Note: These are Stan Druckenmiller’s 10 best AI stock picks based on hedge fund sentiment. To see the billionaire’s biggest stock picks, go to Duquesne Family Office Q1’2024 Stock Holdings Data.
One of the defining factors separating successful money managers from failures is their honesty and readiness to learn. The market kept praising billionaire Stanley Druckenmiller over the past few quarters for his prescient call on NVIDIA Corp (NASDAQ:NVDA). Druckenmiller is always ahead of the game, everyone said, referring to the 70-year-old billionaire’s timely investment in NVIDIA Corp (NASDAQ:NVDA) back in the fourth quarter of 2022. But the Duquesne Capital founder recently revealed in a program on CNBC that it was one of his partners at his fund who bought Nvidia to his attention.
“I Didn’t Even Know How to Spell It”
“He called me in the fall of 2022 and said that he thought all this excitement about blockchain was gonna be far outweighed by AI. I asked him how to play it, he told me I should buy this company Nvidia. I didn’t even know how to spell it.”
Why Did Druckenmiller Cut Stakes in NVIDIA?
Druckenmiller said it was after the launch of ChatGPT he started to feel that AI is going to be a “mega-trend,” even bigger than the internet. The billionaire, now worth $6.2 billion, said his initial plan was to hold NVIDIA Corp (NASDAQ:NVDA) for 2-3 years. But when the stock went from $150 to $900, Druckenmiller had second thoughts:
“I am not Warren Buffett. I don’t know things for 10-20 years. I wish I was Warren Buffett.”
Druckenmiller “Needs a Break”
Stan Druckenmiller said that he’s had a “hell of a run” and he now “just needs a break.”
He thinks a lot of the AI potential has now been recognized by the market.
Stan Druckenmiller Thinks the “Real” AI Payoffs Will Come 4-5 Years from Now
Stanley Druckenmiller compared the internet revolution with the current AI boom, saying AI could “rhythm” with the internet and the real payoffs will come 4-5 years from now on. The Duquesne Capital founder, who closed his fund for outside investors and turned it into a family officer in 2011, said that “incremental payoff” of AI investments are coming by the “day.”
“If you bought the NASDAQ in 1999, it went down 80% before that all came to fruition. That’s not gonna happen with AI.”
Druckenmiller Turns to Pick-and-Shovel AI Stocks in 2024
After killing it with NVDA, Druckenmiller is now turning his attention to smaller, pick-and-shovel plays in the AI industry that would make it possible for companies as well as consumers to actually develop, deploy and use AI applications.
Methodology
For this article we first scanned Stanley Druckenmiller’s Q1’2024 portfolio and listed down all his AI stock picks. From these stocks we chose 10 AI stocks with the highest number of hedge fund investors. We used Insider Monkey’s proprietary database of 933 hedge funds to gauge hedge fund sentiment.
These are Stan Druckenmiller’s 10 best AI stock picks based on hedge fund sentiment. To see the billionaire’s biggest stock picks, go to Duquesne Family Office Q1’2024 Stock Holdings Data.
10. Palantir Technologies Inc (NYSE:PLTR)
Number of Hedge Fund Investors: 44
Palantir Technologies Inc (NYSE:PLTR) was the new arrival in billionaire Stanley Druckenmiller’s portfolio, as his family office bought 769,965 shares of the company, worth about $17.7 million. While major companies like Microsoft, Alphabet and Meta get all the attention when it comes to AI, long-term visionaries like Stanley Druckenmiller know Palantir Technologies Inc (NYSE:PLTR) is an overlook AI play. After the stock slumped following Q1 results, Wedbush Securities said in a note that it is “laser focused” on Palantir’s “AI story.”
“We believe any modest sell-off post print is a golden buying opportunity for this pure play AI name,” Wedbush’s Dan Ives said. He has a $35 price target on the stock.
Of the 933 hedge funds tracked by Insider Monkey, 44 funds reported owning stakes in Palantir Technologies Inc (NYSE:PLTR). The most notable stake in Palantir Technologies Inc (NYSE:PLTR) was owned by D. E. Shaw which had a $310 million stake in Palantir Technologies Inc (NYSE:PLTR).
9. Marvell Technology Inc (NASDAQ:MRVL)
Number of Hedge Fund Investors: 53
Billionaire Stan Druckenmiller upped his hold in semiconductor company Marvell Technology Inc (NASDAQ:MRVL) by 126% in the first quarter of 2024, buying 459,290 more shares. His family office now owns a $58 million stake in Marvell Technology Inc (NASDAQ:MRVL).
In April, Oppenheimer published a list of its top semiconductor stock picks heading into the earnings season. Marvell Technology Inc (NASDAQ:MRVL) was part of the list. Marvell Technology Inc (NASDAQ:MRVL) said latest results from ASML and TSM show that there is a strong demand for AI semiconductors fab capacity and tools.
Evercore ISI also said in a note last month that it believes AI will benefit from rising AI spending.
8. Eaton Corporation PLC (NYSE:ETN)
Number of Hedge Fund Investors: 63
Power management and data center company Eaton Corporation PLC (NYSE:ETN) got billionaire Stan Druckenmiller’s attention in the first quarter, mostly likely because of its huge AI catalysts. Once an unknown play in the tech space, Eaton Corporation PLC (NYSE:ETN) is now a household name when it comes to AI because it powers the huge and ever-growing network of data centers. As of the end of 2023, data centers and distributed IT accounted for about 14% of Eaton Corporation PLC (NYSE:ETN) sales.
Eaton Corporation PLC (NYSE:ETN) expects its global data center center-related demand for electrical equipment to jump at a CAGR of 25% between 2022 and 2025, up from previous expectations of 16%.
Stanley Druckenmiller bought 1,090 shares of Eaton Corporation PLC (NYSE:ETN) during Q1’2024, valued at $341,000.
ClearBridge Sustainability Leaders Strategy made the following comment about Eaton Corporation plc (NYSE:ETN) in its Q3 2023 investor letter:
“While renewable stocks have come under pressure of late, energy efficiency and decarbonization remain strong drivers for our industrials holdings, where Eaton Corporation plc (NYSE:ETN) and Trane Technologies (TT) were strong contributors. Eaton, whose electrical equipment enables the electrification of the power grid and electrical vehicle charging infrastructure, is benefiting from tax incentives supporting clean energy, growth in reshoring and expanding manufacturing in North America and the need for grid resiliency amid broad demand for electrification.”
7. Arista Networks Inc (NYSE:ANET)
Number of Hedge Fund Investors: 64
Arista Networks Inc (NYSE:ANET) is yet another pick-and-shovel AI play billionaire Stanley Druckenmiller is piling into. The network equipment company is expected to see huge demand for its products as companies scramble to put together infrastructure to power their AI software solutions.
Jefferies analyst George Notter in a latest note praised Arista Networks Inc’s (NYSE:ANET) recent quarter results that Arista Networks Inc’s (NYSE:ANET) management sounded “great” talking about progress of their backend network AI trials. He reiterated a Buy rating on the stock and increased his price target to $340 from $320.
Duquesne Family Office increased his stake in Arista Networks Inc (NYSE:ANET) by 82.87% in the first quarter, concluding the period with a $124,185,000 stake in Arista Networks Inc (NYSE:ANET).
Giverny Capital Asset Management stated the following regarding Arista Networks, Inc. (NYSE:ANET) in its fourth quarter 2023 investor letter:
“We did a bit of portfolio sculpting during the year, with mixed results. We trimmed Arista Networks, Inc. (NYSE:ANET) several times during the year as it soared. Those trims, a very small one in March at roughly $163 and a larger one in August at $183, don’t look smart with Arista finishing the year at $235 (and up more in January). Arista rose 94% this year. The good news is, Arista finished the year as our second largest holding, at 7.9% of the portfolio.
If you are wondering how I could sell some Arista at $163 but then hold most of it at $235, the answer is that Arista’s outstanding competitive position in Artificial Intelligence became clearer to me as the year progressed. I felt in March that Arista would earn $8 per share in a few years. I see today that it might earn $8 in 2025.
It’s possible there is AI-related froth in the Arista stock price, but also probable that Arista will continue to grow rapidly as the computing centers that process AI queries require enormous amounts of data bandwidth. I believe Arista’s routers and switches are the best tools for routing so-called hyperscale traffic. Also, its operating software allows computer giants to manage the kudzu-like growth of their data centers, lowering their total cost of operation.
The sales of both Arista and Heico reflected my desire to manage PE multiple risk. I keep learning the hard way, however, that trimming your winners generally doesn’t add value. If the valuation is beyond justification, sell the position. If the valuation is high but the business continues to dominate its niche, grow steadily and add value for customers, maybe just take a walk around the block until the urge to sell goes away.”
6. Vertiv Holdings Co (NYSE:VRT)
Number of Hedge Fund Investors: 75
Vertiv Holdings Co (NYSE:VRT) is another important AI data center play in billionaire Stanley Druckenmiller’s Q1 portfolio. However, the value investor decreased his exposure to Vertiv Holdings Co (NYSE:VRT) by 56%, selling over 1.3 million shares of Vertiv Holdings Co (NYSE:VRT). He still owns an $81.5 million stake in Vertiv Holdings Co (NYSE:VRT), as of the end of the fourth quarter of 2023.
Vertiv Holdings Co (NYSE:VRT) shares jumped last month after Vertiv Holdings Co (NYSE:VRT) increased its guidance, citing AI-related data center growth. For the full-year 2024, Vertiv expects its revenue to come in the range of $7.54 billion and $7.69 billion, compared to the previous estimate of $7.52 billion to $7.66 billion.
Artisan Mid Cap Fund stated the following regarding Vertiv Holdings Co (NYSE:VRT) in its first quarter 2024 investor letter:
“During the quarter, we initiated new GardenSM positions in DoorDash, GoDaddy and Vertiv Holdings Co (NYSE:VRT). Vertiv is an industrial power equipment company primarily serving the data center market with a global supply chain in cooling, power, controls and services. Rising AI-driven GPU use in data centers has spiked the need for efficient thermal management solutions, an area where Vertiv is particularly strong. Cooling, which consumes ~25% of data center energy, is a significant, recurring operational cost. We believe Vertiv is well positioned to benefit from a multiyear profit cycle in data center construction activity and a mix shift toward GPU-based data centers (which consume 2X–3X more power).”
5. Palo Alto Networks Inc (NASDAQ:PANW)
Number of Hedge Fund Investors: 77
Cybsecurity and Cloud infrastructure company Palo Alto Networks Inc (NASDAQ:PANW) ranks fifth in our list of the best AI stocks to buy according to billionaire Stanley Druckenmiller. The value investor’s family office increased his hold in Palo Alto Networks Inc (NASDAQ:PANW) by 114% during the first quarter of 2024, ending the period with a $39.4 million stake in Palo Alto Networks Inc (NASDAQ:PANW).
Last month, UBS published a list of its highest-conviction AI stock picks for the next 6 to 24 months. Palo Alto Networks Inc (NASDAQ:PANW) was part of the list. A total of 77 hedge funds tracked by Insider Monkey had stakes in Palo Alto Networks Inc (NASDAQ:PANW) as of the end of 2023.
ClearBridge Large Cap Growth Strategy stated the following regarding Palo Alto Networks, Inc. (NASDAQ:PANW) in its first quarter 2024 investor letter:
“Given our view that the overall market looks expensive, mostly due to mega cap valuations, the low likelihood that technology can continue to deliver well above market returns and an expected slowdown in economic growth, risk management has guided our recent positioning activity. We have been consistently trimming from the select bucket and redeploying into undervalued stable and cyclical names, while also being cognizant of position sizing to maintain the latitude to add to names when prices become attractive.
During the first quarter, we continued to trim IT stocks into strength to manage risk while also adding to high-conviction positions. For example, we trimmed our active weight in Palo Alto Networks, Inc. (NASDAQ:PANW) after the information security software maker lowered its guidance in part due to a new emphasis on providing short-term discounts on product bundles to pursue its consolidation opportunity more aggressively. While this strategy should position the company more strongly in the future, it potentially increases volatility in operating results in the near-to-medium term.”
4. Apple Inc (NASDAQ:AAPL)
Number of Hedge Fund Investors: 131
Billionaire Stanley Druckenmiller surprised the market when he revealed a new take in Apple Inc (NASDAQ:AAPL) in his first quarter holdings data. Duquesne Capital bought a $19.6 million stake in Apple Inc (NASDAQ:AAPL) in the March quarter. After dumping Apple shares in the early 2011, Stanley Druckenmiller never took interest in the stock which remains one of the favorites of hedge funds. But his latest move indicates the value investor is expecting a new bull run in Apple Inc (NASDAQ:AAPL) which is struggling to take off with its AI plans. Apple Inc (NASDAQ:AAPL) shares are down about 1% year to date. All eyes are now on Apple Inc’s (NASDAQ:AAPL) Worldwide Developers Conference as investors believe Apple Inc (NASDAQ:AAPL) will reveal some blockbuster AI plans in the event.
The closet Apple Inc (NASDAQ:AAPL) has come to any meaningful AI offering is its new plans to integrate ChatGPT in its iOS 18. Wedbush analyst Dan Ives, a notable Apple Inc (NASDAQ:AAPL) bull, called the possible deal between Apple Inc (NASDAQ:AAPL) and OpenAI a “golden goose” for Apple Inc (NASDAQ:AAPL) and Tim Cook. Ives reiterated a Buy rating on Apple Inc (NASDAQ:AAPL) stock with a $250 price target.
Apple Inc’s (NASDAQ:AAPL) list of risks is long. Apple Inc (NASDAQ:AAPL) is facing consecutive quarters of revenue growth as its iPhone business, Apple Inc’s (NASDAQ:AAPL) bread and butter so far, continues to face growth challenges amid rising competition in China and customers’ lack of enthusiasm to buy new iPhones. Major Apple stakeholders like Warren Buffett are also starting to cut their stakes in Apple Inc (NASDAQ:AAPL). To turn things around when it comes to stock price, Apple Inc (NASDAQ:AAPL) recently announced a historic a $110 billion stock buyback program. But that didn’t move the needle much for Apple Inc (NASDAQ:AAPL) shares.
Apple Inc (NASDAQ:AAPL) is trading at around 29 times earnings. Estimates suggest Apple Inc (NASDAQ:AAPL) expects to make $6.53 a share in FY2024 on about $385.8 billion in sales, while EPS in fiscal 2025 is expected to come in at $7.13. When compared to peers like Microsoft, which are growing at a much faster rate and have their AI roadmap all in place, Apple Inc (NASDAQ:AAPL) stock looks overvalued according to many analysts.
Unless Apple Inc (NASDAQ:AAPL) could pull a miracle or out-of-this-world innovation, iPhone demand isn’t expected to rebound anytime soon due to a plethora of competitors which are making cheaper but quality smartphones, and rising inflation which is hurting consumer buying power. KeyBanc Capital Markets recently said in a report that iPhone demand in April was also “soft.”
Insider Monkey’s database shows that 131 out of 933 elite money managers had stakes in Apple Inc (NASDAQ:AAPL), down from 134 funds in the prior quarter.
The London Company Large Cap Strategy stated the following regarding Apple Inc. (NASDAQ:AAPL) in its first quarter 2024 investor letter:
“Reduced: Apple Inc. (NASDAQ:AAPL) – Reduction reflects strong performance in 2023 and resulting elevated valuation. We believe the outlook for AAPL remains strong with slow growth in iPhone (now #1 global market share) and faster growth in the higher margin services business. R&D will continue to drive new products and AAPL now has over 2 billion installed devices around the world. While near term earnings expectations appear reasonable, we felt it was prudent to reduce the position size based on risks to valuation.”
