In this article, we will take a detailed look at the Forget Magnificent 7: Analysts are Talking About ‘Big 10’ AI Stocks in 2024.
When the AI revolution started with the launch of ChatGPT, investors started pouring money into a handful of companies that are leading AI technology development, thanks to their industry position and unending free cash flows. Market analysts soon started pointing to the concentration of gains phenomena in the market, where just a few stocks accounted for most of the broader market gains. This tech concentration remains strong as of today, as all important AI and Cloud technologies that we see in the news are developed, acquired or marketed by mega-cap tech companies we’re all familiar with. Bank of America analyst Michael Hartnett recently said in a report that the S&P 500 has gained about 12% so far in the year, but if we remove 10 technology companies from the equation, these gains shrink to just 3.6%. Hartnett calls these companies the “AI Big Ten” group.
What about the Magnificent Seven group of stocks that kept making headlines in 2023 and early 2024? Hartnett calculated that the broader market gained just 4.9% so far this year if these seven stocks are taken out of the equation. There is a third group of stocks that most investors are unaware of: Hedge Fund Top 30. These 30 stocks include the Magnificent Seven as well as 23 other promising stocks. These 30 stocks returned 53.2% in 2023, 20.2% during the first 5 months of 2024 vs. 11% for the S&P’s large cap index. You can check out the latest list here: 31 Most Popular Stocks Among Hedge Funds.
In this article we will take a look at the Big 10 AI stocks Bank of America analyst Michael Hartnett highlighted in his report. With each stock we have mentioned the number of hedge fund investors, as of the end of the March quarter. 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).
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10. Qualcomm Inc (NASDAQ:QCOM)
Number of Hedge Fund Investors: 78
Qualcomm Inc (NASDAQ:QCOM) is fast becoming a notable AI stock in the Street. Bank of America recently counted Qualcomm among to ‘Big Ten’ AI stocks that are dominating the market. Qualcomm Inc (NASDAQ:QCOM) recently made headlines after the company revealed its AI PC plans at the Computex 2024 conference. Qualcomm Inc (NASDAQ:QCOM) is partnering with Microsoft to delivery Copilot+ PC, becoming a director competitor to Intel and AMD.
In addition to AI PCs, AI smartphones is another emerging growth catalyst for Qualcomm Inc (NASDAQ:QCOM). The company’s Snapdragon 8 Gen 3 Mobile Platform can powers smartphones to process up to 10 billion parameters of generative AI models, effectively making them intelligence personal assistants.
Despite Apple’s push to become self-reliance in chips technology, Qualcomm Inc’s (NASDAQ:QCOM) partnership with the iPhone company is strong. Qualcomm will keep supplying Apple with Snapdragon 5G Modem-RF Systems for Apple’s smartphones until at least 2026.
Data from Counterpoint Research shows global smartphone shipments were expected to increase 3% in 2024, while IDC numbers show a 7% increase in the global smartphone market in the first quarter of 2024. This broader growth in the smartphone market would also help QCOM.
Wall Street expects Qualcomm Inc’s (NASDAQ:QCOM) revenue to grow 10% in 2025 and earnings to rise by 13.10% in the year. Despite these growth catalysts, Qualcomm is trading at a forward P/E of 18.42, lower than the industry median of 23.73.
Madison Sustainable Equity Fund stated the following regarding QUALCOMM Incorporated (NASDAQ:QCOM) in its fourth quarter 2023 investor letter:
“QUALCOMM Incorporated (NASDAQ:QCOM) also reported a solid fourth fiscal quarter with better than expected results. The company guided the first quarter ahead of expectations despite headwinds from Samsung as the inventory headwinds dissipate. Qualcomm remains well positioned in the mobile handset market and should benefit as Artificial Intelligence moves to edge devices which could drive an upgrade cycle.”
9. Applied Materials, Inc. (NASDAQ:AMAT)
Number of Hedge Fund Investors: 79
BofA added AMAT in its list of Big 10 AI stocks that are adding to market gains. Applied Materials, Inc. (NASDAQ:AMAT) is one of those non-fancy AI stocks that don’t get much limelight from the Wall Street as they keep churning out returns. The stock, up 47% this year so far, received an upgrade from Barclays. The investment firm expects the stock to benefit from higher spending in the semiconductor equipment industry. Barclays expects wafer fab equipment spending to hit $96.3 billion in 2024 and $106.4 billion in 2025, up from its previous estimate of $80.6 billion and $89.1 billion, respectively.
In May, Applied Materials, Inc. (NASDAQ:AMAT) posted solid Q2 results. Mizuho Securities analyst Vijay Rakesh upped his price target on the stock to $245 from $225 and kept his Buy rating. Citi analyst Atif Malik also increased his price target on the stock to $250 from $170. The analyst sees “further upside” to Applied Materials, Inc.’s (NASDAQ:AMAT) 2025 estimates.
Applied Materials, Inc.’s (NASDAQ:AMAT) moat is strong and wide. The company makes equipment used to make semiconductor chips. It has a diverse equipment portfolio that the high-growth ICAPS industry (IoT, Communications, Automotive, Power, and Sensors). Last year Applied Materials, Inc. (NASDAQ:AMAT) made a breakthrough announcement by launching Centura Sculpta, a machine that dramatically reduces the number of steps required in chips production. Applied Materials, Inc. (NASDAQ:AMAT) said chipmakers can save a whopping $250 million per 100K wafer starts per month of production capacity in costs.
Wall Street expects Applied Materials, Inc.’s (NASDAQ:AMAT) revenue to surge 11% in 2025 while earnings growth is forecasted to come in at 15.60% in the year. The stock’s forward P/E is 23.73, not much higher than the industry average of 27, when seen in the context of growth.