about $250 billion. Over the next decade, this could total between $1 trillion and $2 trillion, depending on how long this level of investment continues. During the same Q&A session, Bank of America’s Vivek Arya echoed this estimate, suggesting the total addressable market would fall in the $1-2 trillion range, particularly as countries invest in their own AI infrastructure. By the end of the decade, spending could be at the high end of that range.
Of course, Nvidia won’t dominate the entire $2 trillion opportunity, as it faces competition from companies like AMD and internally developed AI accelerators from Google, Amazon, and even Apple. Some analysts believe Nvidia’s data center market share between 2025 to 2029 will be over $950 billion—less than half of the total market—but still enough to make it the leader in the sector.
Aoris International Fund stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2024 investor letter:
“If Information Technology was the dominant sector for the quarter, NVIDIA Corporation (NASDAQ:NVDA), which is the largest supplier of microprocessors used for generative AI applications, was the dominant company. NVIDIA’s share price rose by a third in the quarter and has increased by 255% so far this year. Since the beginning of 2023, its market value has risen by 8.3x, or $4.3 trillion, making NVIDIA the third largest company in the world by this measure.
As a result of the unusually strong stock price performance from NVIDIA and a few other large companies, equity markets have become increasingly concentrated. You can see this in the chart below, which shows that on 30 June, 27% of the market value of the 500 largest US companies was attributable to just five companies, more than twice the average of the last 20 years.
The composition of the Aoris International Fund will always be very different to that of the broader equity market. There will be periods, such as the most recent quarter, where this contributes to our performance lagging that of our benchmark. When it comes to NVIDIA and other AI-centric companies, rapid growth is exciting, but it makes it difficult for us to judge what is normal. Our preference is to own established leading companies where we can make a more confident, evidence-based judgement about their growth and profitability.”
2. Apple Inc (NASDAQ:AAPL)
Billionaire Ken Fisher’s Stake: $12,111,286,431
Initial numbers on Apple’s new iPhone are not encouraging. Shipments for Apple Inc (NASDAQ:AAPL) latest iPhone 16 appear to be lower than last year, according to data from UBS Evidence Lab. The lab tracks iPhone availability across 30 regions, and UBS analyst David Vogt noted that delivery wait times for the iPhone 16 Pro Max models are about two weeks shorter than last year in major markets like the U.S., China, and Europe.
“Wait times for the iPhone 16 lineup have been uninspiring since preorders began last Friday,” said UBS analyst David Vogt, in an investor note. “On average, delivery wait times for the Pro Max models are shorter by roughly 2 weeks across the US, China, Germany, Great Britain, France and Japan.”
In the U.S., wait times are 26 days, down from 40 days last year, while in China, they’re just 18 days compared to 36. Despite the upcoming Apple Inc (NASDAQ:AAPL) Intelligence features, initial pre-order sales for the iPhone 16 series are estimated at 37 million units, down 12.7% year-over-year.
Almost every bullish case on Apple Inc (NASDAQ:AAPL) is built around this assumption: millions of people would rush to upgrade their iPhone because of AI features.
However, Apple Inc (NASDAQ:AAPL) has been seeing a long-term decline in mobile carrier upgrade rates, especially postpaid, for several years. This suggests that people are holding onto their devices longer, likely due to economic factors, satisfaction with current technology, or a lack of exciting new features in recent models. This trend isn’t great for Apple Inc (NASDAQ:AAPL). Can Apple Intelligence break this trend? We’ll find out soon.
However, the assumption that we will see a huge upgrade cycle of iPhone just because of AI is big and comes with a lot of risks. Apple Inc (NASDAQ:AAPL) trades at a forward PE multiple of around 35x, well above its 5-year average of nearly 27x. Its expected EPS forward long-term growth rate of 10.39% does not justify its valuation, especially with the iPhone upgrade cycle assumption. Adjusting for this growth results in a forward PEG ratio of 3.33, significantly higher than its 5-year average of 2.38.
Baron Opportunity Fund stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q2 2024 investor letter:
“This quarter we re-initiated a position in Apple Inc. (NASDAQ:AAPL), a leading technology company known for its innovative consumer electronics products like the iPhone, MacBook, iPad, and Apple Watch. Apple is a leader across its categories and geographies, with a growing installed base that now exceeds 2 billion devices globally. The company’s attached services – including the App Store, iCloud, Apple TV+, Apple Music, and Apple Pay – provide a higher margin, recurring revenue stream that both enhances the value proposition for its hardware products and improves the financial profile. Apple now has well over 1 billion subscribers paying for these services, more than double the number it had just 4 years ago. The increasing services mix has led to healthy operating margin improvement, providing more free cash flow for Apple to reinvest in the business and to distribute to shareholders. Throughout its 48-year history, Apple has successfully navigated and capitalized on major technological shifts, from PCs to mobile to cloud computing. We believe the company’s leading brand and device ecosystem position it to do equally well in the AI age, and this was the driver of our decision to re-invest. “Apple Intelligence” – the AI strategy unveiled at Apple’s recent Worldwide Developer Conference – leverages on[1]device AI and integrations with tools like ChatGPT to enhance user experiences across its ecosystem. The AI suite enables users to create new images, summarize and generate text, and use Siri to perform actions across their mobile applications, all while maintaining user privacy and security. We think Apple Intelligence can drive accelerated product upgrade cycles and higher demand for Apple services. The combination of growth re-acceleration, increasing services contribution, and thoughtful capital allocation should continue driving long-term shareholder value.”
1. Microsoft Corp (NASDAQ:MSFT)
Billionaire Ken Fisher’s Stake: $12,187,315,624
Some believe OpenAI was the only key edge Microsoft Corp (NASDAQ:MSFT) had in the AI race and it’s quickly fading away.
DA Davidson recently downgraded the stock, with analyst Gil Luria saying the company’s advantages in the cloud and code generation sectors have diminished, making it difficult for Microsoft Corp (NASDAQ:MSFT) to maintain its previous performance. He highlighted that Amazon Web Services is now nearly matching Azure in cloud growth, while Google Cloud is also gaining momentum.
Luria downgraded Microsoft Corp (NASDAQ:MSFT) from Buy to Neutral, maintaining a $475 price target. He pointed out that Amazon and Google have made significant strides in integrating custom silicon into their data centers, putting Microsoft at a disadvantage. This reliance on NVIDIA (NVDA) for technology means Microsoft is effectively transferring wealth from its shareholders to NVIDIA’s, according to Luria.
Following a year of margin expansion, Microsoft Corp (NASDAQ:MSFT) is now projecting a decline in operating margins due to increased data center capital expenditures rising from 12% to 21% of revenue. This increase outpaces that of Amazon and Google, largely due to Microsoft’s dependence on NVIDIA.
Luria said that if Microsoft Corp (NASDAQ:MSFT) continues to overinvest at the current rate, margins could drop by at least 1 percentage point cumulatively, potentially necessitating layoffs of around 10,000 employees each year to maintain margins.
The analyst also thinks Microsoft Corp (NASDAQ:MSFT) has lost much of its edge with GitHub Copilot, as Amazon and GitLab (GTLB) have caught up in capabilities.
The concerns voiced by the analyst are not unfounded. Microsoft is also losing its edge in open-source models as enterprises shift toward cost-effective, transparent open-source solutions like Meta’s Llama 3.1.
Baron Opportunity Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:
“Microsoft Corporation (NASDAQ:MSFT) is the world’s largest software and cloud computing company. Microsoft was traditionally known for its Windows and Office products, but over the last five years it has built a $135 billion run-rate cloud business, including its Azure cloud infrastructure service and its Office 365 and Dynamics 365 cloud-delivered applications. The stock contributed to performance because of continued strong operating results and investor enthusiasm regarding Microsoft’s leadership across the secular megatrends of AI and cloud computing. Recent business momentum continued to show evidence of the strength and attractiveness of Microsoft’s product portfolio among its customer set: (1) Azure OpenAI – its suite of AI services – is now used by 65% of the Fortune 100 and contributed 7% of Azure revenue (an annualized run rate of $5.2 billion); (2) GitHub Copilot – its AI code writing service – is bending the productivity curve for developers (reports of 40%- plus improvements in developer efficiency) and now has 1.8 million paid subscribers, with growth accelerating to over 35% quarter-over-quarter; and (3) Copilot Studio – its AI application service that makes it easier for anyone to build an application, automate a workflow, or create a Copilot using natural language. 30,000 organizations across every industry have used Copilot Studio to customize Copilot for Microsoft 365 or build their own, up 175% quarter-over-quarter. In the March quarter, Microsoft again reported better-than-expected financial results, highlighted by Microsoft Cloud growing 23% year-over-year, with the fastest commercial bookings in six quarters, and Azure accelerating to 31% constant currency growth, up from 28% in the previous quarter. June quarter guidance came in-line with consensus, but the company provided higher guidance for the most important segment, Intelligent Cloud, on the back of continued strong trends across Azure and Azure OpenAI. We remain confident that Microsoft is one of the best-positioned companies across the overlapping software, cloud computing, and AI landscapes.”
While we acknowledge the potential of Microsoft Corporation (NASDAQ:MSFT), 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 MSFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.
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