We recently published a list of Hedge Funds are Buying and Selling These 10 AI Stocks. Since Intel Corp (NASDAQ:INTC) ranks 9th on the list, it deserves a deeper look.
The AI-led rally in the stock market is expected to ripple through other sectors and smaller tech companies, but analysts believe for now large-cap companies are still the key focus of money managers. Morgan Stanley in its August key themes report said that while small-cap stocks rebounded on rate-cut hopes, the window for their outperformance is “too narrow.”
“Historically small cap outperformance depended primarily on economic growth acceleration. Greater risk exposure to a “higher-for-longer” rate environment has added inverse rate correlation to the mix. While periods of growth acceleration with lower rates are plausible (e.g. end-2023), we see this combination as relatively unlikely in the current inflation environment. The recent decline in interest rates was a tailwind to small cap stocks, but softer economic data likely limits the durability of this trade,” the firm said.
The latest earnings season showed that ROI on the huge AI spending by major companies is small in the short term, but long-term gains seem promising. Many companies have already started seeing monetization on their AI investments. Goldman Sachs analysts Joseph Briggs, Kash Rangan, and Eric Sheridan said in a June report titled GEN AI: TOO MUCH SPEND, TOO LITTLE BENEFIT? that they remain more optimistic about AI’s economic potential even if we don’t see immediate benefits for now.
Hedge funds are one step ahead of average individual investors due to the sheer scale of resources and capital they have. That’s why it’s always interesting to see which stocks they are buying and selling. In this article we take a look at the 10 most important AI stocks which were on the radar of elite money managers based on their second-quarter filings. 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).
Intel Corp (NASDAQ:INTC)
Total Number of Hedge Fund Investors as of the End of Q2: 75
Total Number of Hedge Fund Investors as of the End of Q1: 77
Billionaire Ray Dalio’s Bridgewater Associates exited its stake in the company worth over $18 million during the second quarter. Billionaire David Tepper of Appaloosa Management decreased its stake in Intel to 2.78M shares from 3.75M shares.
Intel Corp (NASDAQ:INTC) shares recently saw a bloodbath following the company’s weak Q2 results and disappointing guidance. The results show the AI growth everyone was talking about won’t come cheap. Intel Corp (NASDAQ:INTC) expects its gross margin in the third quarter to decline to 34.5% from 38.7% reported in the second quarter, which was a significant decline from the company’s expectation of 43.5%.
While Intel Corp (NASDAQ:INTC) has suspended its dividend and announced massive layoffs, its problem of inventory won’t be resolved anytime soon. Intel has 137 days of inventory, worth over $11.2 billion. This is much higher than the industry average of 90 days. Intel Corp (NASDAQ:INTC) has close to $52 billion in long-term debt and analysts believe its cost-cutting measures along with AI growth initiatives won’t let it fix this problem soon. S&P Global recently put the stock’s credit rating on “watch” saying:
“While these cost-cutting measures, including significant capital expenditure reductions, could alleviate some near-term cash-flow-generation challenges, it is unclear whether these steps will be sufficient to maintain its business competitiveness and enable healthy growth.”
Raymond James said in a report after earnings that Intel’s margin issues are expected to continue until 2025. AI PC growth has become a larger headwind for margins, as the higher cost of external wafers offsets modest average selling price premiums.
Amid these factors, investors are better off looking for other AI stocks and avoid Intel for now until there’s visibility on how exactly Intel Corp (NASDAQ:INTC) would resolve its core problems.
Invesco Growth and Income Fund stated the following regarding Intel Corporation (NASDAQ:INTC) in its Q2 2024 investor letter:
“Stock selection in the industrials and health care sectors detracted from relative performance during the quarter. Selection and an underweight in consumer staples also hurt relative return as the sector was one of just two index sectors with a positive return for the quarter.
Intel Corporation (NASDAQ:INTC): Shares declined after the semiconductor company reduced its second quarter revenue and earnings guidance. Investors also appeared concerned about the future of its foundry business and lack of AI market share gains.”
Overall Intel Corp (NASDAQ:INTC) ranks 9th on Insider Monkey’s list titled Hedge Funds are Buying and Selling These 10 AI Stocks. While we acknowledge the potential of Intel Corp (NASDAQ:INTC), 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 INTC 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 Stocks.
Disclosure: None. This article is originally published at Insider Monkey.
