In this piece, we will take a look at AI and semiconductor stocks that fund managers are buying and selling according to Bank of America’s data.
The initial wave of artificial intelligence investing has shaken up the stock market. Suddenly, technology stocks are divided between those that have exposure to AI and those that don’t. The former category has soared to set records while the latter has been lackluster because of the state of sluggishness in the non-AI business world.
Within AI stocks that have outdone themselves, semiconductor stocks are a standout. Additionally, just as is the case with broader technology stocks, semiconductor stocks are also divided between those with AI and non-AI exposure. The best example of the former category is Wall Street’s top AI stock pick. This stock is of a firm that designs and sells GPUs used to process AI workloads. Its shares are up 845% since the 2023 start and have set multiple records since OpenAI’s Chat GPT became publicly available.
On the flip side, another semiconductor stock has floundered during the same period even though it’s one of the oldest and largest semiconductor companies in the world. This stock belongs to a firm that is also one of the only three companies in the world that can manufacture high-end semiconductors and it is the only one which is headquartered in the US. While the GPU designer’s shares have gained 845%, over the same time, this semiconductor stock is down 13.9%, and year to date the shares have bled an unbelievable 53.14%.
Therein lies the bifurcation between semiconductor stocks that is fueled by the artificial intelligence wave. However, these returns might belong to the first stage of AI stocks only, implying that other semiconductor companies could also see gains provided robust AI software demand and the ability of firms to monetize their products. We covered a lot of such potential stocks as part of our coverage of Goldman Sachs’ Best Phase 2 AI Stocks: Top 24 High Conviction AI Stocks.
In this list, there were five semiconductor stocks. Four of these are semiconductor manufacturers while the remaining stock is the firm whose designs are the backbone of the modern-day smartphone industry. The stocks are ranked 19th, 16th, 14th, 8th, and 6th. Looking at their year-to-date performance, these stocks are up roughly 45%, 51.7%, 65.7%, 97.8%, and 122% year-to-date, respectively. Safe to say, the AI wave has been kind to these stocks. The next step in our brief analysis is to see what analysts believe the future holds for these firms. To do this, one particularly useful ratio is the forward price to earnings since it gauges the current price to analyst estimates of future earnings.
For these five phase two AI semiconductor stocks, the forward P/E ratios in respective orders are roughly 31.25, 50.51, 29.41, 25.19, and 99 times. The forward P/E ratio for global and US semiconductor stocks is 45.77 so most of these stocks are fairly valued. Consequently, this implies that in case of an AI correction that sees investor sentiment evaporate for any reason, these stocks might not be hit as hard as those speculating about an ‘AI bubble’ might worry, but if Wall Street finds more reasons to add to its AI euphoria, then their valuation might further bloom for more gains.
Shifting gears, the average forward P/E ratio for the semiconductor industry also leads us to wonder which stocks are driving this average value higher. After all, the six AI chip stocks we’ve covered above include some of the biggest companies in the world. However, high P/E ratios commonly belong to smaller companies that earn small profits but have a much higher share price. Two stocks that we’ve identified that have at least 2x the average forward P/E ratio are both unprofitable right now. The one with the higher forward P/E ratio of 196.08 ranks 20th on our list of Piper Sandler’s Top Technical Stock Picks: 20 Best Stocks while the second with a beefy ratio of 133.33 ranked 32nd on this list of AI stocks that were recently trending.
So, the next question to ask is, what makes these stocks so special that despite the fact that neither is currently profitable, investors have valued their shares more than 100 times over their projected earnings? Well, starting from the first stock with the higher P/E ratio, this firm is one of the few hardened integrated circuit manufacturers in the US. It makes radiation-resistant chips for the US military and its tools enable chip designs at various nodes. The second stock, which is up 49% year to date, is a specialty chip manufacturer that makes and sells silicon-based timing devices as an alternative to quartz-based products. These are used in applications such as edge computing and 5G networks – systems that are closer to end users and therefore must endure more strenuous working environments.
So, with the semiconductor space full of interesting stocks, let’s look at some stocks that fund managers are buying and selling according to BofA.
A close-up of a laptop monitor with stock market prices scrolling up and down.
Our Methodology
To make our list of semiconductor stocks that fund managers love and hate according to BofA, we used its recent list of semiconductor stocks that were popular or losing popularity with fund managers. The list was divided into two sections based on expansion or decline in ownership. Stocks within each category were ranked by the number of hedge funds that had bought the shares during Q2 2024. For an interesting exercise, you can also compare these stocks with those on our lists of Goldman Sachs’ List Of Stocks That Hedge & Mutual Funds Love & Hate: 28 Stocks On The Mutual and Hedge Funds Radar.
For these stocks, we also mentioned the number of hedge fund investors. 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).
16. ON Semiconductor Corporation (NASDAQ:ON)
Number of Hedge Fund Holders In Q2 2024: 45
Section: Losing Popularity
ON Semiconductor Corporation (NASDAQ:ON) is a US-based chip manufacturing company that makes and sells chips that are used in industrial, automotive, and other use cases. Looking at its income statement, it’s unsurprising that the stock is down 18% year to date. As of H1 2024, 53% of ON Semiconductor Corporation (NASDAQ:ON)’s $3.6 billion revenue came from automotive products. These products include silicon carbide chips that are used to manage power by electric vehicles. Consequently, as EV demand has struggled in today’s era of high interest rates and economic turmoil, ON Semiconductor Corporation (NASDAQ:ON) has struggled due to its relative lack of diversification. The firm’s industrial division’s revenue also dropped by 21% in H1 as industrial activity remained weak all over. To manage the turbulence, ON Semiconductor Corporation (NASDAQ:ON) is currently on a downsizing spree through which it aims to shift some chip manufacturing to contract manufacturers and reduce fixed costs and capital expenditure.
Artisan Partners mentioned ON Semiconductor Corporation (NASDAQ:ON) in its Q1 2024 investor letter. Here is what the fund said:
“ON Semiconductor is a leading designer and manufacturer of chips for power management and image sensing. From a battery-electric vehicle (EV) standpoint, ON is a leading producer of silicon carbide chips. Shares have been under pressure as the company grapples with multiple quarters of inventory right-sizing across the entire auto supply chain and slower-than-expected growth of EV sales. However, ON is seeing smaller sales declines than peers due to market share gains, and we believe the company will be equally well positioned if automakers rebalance their efforts from full EVs toward hybrid vehicles. We remain patient.”
15. Microchip Technology Incorporated (NASDAQ:MCHP)
Number of Hedge Fund Holders In Q2 2024: 46
Section: Losing Popularity
Microchip Technology Incorporated (NASDAQ:MCHP) is one of the more unique computer hardware companies in the stock market. This is because it has a wide exposure to the data center market, but has nevertheless struggled on the stock market this year as the shares are down 12.9% year to date. Microchip Technology Incorporated (NASDAQ:MCHP) targets the data center industry via products such as signal processors and microcontrollers. These are used for connectivity and the firm’s Total System Solution also offers a one-stop shop for embedded systems design. However, Microchip Technology Incorporated (NASDAQ:MCHP) depends to a large extent on the non-AI data center industry for its revenue. Consequently, as this sector has slowed spending in the high interest rate environment, the shares have struggled. AI data center build-out is freshly picking up the pace, and as Microchip Technology Incorporated (NASDAQ:MCHP) is already dealing with an inventory glut, it might take more time before revenue stabilizes.
Aristotle Atlantic Partners mentioned Microchip Technology Incorporated (NASDAQ:MCHP) in its Q2 2024 investor letter. Here is what the firm said:
“Microchip develops, manufactures and sells smart, connected and secure embedded control solutions used by its customers for a wide variety of applications. With over 30 years of technology leadership, Microchip’s broad product portfolio is a Total System Solution for its customers that can provide a large portion of the silicon requirements in their applications. Total System Solution is a combination of hardware, software and services that helps customers increase their revenue, reduce their costs and manage their risks compared to other solutions. Microchip’s synergistic product portfolio empowers disruptive growth trends, including 5G, data centers, sustainability, Internet of Things and edge computing, advanced driver assist systems and autonomous driving, and electric vehicles in key end markets such as automotive, aerospace and defense, communications, consumer appliances, data centers and computing, and industrial.
We believe Microchip’s Total System Solution will continue to support industry share gains and margin expansion as end- market demand for industrial and Internet of Things compute needs begins to recover off current lows. Management has accelerated the drawdown of high customer inventory levels by shutting down manufacturing facilities, and current industry data as well as commentary from peers indicates that overall end demand is seeing early signs of improvement. The company has a demonstrated track record of margin expansion, and we expect to see gross margins trough at the current level and, through internal efficiencies and pricing initiatives for its Total System Solution, expand and drive increasing operating margins and higher levels of free cash flow.”
14. Cadence Design Systems, Inc. (NASDAQ:CDNS)
Number of Hedge Fund Holders In Q2 2024: 64
Section: Losing Popularity
Cadence Design Systems, Inc. (NASDAQ:CDNS) is a key company in the semiconductor ecosystem. It provides semiconductor design blocks and other tools that enable chip designers to transform their products from concepts to usable items. However, its stock is down by 4.3% year to date as, despite AI-related demand from big-ticket names like NVIDIA, a broader slowdown in the semiconductor industry has led to guidance shortfalls over analyst estimates. The cycle of weakening outlook started in February when Cadence Design Systems, Inc. (NASDAQ:CDNS)’s Q4 2023 earnings the shares fell by 6% after its Q1 2024 midpoint guidance of $995.5 million missed analyst estimates of $1.08 billion. This trend continued during the two subsequent earnings calls when Cadence Design Systems, Inc. (NASDAQ:CDNS) guided its midpoint revenue for the next quarters at $1.04 billion and $1.180 billion which missed analyst estimates of $1.11 billion and $1.20 billion, respectively. Consequently, it’s clear that an industry slowdown is at the heart of Cadence Design Systems, Inc. (NASDAQ:CDNS)’s hypothesis, and any uptick in orders can lead to tailwinds.
Artisan Partners mentioned Cadence Design Systems, Inc. (NASDAQ:CDNS) in its Q3 2024 investor letter. Here is what the fund said:
“Bottom contributors to performance for the quarter included semiconductor design and simulation company Cadence Design Systems, Inc. (NASDAQ:CDNS). Cadence declined due to weaker-than-expected guidance, sensitivity to Cadence’s hardware product cycle in the near term, and uncertainty around China exposure.”
13. Intel Corporation (NASDAQ:INTC)
Number of Hedge Fund Holders In Q2 2024: 75
Section: Losing Popularity
Intel Corporation (NASDAQ:INTC) is the struggling semiconductor stock that we talked about in our introduction to this piece. While the firm is one of the biggest chip manufacturers in the world, it has struggled lately due to slow demand in the personal computing industry and a lack of exposure to the AI industry. The key to Intel Corporation’s (NASDAQ:INTC) hypothesis is its 18A chip manufacturing technology. Marketed as the most advanced technology in the world, the firm aims to not only sell its own processors built using this technology but also to target TSMC’s crown in the global contract chip manufacturing industry by offering the technology to make chips for other firms such as NVIDIA. Intel Corporation (NASDAQ:INTC) is still the biggest CPU company in the world in terms of CPU market share, but it has lost market share to AMD due to manufacturing delays and TSMC’s successful chip manufacturing operations. It is also marketing its Gaudi 3 AI chips as a low-cost solution to an industry that is feeling the pinch from NVIDIA’s higher-priced products.
ClearBridge Investments mentioned Intel Corporation (NASDAQ:INTC) in its Q3 2024 investor letter. Here is what the fund said:
“While the market environment clearly was a headwind in the third quarter, several of our large positions also faced challenging conditions, which negatively impacted results. In the information technology (IT) sector, Intel Corporation (NASDAQ:INTC) has come under additional pressure due to continued softness in the company’s core PC and server markets as well as concerns on the company’s longer-term competitive position. While Intel’s turnaround is not happening overnight, we are constructive on the outlook into 2025: the company’s product positioning should be much improved and it should be positioned to gain market share in a cyclical upswing in which it has strong earnings power. A somewhat adverse spending environment due to AI myopia has weighed on shares, but we still think the market is undershipping PCs and general servers following a COVID normalization period that saw demand get pulled ahead and then languish as companies froze IT budgets. The installed base is now getting older, and we expect a strong refresh cycle into next year. The delay is actually beneficial to Intel, whose product positioning will be all the more improved. While our investment case is not predicated on an M&A transaction, and we believe one is unlikely, the expression of interest in the company speaks to the value of the assets, which we think still trade at a meaningful discount to fair value.”
12. Lam Research Corporation (NASDAQ:LRCX)
Number of Hedge Fund Holders In Q2 2024: 84
Section: Losing Popularity
Lam Research Corporation (NASDAQ:LRCX) is a semiconductor manufacturing equipment provider that is one of the few of its kind in the US. The firm provides machines used in several phases of chip manufacturing such as etching circuits on silicon wafers. On the surface, this would imply that Lam Research Corporation (NASDAQ:LRCX) should be one of the top fund manager stocks due to its exposure to chip manufacturing which many analysts expect to boom due to AI chip demand. However, digging deeper, the reasons behind the pessimism are clear. For starters, 42% of Lam Research Corporation’s (NASDAQ:LRCX) fiscal year 2024 revenue came from China and given the prolonged economic slowdown in the country, this exposure isn’t helping with investor sentiment. Secondly, 42% of Lam Research Corporation’s (NASDAQ:LRCX) $14.9 billion in FY revenue was from memory chips, and the broader memory industry struggled for most of 2023. However, looking ahead, catalysts in the form of TSMC moving to advanced chip technologies and memory seeing tailwinds from AI demand could materialize.
Artisan Partners mentioned Lam Research Corporation (NASDAQ:LRCX) in its Q2 2024 investor letter. Here is what the fund said:
“The top contributors to performance for the quarter were Alphabet, Lam Research Corporation (NASDAQ:LRCX) and Elevance. Lam Research shares rose 10% during the quarter and are up 67% over the past year, primarily due to optimism around the pending investment cycle in semiconductor capital expenditures. Lam is one of the largest equipment manufacturers used to make semiconductor chips. This equipment, commonly referred to as WFE (wafer fabrication equipment), is expected to experience significant growth due to a combination of a cyclical rebound in memory chips and growing demand for new AI-related chips. Lam’s product portfolio is particularly well positioned to benefit from both trends and should grow even faster than the overall market. Its shares now trade at ~30X prior peak earnings, which suggests this dynamic is well understood by the market and is mostly priced in.”
11. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Number of Hedge Fund Holders In Q2 2024: 108
Section: Losing Popularity
Advanced Micro Devices, Inc. (NASDAQ:AMD) is the second biggest firm in the x86 CPU market which makes it quite important as this industry is effectively a duopoly. It competes with Intel in the CPU market and NVIDIA in the GPU market, making Advanced Micro Devices, Inc. (NASDAQ:AMD) the only firm capable of targeting both of the biggest chip companies in the industry. Additionally, acquisitions such as that of an FPGA company mean that Advanced Micro Devices, Inc. (NASDAQ:AMD) is a rare company capable of competing at all ends of the AI ecosystem, from CPUs to GPUs, and customizable chips. However, it is a distant second to NVIDIA in the GPU market and also depends on non-AI enterprise data center spending for a large portion of its revenue. Yet, Advanced Micro Devices, Inc. (NASDAQ:AMD) could see tailwinds as AI use accelerates in the business world and firms seek low-cost accelerators amidst supply constraints for NVIDIA products.
Advanced Micro Devices, Inc. (NASDAQ:AMD)’s management commented on its data center business during the Q2 2024 earnings call. Here is what they shared:
“Turning to the segments, data center segment revenue increased 115% year-over-year to a record $2.8 billion, driven by the steep ramp of Instinct MI300 GPU shipments and a strong double-digit percentage increase in EPYC CPU sales. Cloud adoption remains strong as hyperscalers deploy fourth-gen EPYC CPUs to power more of their internal workloads and public instances. We are seeing hyperscalers select EPYC processors to power a larger portion of their applications and workloads, displacing incumbent offerings across their infrastructure with AMD solutions that offer clear performance and efficiency advantages.
The number of AMD-powered cloud instances available from the largest providers has increased 34% from a year ago to more than 900. We are seeing strong pull for these instances with both enterprise and cloud-first businesses. As an example, Netflix and Uber both recently selected fourth-gen EPYC Public Cloud instances as one of the key solutions to power their mission critical customer facing workloads. In the enterprise, sales were increased by a strong double-digit percentage sequentially. We closed multiple large wins in the quarter with financial services, technology, health care, retail, manufacturing, and transportation customers, including Adobe, Boeing, Industrial Light & Magic, Optiver, and Siemens. Importantly, more than one-third of our enterprise server wins in the first half of the year were with businesses deploying EPYC in their data centers for the first time, highlighting our success attracting new customers, while also continuing to expand our footprint with existing customers.”
10. Micron Technology Inc. (NASDAQ:MU)
Number of Hedge Fund Holders In Q2 2024: 100
Section: Losing Popularity
Micron Technology Inc. (NASDAQ:MU) is one of the biggest semiconductor manufacturers in the world. It is a pure-play memory manufacturer and commands a 19.6% share of the global memory market which makes it the third biggest memory company. Turmoil in the memory industry which has led to Samsung’s memory profit plunging by a stunning 95% in Q2 2023 has also affected Micron Technology Inc. (NASDAQ:MU)’s shares as they dropped by 43% between mid-June and early August. Yet, the firm’s integral nature in the advanced HBM3 and HBM3e memory markets has allowed it to defend against excessive share price drops. Micron Technology Inc. (NASDAQ:MU)’s stock is up 35% year to date, with the shares surging by 13% in late September after its Q4FY24 earnings report saw it guide the current quarter’s midpoint revenue at $8.7 billion which smashed analyst expectations of $8.28 billion. This was on the back of strong HBM3 demand, and consequently, these products are now baked into its hypothesis.
ClearBridge Investments mentioned Micron Technology Inc (NASDAQ:MU) in its Q2 2024 investor letter. Here is what the firm said:
“Quarterly Performance Stock selection in the IT sector proved to be the largest contributor to performance, particularly driven by the strong performance of Micron. The company, which designs, develops, manufactures and sells memory and storage products, continued its strong performance alongside other AI beneficiaries as the anticipated demand for new and additional storage essential for housing and training large language AI models continues to grow.”
9. Qorvo, Inc. (NASDAQ:QRVO)
Number of Hedge Fund Holders In Q2 2024: 37
Section: Gaining Popularity
Qorvo, Inc. (NASDAQ:QRVO) makes a variety of chips for communications, consumer electronics, and industrial markets. Its shares have been on quite a roller coaster ride this year. Qorvo, Inc. (NASDAQ:QRVO)’s stock tanked by 19.5% between late April and early May and the shares further dropped 16% in the first week of August after paring the May loss earlier. The May drop was after Qorvo, Inc. (NASDAQ:QRVO)’s Q2 revenue guidance of $850 million missed analyst estimates of $924 million by a wide margin. Then, the shares dropped further in August after the Q3 calendar quarter guidance of $1.03 billion met estimates. As a result, Wall Street concluded that the global smartphone market on which Qorvo, Inc. (NASDAQ:QRVO) relies for its revenue is yet to undergo a full recovery. With China’s economic growth remaining muted, this pessimism is reflected in Qorvo, Inc. (NASDAQ:QRVO)’s stock.
Qorvo, Inc. (NASDAQ:QRVO)’s management shared details about the smartphone industry during the Q1 2025 earnings call. Here is what they said:
“Within mass-market smartphones, we secured multiple design wins with our recently launched portfolio of low, mid, high band pad. Each LMH pad integrates the low, mid and high band main path content that previously required two placements. This saves approximately 40% in board space, simplifies design and helps customers accelerate their time to market. In mobile Wi-Fi, MediaTek selected Qorvo as the exclusive supplier of Wi-Fi 7 FEMs for customers of their DX4 Wi-Fi chipset. MediaTek’s DX4 chipset and Qorvo’s Wi-Fi 7 FEMs are optimized to deliver superior performance for flagship and mass-market smartphones. We also expanded our Ultra-Wideband wins in the Android ecosystem to include an additional handset customer. Motorola’s Moto X50 Ultra, which launched in the June quarter, features Qorvo’s Ultra-Wideband SoC.”
8. Teradyne, Inc. (NASDAQ:TER)
Number of Hedge Fund Holders In Q2 2024: 41
Section: Gaining Popularity
Teradyne, Inc. (NASDAQ:TER) is a diversified semiconductor and electronic systems test equipment company. Its products enable chip manufacturers and designers to test their silicon wafers, printed circuit boards, chip packages, and wireless devices. Therefore, while the firm’s package testing products expose it to tailwinds from the AI industry, a broader product portfolio has worked against Teradyne, Inc. (NASDAQ:TER) during the overall slow economic environment of 2024. As a result, the shares are up 20% year-to-date, which is in sharp contrast to mid-July’s year-to-date gain of 55.6%. Teradyne, Inc. (NASDAQ:TER)’s stock dropped by 7% in July after the company guided Q3 midpoint revenue at $710 million which was lower than analyst estimates of $718 million. However, the firm can benefit from robust long-term growth from businesses such as robotics especially due to the growing industry interest in humanoid robots.
During the Q2 2024 earnings call, Teradyne, Inc. (NASDAQ:TER)’s management commented on its robotics business:
“Our highest priority in our Robotics go-to-market transformation is the development of an OEM solutions channel for UR. We have seen that customers purchasing cobot-based solutions from these partners get into production more quickly and have fewer problems than customers that build their own solutions or rely upon an integration partner. There are two aspects to the OEM Channel strategy. The first is signing up new OEM solution partners. In the first half of 2024, we have increased the total number of OEM solutions partners by 8%. Second, we work with these partners to get them to scale, which we define as having an annual revenue run rate above $1 million. Midway through the year we have nearly as many OEM solution partners that have reached that revenue level as we had in all of 2023.
One of our largest revenue OEM partners in the first half of 2024 uses our cobots in an AI based logistics solution. Overall, the OEM solutions channel has shown over 70% growth from the first half of 2023 to the first half of 2024. In the second quarter, the OEM channel represented over 30% of UR’s revenue. Finally, because of the criticality of the processes that our Robotics are being used to automate, we saw an opportunity to build a strong service business. In the first half of 2024 we launched managed service offerings at UR and MiR and are beginning to see customer uptake. On balance, the positive effect of these growth vectors and the challenging demand environment, we are expecting growth towards the low end of this year’s target 10% to 20% range.”
7. Texas Instruments Incorporated (NASDAQ:TXN)
Number of Hedge Fund Holders In Q2 2024: 50
Section: Gaining Popularity
Texas Instruments Incorporated (NASDAQ:TXN) is one of the oldest American chip manufacturing companies. The firm primarily makes and sells power management, signal processing, and other associated products. Texas Instruments Incorporated (NASDAQ:TXN) has been the target of activist action by Elliot Management lately after the fund disclosed a massive $2.5 billion stake in the company in May. Texas Instruments Incorporated (NASDAQ:TXN) is dependent on smartphones and other products for its revenue, which has meant that revenue growth has slowed down lately as these industries remain under pressure from tight global economic conditions. However, the firm enjoys key advantages such as its ability to benefit from US chip subsidies through the CHIPS Act and the ability to compete in China through low-cost products.
The London Company mentioned Texas Instruments Incorporated (NASDAQ:TXN) in its Q2 2024 investor letter. Here is what the fund said:
“Texas Instruments Incorporated (NASDAQ:TXN) – TXN rallied in 2Q despite declining revenue in its latest update. TXN is beginning to see some encouraging signs of destocking nearing an end and some sub segments of the market are experiencing improving demand. TXN continued to spend on capex and should begin to see positive benefits to cash flow next year from the CHIPS Act.”
6. Analog Devices, Inc. (NASDAQ:ADI)
Number of Hedge Fund Holders In Q2 2024: 64
Section: Gaining Popularity
Analog Devices, Inc. (NASDAQ:ADI) is a specialty semiconductor company that makes and sells power management, signal processing, and other associated chips. While these products are also used in the data center industry, the firm’s stock has gained a modest 16% year to date due to its reliance on the industrial and automotive industries for revenue. For the nine months ending in June, 77% of Analog Devices, Inc. (NASDAQ:ADI)’s $6.9 billion in revenue came from these industries. Consequently, as major automakers continue to face production constraints and an uncertain inventory environment along with an industrial slowdown in a high interest rate era, Analog Devices, Inc. (NASDAQ:ADI) has failed to take off in 2024. This means that once industrial activity picks up, the stock could see tailwinds but this might stretch out to early 2025 as most industrial orders are made during the start of the year.
Carillon Tower Advisors mentioned Analog Devices, Inc. (NASDAQ:ADI) in its Q2 2024 investor letter. Here is what the fund said:
“Analog Devices, Inc. (NASDAQ:ADI) rebounded as management teams at several semiconductor companies in the analog space called the bottom, seeing improved conditions ahead. The analog semiconductor industry is a very cyclical business that has underperformed the broader semiconductor industry for several years.”
5. Applied Materials, Inc. (NASDAQ:AMAT)
Number of Hedge Fund Holders In Q2 2024: 77
Section: Gaining Popularity
Applied Materials, Inc. (NASDAQ:AMAT) is an American semiconductor manufacturing equipment provider. Its products are involved directly in the chip manufacturing process. They also enable fabs to optimize production. Consequently, Applied Materials, Inc. (NASDAQ:AMAT)’s stock is at the mercy of the broader semiconductor industry. The shares are up a modest 18.6% year to date, and the bearishness is driven by the firm’s exposure to China. During Applied Materials, Inc.’s (NASDAQ:AMAT) fiscal third quarter, its China revenue dropped from 43% in Q2 to 32% and led to mixed investor reactions despite the overall $6.78 billion in revenue beating analyst estimates of $6.67 billion. Part of this drop was also because of management reducing its China exposure since Applied Materials, Inc. (NASDAQ:AMAT) has come under US government scrutiny for its Chinese operations. Yet, the firm counts big-ticket names such as Samsung, TSMC, ASML, and Intel as its customers which sets it up well for any upcycles in the chip industry stemming from leading-edge manufacturing technologies such as Intel’s 18A and TSMC’s 2 nanometers.
Parnassus Investments mentioned Applied Materials, Inc. (NASDAQ:AMAT) in its Q2 2024 investor letter. Here is what the fund said:
“Applied Materials is the world’s largest supplier of wafer fabrication technologies used in semiconductor manufacturing. The company reported solid earnings for the quarter, and investors believe Applied Materials should continue to benefit from accelerated industry spend due to AI and share gains.”
4. Synopsys, Inc. (NASDAQ:SNPS)
Number of Hedge Fund Holders In Q2 2024: 53
Section: Gaining Popularity
Synopsys, Inc. (NASDAQ:SNPS) is an American semiconductor design software and products provider. While this exposes the firm to catalysts from the AI sector, these are limited right now. Synopsys, Inc. (NASDAQ:SNPS)’s shares are down up just 0.69% year to date since AI chip design is currently in its early stages and is led mostly by NVIDIA. This means that the firm is exposed to long-term potential catalysts that might surface if industry interest in designing custom AI chips to reduce dependency on NVIDIA grows. Consequently, Synopsys, Inc.’s (NASDAQ:SNPS) hypothesis is more dependent on the current state of the semiconductor industry which includes computers, smartphones, automotive, industrial equipment, and other sectors. All of these are facing the brunt of economic slowdown, making it unsurprising that Synopsys, Inc.’s (NASDAQ:SNPS) shares are flat so far this year. However, the firm has several catalysts lined up. It has signed a deal with TSMC for AI chips, is acquiring an engineering software firm, has close ties with Intel, and launched an imaging system simulator to improve efficiency by 60x.
TimesSquare Capital Management mentioned Synopsys, Inc. (NASDAQ:SNPS) in its Q1 2024 investor letter. Here is what the firm said:
“We had been trimming Synopsys, Inc. as its market capitalization grew and it approached our price target. This quarter, Synopsys confirmed its plans to acquire ANSYS, Inc. Though the deal has long-term strategic benefits, in the near term we believe that will weigh on overall growth for Synopsys, add notable leverage to its balance sheet, and create more volatility for its shares. As a result, we sold our position.”
3. QUALCOMM Incorporated (NASDAQ:QCOM)
Number of Hedge Fund Holders In Q2 2024: 100
Section: Gaining Popularity
QUALCOMM Incorporated (NASDAQ:QCOM) is one of the biggest semiconductor design companies in the world. The firm’s products form the backbone of the global smartphone industry as it provides CPUs, GPUs, neural processors, and a variety of other products that are also used in other industries such as CV2X. QUALCOMM Incorporated (NASDAQ:QCOM) also benefits from a two-tier business model which allows it to earn money by selling its chips and license revenue from the products that its chips are used in. Its exposure to the smartphone and personal computing industry is important in the AI age since QUALCOMM Incorporated (NASDAQ:QCOM) can leverage its expertise to develop hardware that allows customers to use on-device AI. Yet, its reliance on the consumer industry also means that the firm struggles when consumer spending is muted. As an illustration, QUALCOMM Incorporated (NASDAQ:QCOM)’s stock fell by 12% in August after its December quarter growth in the mid-single digits disappointed analysts and fueled worries that the smartphone market was taking its sweet time to recover.
Aristotle Capital Management mentioned QUALCOMM Incorporated (NASDAQ:QCOM) in its Q2 2024 investor letter. Here is what the fund said:
“Qualcomm, a leading wireless communications technology company, was the largest contributor for the quarter. After a period of weaker global demand for smartphones (driven by a slowdown in China) and elevated channel inventory, demand from Chinese handset manufacturers accelerated 40% year‐over‐year. More importantly, in our opinion, Qualcomm continues to execute on a previously identified catalyst of shifting its business mix beyond smartphones. The company announced increased progress for its automotive and Internet of Things (IoT) solutions. Within auto, the increase in vehicle content has resulted in 35% year‐over‐year revenue growth, with a design win pipeline of ~$45 billion, keeping the company on track to achieving ~$4 billion in auto‐related revenues by 2026. In recent years, despite persistent threats of insourcing from large clients (most notably Apple), Qualcomm has been able to retain its high market share in handsets while simultaneously expanding in non‐smartphone devices. We believe this progress is a testament to Qualcomm’s history of high (and productive) R&D spending, resulting in technological superiority. We believe Qualcomm’s technologies will continue to benefit as the world stays on a path toward a proliferation of connectivity between varying devices and as AI applications extend from the cloud to on‐device.”
2. Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holders In Q2 2024: 130
Section: Gaining Popularity
Broadcom Inc. (NASDAQ:AVGO) is a diversified technology company with a presence in the semiconductor and SaaS industries. It has exposure to the semiconductor industry via modems, network controllers, network processors, and application-specific integrated circuits (ASICs). These allow Broadcom Inc. (NASDAQ:AVGO) products to operate in the smartphone, laptop, and data center industries. The firm also benefits from its ASIC business as it allows it to. work with companies interested in designing their custom AI chips. Consequently, Broadcom Inc. (NASDAQ:AVGO) has a wide semiconductor moat which allows it to profit from several industries. Its cybersecurity business adds margin-heavy revenue to the income statement, making Broadcom Inc. (NASDAQ:AVGO) one of the most well-rounded firms in the world. However, with Apple’s propensity to shift to its in-house chips, the firm could see headwinds in the future if Apple decides to self-design and make chips such as MacBook WiFi modules.
Baron Funds mentioned Broadcom Inc. (NASDAQ:AVGO) in its Q2 2024 investor letter. Here is what the fund said:
“Broadcom Inc. 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.”
1. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders In Q2 2024: 179
Section: Gaining Popularity
NVIDIA Corporation (NASDAQ:NVDA) is the world’s leading AI GPU designer and also the GPU design stock that we covered in our introduction. Its GPUs are used for AI workloads, in data centers, for gaming, professional rendering, cars, and in consoles. This provides NVIDIA Corporation (NASDAQ:NVDA) with a strong presence in the GPU industry and makes it the market leader in terms of performance and market share. The firm also benefits from its CUDA software which enhances the control that users can exercise over their hardware. Additionally, it also means that even if AI spending slows down, NVIDIA Corporation (NASDAQ:NVDA) can capitalize on data centers shifting to accelerated computing. CEO Jensen Huang believes that limitations in chip fabrication have necessitated the use of GPUs as accelerated computing products, which opens up a trillion-dollar market for NVIDIA Corporation (NASDAQ:NVDA). Yet, the firm could see headwinds if there is a glut in the industry or if the trend of custom AI chips grows.
Baron Funds mentioned NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2024 investor letter. Here is what the firm said:
“More recently, however, we’ve entered the period of doubts and questioning, some of which is real and normal in the first stages of a new paradigm, and some of which is prompted by short sellers. Given the explosive returns of NVIDIA and other AI leaders, AI bears and fear mongers have been comparing the current AI market winners with the internet bubble of the late 1990s/early 2000s, and NVIDIA’s stock move today with Cisco’s back then. First, while many stocks were trading at nosebleed valuations and on made up metrics (such as price per eyeballs) before the bursting of the internet bubble, as we’ve said many times, the internet proved to transform our world and create the digital age we are now living in. Second, while NVIDIA’s stock price inflection has been nothing short of unprecedented for a company of its size, it was fueled almost entirely by explosive growth in revenues, earnings, and cash flows– not multiple expansion. Over the last 12 months, NVIDIA’s stock has eectively tripled, but its forward P/E multiple has remained essentially flat, because NVIDIA blew away Wall Street expectations despite being covered by over 60 sell-side analysts, who have increased their forward projections every single quarter. In my career, the only comparative analogue is when Apple first introduced the iPhone and stunned Wall Street with its growth. In contrast, most of Cisco’s move in the late 1990s was due to multiple expansion. At its peak, Cisco traded at a P/E ratio over 130 times, more than quadruple its five-year average of 37 times. At the end of the second quarter, NVIDIA traded at a P/E ratio of 40 times, equal to its five-year average, and at a P/E to growth (or PEG) ratio for 2025 of 0.8 times, as consensus expectations are for NVIDIA to grow earnings per share 40% next year.
Moreover, investor concerns have arisen about the financial impact AI is having and whether surging capital expenditures (capex) across the technology landscape, particularly the large cloud players (Microso, Google, Amazon, and Meta), known as the hyperscalers, will be justified and earn reasonable returns on invested capital (ROIC). First, the adoption and penetration of new technology typically traces a classic S-curve–or more precisely, in our view, a series of S-curves or phases. For at least the past year and a half, we’ve been in what might be called the AI infrastructure- build phase – building the AI factories, as NVIDIA CEO Jensen Huang has articulated it, and this phase has been dominated by the infrastructure- layer players – the accelerated computing chips suppliers like NVIDIA and Broadcom, as well as data center, cloud infrastructure and energy companies. The hyperscalers, other enterprises, and sovereign entities investing ahead understand that if you want to be in the AI game, you must invest now – build the infrastructure, build the factories – or else you’ll find yourselves disrupted on the sidelines or playing catch up in the biggest game, the most important race in a technology generation. Only those who invest today even have the chance to be the winners of the future.”
NVDA is a stock that fund managers are piling into according to Bank of America. While we acknowledge the potential of NVDA as an investment, our conviction lies in the belief that some 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 NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily e-newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.
