In this piece, we will take a look at Goldman Sachs’ best hedge fund stock picks and the top 20 stocks.
The close of August has marked a highly awaited paradigm shift on Wall Street that investors have been wishing for months. This shift comes after Federal Reserve Chairman Jerome Powell finally admitted that the time for interest rate cuts had come. Investors rejoiced and the flagship S&P index gained 1.15% while the Dow’s blue chip stock index added 1.14% to its value.
Before the Fed chair’s remarks, investment bank Goldman Sachs had already taken a detailed look at the implications of interest rate cuts on the stock market. In a podcast, the bank’s trading strategy head Josh Schiffrin started by explaining that the prospect of the Fed reducing rates was linked “very closely to the performance of short-term bonds.” He however added that it’s “really been bonds that have been responsive, where the story has been quite clear,” pointing out that “the stock market has been range bound and choppy with a fair amount of rotation between different sectors” which leads to index level moves being “muted.” This makes sense when we consider the Dow and S&P’s movements following Powell’s latest comments, as the one percentage point gain for each indicated that investors were well prepared for rate cuts even before the Fed Chair took the stand.
Speaking of the flagship S&P index, GS’ head of American Equity Sales Trading John Flood shared some insights at the June close. Starting off by highlighting the drives of the index’s performance during the first half of the year, Flood outlined that when it came to hedge funds, artificial intelligence and GLP-1 were the two key trends that had driven index returns. He described it as “a long momentum trade” with “both cohorts” of the hedge fund side, namely the “systemic and fundamental long-short” fully involved in trading.
The Goldman equity head also added that retail investors were finally back as well, and they were focused on “focused on the ten biggest stocks in the world.” You can see which companies these might be by reading 20 Largest Companies in the World by Market Cap in 2024. One key concern among investors and analysts alike this year has been a bifurcation in market returns that has seen only the best performers yield most of the rewards. This was also on the mind of analysts from another well known Wall Street bank, who added that it created an opportunity for further profits. Flood shared that while five stocks accounted for “60% of S&P 500’s return year to date,” this sharp divide did not make him uncomfortable.
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The investor flood of optimism surrounding AI, which has pushed the shares of the top AI GPU designer in the world to post an unbelievable 321,150% in all time returns, has also led to worries that the market might be witnessing another period akin to the ill fated dotcom era of the 1990s. When asked whether this period reminded him of that time, Flood replied that his firm felt “a little bit more like 1995 than 1999. And 1995 clearly was a very positive year for the stock market and a positive run,” particularly since “valuations and earnings from market leaders are way friendlier today than they were in 1999.” Concluding by sharing that he felt “very bullish” the analyst also forecast his estimate for the flagship S&P. His estimate? Well, Flood believes that “you could see S&P 500 trade well north of 6,000 this year as the biggest get bigger and we continue to just see a little bit of a news vacuum into the elections right now.”
The bit about market bifurcation between big and small companies was also on the mind of GS’ senior US portfolio strategist Ben Snider. He commented on the jump in small cap stocks in July when they gained as much as 2% while other indexes lost up to 1.98% due to investors positioning themselves for potential interest rate cuts. Snider explained that small cap stocks tend to take on more debt, and lower rates coupled with their lower market values lead to big gains. According to him “if just 1% of assets comes out of the S&P 500 and flows into, for example, the Russell 2000 Small Cap Index, that 1% of S&P 500 market cap would represent more than 15% of Russell 2000 market cap.” Coming back to AI, the Goldman strategist has a tip for those who might be worried that the hype surrounding AI might be more than the technology’s ability to generate money for the firms that plan to plow a trillion dollars into it. He shared that as opposed to the market cap weighted benchmark S&P, it might be prudent to invest in the equal weight variant “if you are concerned about the degree of concentration or AI investment.”
Speaking of AI, GS was also out with a detailed report in July which analyzed the year to date returns of different AI sectors. The AI stack, broadly speaking, is made up of four categories of firms. Starting from the bottom of the pyramid and moving upwards, these are chip manufacturers and designers, those that provide AI capacity like server farms, firms that sell AI products, and finally, companies that will see the largest gains from the ubiquitous or near ubiquitous adaptation of AI. As per GS, the year to date returns of these four sectors as of late July were 139% (represented only by the top AI GPU stock), 22%, -2%, and 2% respectively. One of the strongest performers within the AI infrastructure segment is utilities, and there’s further room ahead as analyst Ryan Hammond believes that “after adjusting valuations for the improvement in long- term EPS growth expectations that the sector has experienced, Utilities’ PEG (P/E to long term growth (LTG)) ratio is 2x, well below the historical average of 3x.”
So, with GS taking a broad view of the market, we decided to see which hedge fund stocks the bank is a fan of.
Copyright: mikewaters / 123RF Stock Photo
To make our list of Goldman Sachs’ top hedge fund stocks, we ranked the bank’s list of stocks with the number of hedge funds that, according to its data, had the stock as a top ten holding.
We also mentioned the total number of hedge funds that had bought these stocks as per Insider Monkey’s data. 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).
20. Tenet Healthcare Corporation (NYSE:THC)
Number of Hedge Fund Investors in Q2 2024: 64
GS’ Number Of Funds: 14
Tenet Healthcare Corporation (NYSE:THC) is one of the largest hospital operators in the US. A key differentiating factor for the firm, when compared to its peers in the hospital industry, is Tenet Healthcare Corporation (NYSE:THC)’s focus on outpatient surgery care. This is a niche within the healthcare industry, and due to the significantly lower number of overnight stays in this model, coupled with the high prices of surgeries, it allows Tenet Healthcare Corporation (NYSE:THC) to boost its margins when compared to operating expensive hospitals. The firm has also been busy these days by raising capital through selling its hospitals to increase focus on the outpatient strategy. Another key benefit of the outpatient surgery center strategy is that it can allow Tenet Healthcare Corporation (NYSE:THC) to establish a foothold in the market where many different providers operate. This can provide it with a competitive advantage through brand recognition and lower costs.
Baron Funds mentioned Tenet Healthcare Corporation (NYSE:THC) in its Q2 2024 investor letter. Here is what the firm said:
“We established a small position in Tenet Healthcare Corporation, a leading provider of health care services. Tenet’s care delivery network includes United Surgical Partners International (USPI), which operates over 600 ambulatory surgical centers (ASCs), surgical hospitals, and other outpatient facilities. Tenet also operates over 50 acute care and specialty hospitals, as well as Conifer, a leading provider of revenue cycle management services. The combination of ASCs and hospital assets in local markets gives USPI a negotiating advantage with payors and vendors, supporting industry leading ASC operating margins. Tenet management has been divesting its less competitively positioned acute care hospitals and other non-core assets to focus on its ASC business. The $90 billion outpatient surgical market is enjoying strong secular tailwinds driven by aging U.S. demographics and the shi of procedures to lower cost outpatient settings. Outpatient procedures cost roughly 50% less than those done in hospitals and are preferred by both patients and physicians. Estimates are that an incremental $60 billion worth of cases are appropriate to be done outpatient, which should drive multi-year mid-single-digit same store growth for USPI – a combination of both higher acuity and volumes – enhanced by de novo projects and M&A in a highly fragmented space. Tenet’s hospital sales have been executed at attractive multiples with the proceeds used to pay down debt. As Tenet’s faster growing ASC business increases as a percentage of the company’s overall cash flows, we believe the company’s valuation multiple has room to expand.”
19. Alibaba Group Holding Limited (NYSE:BABA)
Number of Hedge Fund Investors in Q2 2024:
GS’ Number Of Funds: 14
Alibaba Group Holding Limited (NYSE:BABA) is one of China’s biggest eCommerce firms that is also one of the biggest technology conglomerates in the world. Estimates show that the firm holds at least 40% of the merchandise shipments in China, which provides it stability against the economic downturn that’s plaguing the country right now. Alibaba Group Holding Limited (NYSE:BABA)’s other businesses, such as its cloud computing division create a high growth income stream that also benefits from recurring revenues with low margins. At the same time, the firm’s technological resources also enable it to lead in new technologies, such as its Alimama tool that enables brands to use AI to improve their marketing on Alibaba Group Holding Limited (NYSE:BABA)’s eCommerce platform. However, the cyclical nature of its industry and the rise of new upstarts like PDD mean that the firm has to innovate continuously or risk losing market share. Analysts expect Alibaba Group Holding Limited (NYSE:BABA) to earn $9.85 in EPS in its FY2026, for a forward P/E ratio of 8.27. This is significantly lower than its American peers, and it reflects market sentiment about Chinese stocks.
O’keefe Stevens Advisory mentioned Alibaba Group Holding Limited (NYSE:BABA) in its Q2 2024 investor letter. Here is what the firm said:
“It’s rare to find a dominant market share business with significant tailwinds trading for ~10x adj. EPS. After accounting for their ~$60B net cash balance sheet, the stock is trading at 6-7x, which, we believe, is far too cheap. We understand this business would not trade at this price if it were a U.S. business. However, the valuation gap at a high single-digit P/E is pricing in a combination of the following risks – 1. China invading Taiwan. 2. Cash can never leave mainland China (disproven). 3. Increasing competition from Pinduoduo and Shien resulting in market share loss 4. China’s geopolitical tensions worsen. 5. Economic slowdown stemming from the recent housing market downturn. 6. VIE structure creates doubt over the actual ownership of the business.
All risks have merit, with cash distribution restrictions at the lower end due to the recently announced dividend and special dividend. Cash returned to shareholders totaled $16.5B in FY24, up from $13.4B in FY23. All investments carry risks; some can be diversified away, and others cannot. While incremental investments and spending will likely lead to margin compression, this is a necessary step to stabilize and potentially regain market share. The risk of continued market share loss from Pinduoduo (Temu), JD.com, Shein, and Douyin is shown below. Alibaba’s Chinese market share has declined from 78% in 2015 to 44% in 2022 and 40% in 2023.”
18. TransDigm Group Incorporated (NYSE:TDG)
Number of Hedge Fund Investors in Q2 2024: 86
GS’ Number Of Funds: 15
TransDigm Group Incorporated (NYSE:TDG) is a sizeable aerospace parts supplier in the US. It sells pumps, valves, actuators, and other components that are used in the aircraft industry. Given the ‘turbulence’ in the commercial aircraft sector in 2024, TransDigm Group Incorporated (NYSE:TDG) can capitalize on a sizeable potential opportunity. This comes in the form of a higher demand for aircraft components, as the US’ largest commercial aircraft manufacturer Boeing suffers from delayed deliveries due to greater FAA oversight on its manufacturing operations. This means that firms like TransDigm Group Incorporated (NYSE:TDG) will witness greater demand from aftermarket components as airlines adjust their inventory to adjust to the delayed deliveries. At the same time, TransDigm Group Incorporated (NYSE:TDG) has an unbelievable $19.3 billion of debt on its balance sheet, which is just a couple of million shy of its $19.9 billion in total assets. This places the firm in a precarious situation, that constrains its ability to grow.
TransDigm Group Incorporated (NYSE:TDG)’s management shared key details for its debt profile during the Q3 2024 earnings call:
“We continue to be comfortable operating in the 5 to 7x net debt-to-EBITDA ratio range.
And while we are currently sitting slightly below the low end of this range, our go-forward strategy, capital deployment has not changed, and we continue to seek the best opportunities for providing value to our shareholders through our leverage strategy. Our EBITDA to interest expense coverage ratio ended the quarter at 3.5x, which provides us with comfortable cushion right against that target range of 2 to 3x. We continue to closely monitor our debt stacks and repriced approximately $3.6 billion of our term loan debt to a more favorable rate, SOFR plus 2.5. Our capital allocation strategy is always to both proactively and prudently manage our debt maturities. Our nearest term maturity is November 2027, which gives us plenty of protection, at least in the short term.
In addition, approximately 75% of our $22 billion gross debt balance is fixed through fiscal 2027. This is achieved through a combination of fixed rate notes, interest rate caps swaps and collars. This continues to provide us adequate cushion against any rising rates, at least in the immediate term.”
17. Salesforce, Inc. (NYSE:CRM)
Number of Hedge Fund Investors in Q2 2024: 117
GS’ Number Of Funds: 15
Salesforce, Inc. (NYSE:CRM) is a sizeable SaaS company that focuses on providing customer relationship management products and software to businesses. It is one of the biggest firms of its kind, which means that as Salesforce, Inc. (NYSE:CRM)’s $35.7 billion in trailing twelve month revenue leaves little room for growth, investors focus on customer retention, revenue per customer, and cost control as the benchmarks for growth. There is a key bifurcation in the SaaS industry right now where firms that have implemented AI into their product stack are being rewarded handsomely while others are struggling. Salesforce, Inc. (NYSE:CRM) is among the former group, and it is using its vast customer base to manage a whopping 250 petabytes of data. Salesforce, Inc. (NYSE:CRM)’s leading AI product is its Data Cloud, which utilizes 8 trillion data points to improve customer relationship management. Despite its scale, analysts have flagged Salesforce, Inc. (NYSE:CRM)’s inability to land large deals which can constrain its margins and make it struggle in an era where SaaS shifts from per seat to consumption driven models.
Salesforce, Inc. (NYSE:CRM)’s management believes that Data Cloud can help it land big deals. Here’s what it said during the Q1 2025 earnings call:
“Data Cloud gives every company a single source of truth and you can securely power AI insights and actions across the entire Customer 360.
Now let me tell you why I’m excited about Data Cloud and why it’s transforming our customers and how it’s preparing them for this next generation of artificial intelligence. Data Cloud was included in 25% of our $1 million plus deals in the quarter. We added more than 1,000 data cloud customers for the second quarter in a row. 8 trillion records were ingested in the Data Cloud in the quarter, up 42% year-over-year and we processed 2 quadrillion records, that’s a 217% increase compared to last year. Over 1 trillion activations drove customer engagement, which is a 33% increase year-over-year. This incredible growth of data in our system and the level of transactions that we’re able to deliver, not just in the core system but especially in data cloud is preparing our customers for this next generation of AI.”
16. UnitedHealth Group Incorporated (NYSE:UNH)
Number of Hedge Fund Investors in Q2 2024: 114
GS’ Number Of Funds: 16
UnitedHealth Group Incorporated (NYSE:UNH) serves the needs of more than 50 million people in the US when it comes to healthcare plan coverage. This provides it with the key benefit of stability, even in an environment where utilization rates for its services are high and strain its balance sheet along with high inflation driving up medical costs. UnitedHealth Group Incorporated (NYSE:UNH)’s sizeable resources, as evidenced by $25.4 billion in cash and equivalents and $14.1 billion in trailing twelve month net income, also means that the firm can return capital to shareholders in the form of dividends. UnitedHealth Group Incorporated (NYSE:UNH) also stands to benefit from long term secular trends particularly those surrounding higher elder care costs and the rise in popularity of weight loss drugs and cancer treatments. These could expand its coverage market and allow it to grow revenue.
UnitedHealth Group Incorporated (NYSE:UNH)’s commented on its expectations for the rest of the year during the Q2 2024 earnings call:
“We’re also well positioned for growth in 2025. In the selling season to date, the most sophisticated thoughtful buyers of health benefits and services in the US, such as large employers, unions, states, seniors, all continue to choose the offerings of UnitedHealth Group, when they’re looking for managed care, pharmacy services or a Medicare Advantage plan that provides the best value. This consistent growth reflects customers’ recognition of the need for a company like ours. As you know, UnitedHealth Group strives to help reduce the fragmentation and lack of coordination that drives up costs and erodes care outcomes in the $5 trillion US healthcare marketplace. We aim to better coordinate and align incentives among caregivers, payers, and pharmacy, enabling us to focus on the whole patient throughout their health journey.
We believe this increases value for customers and consumers, improves people’s experience and health, reduces redundancies and waste, and ultimately leads to a more sustainable health system. For example, the proven health and economic value to consumers and taxpayers of Medicare Advantage. A recent study by Milliman found that the cost of taxpayers of Medicare Advantage is 4% less than traditional fee-for-service Medicare. At the same time, Medicare Advantage provides seniors well over $2,000 per year in additional value through lower out-of-pocket cost and important services like dental, vision and hearing, none of which fee-for-service Medicare covers. That means a lot to the majority of the people Medicare Advantage serves, who have limited economic resources and otherwise would lack access to such services.”
15. Netflix, Inc. (NASDAQ:NFLX)
Number of Hedge Fund Investors in Q2 2024: 103
GS’ Number Of Funds: 16
Netflix, Inc. (NASDAQ:NFLX) is the leading player in the global streaming market courtesy of its early mover advantage in the industry. Tracing its roots back to the 1990s, the firm started out as a rental company for DVDs that took online orders. Now, it is the largest streaming service in the world courtesy of having 247 million million users in its fold. The vast user base means that Netflix, Inc. (NASDAQ:NFLX) benefits from significant brand power and recognition. Content freshness is a key requirement for the firm to keep its competitive edge, and on this front, Netflix, Inc. (NASDAQ:NFLX) also operates its film studios that often cater to local movie and television show tastes for the different countries in which it has a global presence. Key to its hypothesis is Netflix, Inc. (NASDAQ:NFLX)’s continued ability to monetize its platform, and it also enjoys the advantages of growth and profitability which are the hallmarks of performance in the streaming industry.
Ensemble Capital mentioned Netflix, Inc. (NASDAQ:NFLX) in its Q1 2024 investor letter. Here is what the firm said:
“The rapid recovery of Netflix’s subscriber growth has shocked investors who drove the stock down to a price of just $166 in May 2022. While at the time, bearish investors were declaring the company’s growth days were behind it, instead the company added a remarkable 13.1 million new subscribers in the most recent quarter. This was the single largest quarterly subscriber addition other than the large gains experienced during the first quarter of COVID. For all of 2023, the company added nearly 30 million new subscribers, making it the largest annual gain in Netflix history other than the first year of COVID.”
14. Visa Inc. (NYSE:V)
Number of Hedge Fund Investors in Q2 2024: 163
GS’ Number Of Funds: 17
Visa Inc. (NYSE:V) is one of the biggest payment processors in the world, and along with its smaller rival Mastercard, it commands the global market. This offers the firm key economies of scale, particularly through its partnerships with banks that are eventually responsible for issuing consumers credit and debit cards that operate on Visa Inc. (NYSE:V)’s service. Additionally, it also means that as opposed to growth, customer retention and cost control are the key facets driving the firm’s hypothesis. Visa Inc. (NYSE:V) has to continually innovate its products and services to ensure that it does not lose out to upstarts or to Mastercard. 2024 is an important year for both firms, as they are reaching a historic settlement with merchants related to the thorny issue of card fees. This deal is currently valued at $30 billion, and Visa Inc. (NYSE:V)’s shares could see turbulence if it is delayed further or if the amount goes up. Additionally, another setback could be retailers and merchants choosing to use cheaper and less secure payment platforms, particularly because of the 30 day fraud liability protection that Visa Inc. (NYSE:V) and MA’s customers have.
Aoris Management mentioned Visa Inc. (NYSE:V) in its Q2 2024 investor letter. Here is what the firm said:
“Visa operates the world’s largest payments network, which facilitates the movement of money between merchants, financial institutions, consumers, businesses, and governments.
The company is best known for enabling consumers to make debit and credit card payments. In the year to September 2023, 4.3 billion Visa cardholders made 213 billion transactions on its network, to a total value of US$12.1 trillion.
Compared to cash and cheques, which are still widely used around the world, Visa’s network is a more convenient, secure, and ubiquitous way for consumers to pay. Visa has invested to reduce friction and fraud in the payments experience, to the benefit of both merchants and consumers.”
13. Berkshire Hathaway Inc. (NYSE:BRK-B)
Number of Hedge Fund Investors in Q2 2024: 120
GS’ Number Of Funds: 17
Berkshire Hathaway Inc. (NYSE:BRK-B) is the world’s biggest investment holding company. Run by Warren Buffett, while the firm is known for its sharp stock picking ability, the largest chunk of Berkshire Hathaway Inc. (NYSE:BRK-B)’s revenue comes from insurance. As of the second quarter, $26 billion of the firm’s $93 billion in revenue was from insurance. However, Berkshire Hathaway Inc. (NYSE:BRK-B) is a well diversified business that has a significant presence in renewable energy, railroads, fuel marketing, energy, industrial and construction products manufacturing, and aviation services. This offers the firm a wide moat as it is able to capitalize on a host of different sectors that are dependent on economic performance. Berkshire Hathaway Inc. (NYSE:BRK-B) also has one of the biggest balance sheets in the world, which is evident through its $36 billion in cash and $234 billion in short term investments. This not only creates additional avenues of growth for the firm but also protects it against any untoward event that might affect its business.
The London Company mentioned Berkshire Hathaway Inc. (NYSE:BRK-B) in its Q1 2024 investor letter. Here is what the firm said:
“Insurance was once again a bright spot in Berkshire Hathaway Inc. (BRK.B)’s 4Q earnings; GEICO showed meaningful margin improvement. The company once again sold some securities in the quarter, resulting in near all-time highs in the balance of cash & short-term investments. Overall, we continue to appreciate BRK.B for their financial strength, investment acumen, and disciplined management.”
12. CRH plc (NYSE:CRH)
Number of Hedge Fund Investors in Q2 2024: 75
GS’ Number Of Funds: 18
CRH plc (NYSE:CRH) is a leading player in the global construction materials industry. It provides aggregates, construction materials, beams, pipes, and other products. CRH plc (NYSE:CRH)’s diversified product base as well as a global presence means that it benefits from lower costs through economies of scale. At the same time, the fact that it focuses exclusively on the construction industry means that the firm struggles when construction spending drops due to weak economic activity. This trend was clear in 2022 when CRH plc (NYSE:CRH)’s shares lost 24% during the year as the Federal Reserve tightened interest rates to control inflation. High rates lead to a slowdown in construction due to difficulties with working capital finance and capital generation. While it is a global player, North America represents 75% of CRH plc (NYSE:CRH)’s operating income. This positions it well to utilize increased US government spending on semiconductor fabs, green energy infrastructure, and overall infrastructure through initiatives such as the CHIPS and Science Act, the Bipartisan Infrastructure Act, and the Inflation Reduction Act.
L1 Capital mentioned CRH plc (NYSE:CRH) in its Q2 2024 investor letter. Here is what the firm said:
“In our view, measuring the performance of investments over short time horizons such as three months is meaningless. While CRH and Eagle Materials detracted from the Fund’s returns this quarter, they were both leading positive contributors in the prior quarter. Since Inception of the Fund over 5 years ago, both companies have been top ten contributors to the Fund’s returns.
Recently, there has been some negative data that is causing a sell-off in the share price of CRH and Eagle Materials. Both these companies supply building products to the infrastructure, residential and commercial construction sectors. CRH has around 75% exposure to North America, with the remainder principally Europe (CRH has also recently acquired the majority of Adbri in Australia). Eagle Materials solely operates in the U.S.
Demand from the U.S. infrastructure sector is likely to remain robust for the medium term due to increased Federal and State spending, supported by the $1.2 trillion Infrastructure Investment and Jobs Act. Short term activity has been disrupted by bad weather – we think this is complete noise and is just slightly delaying projects, although CRH and Eagle Materials’ June 2024 quarterly results will likely be impacted.
Housing activity has recently softened a little, with affordability remaining an issue. Demand for housing remains strong, and the housing construction industry is responding through incentives such as subsidising mortgage rates for buyers, and building slightly smaller, cheaper homes.
While there will always be short term fluctuations in activity levels and we do expect softening in apartment construction, over time we expect solid new housing construction as well as repair and renovation activity levels to support demand for CRH and Eagle Materials’ products, with potential for meaningful upside in a lower interest rate environment. Commercial activity remains mixed, with pockets of strength such as data center construction and resilient areas such as hospital and education construction, offset by weakness in areas such as office construction.
In our view the market is not always efficient. Back in our December 2022 Quarterly Report we were pounding the table on Amazon.com (Amazon), stating that the share price had been oversold and offered compelling value. Since then, Amazon’s share price has increased nearly 140%. Over recent months, the share price of Eagle Materials and CRH have fallen 20% and 15% respectively from their recent highs. Now trading on a P/E ratio of 13x to 14x, we consider both companies are trading at attractive valuations for investors with a longer-term investment horizon, willing to look through short term pressures.”
11. Mastercard Incorporated (NYSE:MA)
Number of Hedge Fund Investors in Q2 2024: 142
GS’ Number Of Funds: 19
Mastercard Incorporated (NYSE:MA) is another sizeable payment processing company. Along with Visa, it commands the dominant position in the global payment market, which provides Mastercard Incorporated (NYSE:MA) with economies of scale and stable relationships with merchants and banks. However, 2024 has been an important year for the firm as it seeks to put its friction with retailers behind it by agreeing to $35 billion in fee reductions over the next couple of years in partnership with Visa. This stands to remove a significant risk for Mastercard Incorporated (NYSE:MA), which might see retailers switch to other platforms and erode its market share. While its market share places a smaller premium on growth, Mastercard Incorporated (NYSE:MA) has to continually innovate in order to compete with its larger rival. On this front, it has introduced new features in 2024, such as using AI to detect compromised payments terminal and prevent consumer fraud before it happens.
L1 Capital mentioned Mastercard Incorporated (NYSE:MA) in its Q2 2024 investor letter. Here is what the firm said:
“The share prices of Mastercard and Visa, both long term Fund investments, have both drifted down over recent months. There have been no dramatic developments, but there has been a general slight softening in the rate of growth of consumer spending in the U.S. and globally, a court decision rejecting Mastercard and Visa’s proposed settlement of a long-lasting dispute with U.S. merchants as well as other modest adverse regulatory developments. We continue to view Mastercard and Visa as two of the highest quality businesses in the world, and both are well placed to continue to deliver attractive, risk adjusted returns to shareholders over time.”
10. Eli Lilly and Company (NYSE:LLY)
Number of Hedge Fund Investors in Q2 2024: 100
GS’ Number Of Funds: 20
Eli Lilly and Company (NYSE:LLY) is one of the biggest pharmaceutical and healthcare companies in the world. The firm is at the center of Wall Street’s craze of GLP-1 stocks as we covered in our introduction to this piece. Eli Lilly and Company (NYSE:LLY)’s shares are up by 160% since the 2023 start, primarily because of its potential to target the multi billion dollar weight loss drug market. However, the lucrative nature of this market, coupled with the fact that the first GLP weight loss patents granted in 2014 are now expiring means that in 2024 and ahead, Eli Lilly and Company (NYSE:LLY) has to deal with a different market that might ask for lower product prices. On this front, the firm made a key announcement in August when it announced $399 2.5 milligram vials of Zepbound to increase the drug’s market access. Eli Lilly and Company (NYSE:LLY)’s sizeable resources, as evidenced by $2.9 billion in cash and equivalents means that its stock can benefit from other new drugs too. Another drug that has been growing sales is Eli Lilly and Company (NYSE:LLY)’s breast cancer medicine called Verenzio.
Baron Funds mentioned Eli Lilly and Company (NYSE:LLY) in its Q2 2024 investor letter. Here is what the firm said:
“Shares of global pharmaceutical company Eli Lilly and Company increased on continued investor enthusiasm around GLP-1 drugs for diabetes and obesity. We remain shareholders. Lilly’s Mounjaro/Zepbound not only offers superb blood sugar control for diabetics but can drive 20%-plus weight loss and likely improve cardiovascular outcomes in both diabetic and non-diabetic obese patients. Lilly is developing next generation drugs, including retatrutide, which drives approximately 25% weight loss, and orforglipron, a daily pill that produces approximately 15% weight loss. In the U.S. alone, there are 32 million Type 2 diabetics and an additional 105 million obese patients who we estimate would qualify for GLP-1 drugs. Although supply and access are limited near term, we think GLP-1 drugs will become standard of care for both diabetes and obesity and will become a $150 billion-plus category. We see Lilly setting a high efficacy bar and capturing significant long-term market share. We think the adoption of GLP-1s will drive Lilly to triple total revenue by 2030.”
9. Hess Corporation (NYSE:HES)
Number of Hedge Fund Investors in Q2 2024: 73
GS’ Number Of Funds: 22
Hess Corporation (NYSE:HES) is an American oil and gas exploration and production company. The firm is currently being acquired by oil giant Chevron for a massive $53 billion price tag. As a result, most of Hess Corporation (NYSE:HES)’s hypothesis is built around the deal’s progress. Its shares could struggle if Chevron sees headwinds on the regulatory front as well as key Hess Corporation (NYSE:HES) oil producing regions in Guyana which have been a source of friction with Chevron’s rival Exxon. Additionally, any improvement in Hess Corporation (NYSE:HES)’s production output as well as efficiencies could further sweeten the deal for Chevron and provide catalysts to the stock price. Right now, Hess Corporation (NYSE:HES)’s shareholders are slated to receive 1.025 shares of Chevron for each of their shares. Investors will be on the watch out for the firm’s cost control along with any delays to the deal as potential headwinds to the shares.
8. Uber Technologies, Inc. (NYSE:UBER)
Number of Hedge Fund Investors in Q2 2024: 145
GS’ Number Of Funds: 28
Uber Technologies, Inc. (NYSE:UBER) is a ride hailing services provider that has significantly expanded its business over the course of the past couple of years. The first mover in the multi billion dollar industry, Uber Technologies, Inc. (NYSE:UBER)’s hypothesis now rests on its ability to grow its product and service portfolio and capture new and upcoming markets such as self driving cars. Tesla’s plans for a Robotaxi, a service that enables Tesla owners to autonomously generate revenue from their cars by signing them up for ride hailing has captivated investors for years, and Uber Technologies, Inc. (NYSE:UBER)’s existing platform strength offers it a key advantage in this sector. On this front, the firm announced a partnership with GM in August to use the latter’s Cruise platform for an autonomous vehicle partnership. Expected to roll out in Uber Technologies, Inc. (NYSE:UBER)’s fiscal year 2025, the move carries the potential to expand revenues for the firm, but simultaneously, Uber Technologies, Inc. (NYSE:UBER) could also take brand damage if GM’s Cruise vehicles continue to struggle as they have in the past. GM could also decide to move to an in house service in the future, and other growth initiatives by Uber Technologies, Inc. (NYSE:UBER) include its BUsiness service for high end users and Moto and UberX Share for others.
RiverPark Advisors mentioned Uber Technologies, Inc. (NYSE:UBER) in its Q1 2024 investor letter and shared:
“UBER remains the undisputed global leader in ride sharing, with a greater than 50% share in every major region in which it operates. The company is also a leader in food delivery, where it is number one or two in the more than 25 countries in which it operates. Moreover, after a history of losses, the company is now profitable, delivering expanding margins and substantial free cash flow. We view UBER as more than a ride sharing and food delivery service; we also see it as a global mobility platform with 142 million users (by comparison, Amazon Prime has 200 million members) and the ability to penetrate new markets of on-demand services, such as package and grocery delivery, travel, and hourly worker staffing. Given its $5.4 billion of unrestricted cash and $4.8 billion of investments, the company today has an enterprise value of $165 billion, indicating that UBER trades at 21x our estimates of next year’s free cash flow.”
7. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Number of Hedge Fund Investors in Q2 2024: 156
GS’ Number Of Funds: 30
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is the world’s largest contract chip manufacturing firm. The multi billion dollar investments required to set up leading edge chip fabrication foundries coupled with decades of technical research and expertise provide Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) with one of the biggest moats in its industries. The firm is currently manufacturing the most advanced chips in the world which are marketed as 3-nanometer or N3. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) enjoys multiple catalysts due to its capability to produce defect free chips at scale. For instance, it is Apple’s sole manufacturer for Apple’s in house processors, and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is also a key NVIDIA partner for not only making AI GPUs but also providing the technologies to assemble them into a usable format. These technologies are called packaging technologies, and they have also proven to be the biggest constraint in AI chip supply – making Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) spend copious amounts of capital to expand production. However, the firm’s location in Taiwan leaves it vulernable to geopolitical conflict in the region and remains the biggest long term risk.
ClearBridge Investments mentioned Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q2 2024 investor letter. Here is what the firm said:
“However, we added to our semiconductor positioning during the quarter with the purchase of Taiwan Semiconductor (TSM). TSM, an out-of-benchmark name, is the world’s fabrication production provider of choice. The criticality and sophistication of the company’s manufacturing footprint powers all of the leading edge fabless global semiconductor companies, including Apple, Nvidia, Qualcomm, AMD and Broadcom. While AI has driven upside in data centers, PCs and handsets are at cycle lows, positioning half of the company’s business for a recovery.”
6. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Investors in Q2 2024: 179
GS’ Number Of Funds: 41
NVIDIA Corporation (NASDAQ:NVDA) is the world’s leading GPU designer. It provides the chips for enterprise computing (including AI), consumer gaming, assisted driving, and other use cases. NVIDIA Corporation (NASDAQ:NVDA)’s GPU performance boosted by its design strengths has pushed it right to the top of the AI hardware supply chain. The firm’s GPUs are the most highly sought products in the market, and they provide NVIDIA Corporation (NASDAQ:NVDA) with significant pricing power. At the same time, all eyes remain on the firm for consistent upgrades, and it might struggle if it fails to launch new products. This has been evident in 2024, with multiple reports having claimed that NVIDIA Corporation (NASDAQ:NVDA)’s leading edge Blackwell chips are facing delays. Its CUDA software is another advantage since it enables users to fully control their GPUs. However, high GPU prices could incentivize NVIDIA Corporation (NASDAQ:NVDA)’s big ticket customers to design their own products and reduce the demand for its chips. Furthermore, if Wall Street decides that AI monetization is not worth the billions of dollars being spent, then the stock could see headwinds.
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.”
5. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Investors in Q2 2024: 184
GS’ Number Of Funds: 43
Apple Inc. (NASDAQ:AAPL) is the biggest and most valuable consumer technology company in the world. Roughly 52% of its nine month revenue ending June, or $155 billion out of $296 billion came from the sales of its iPhone smartphone lineup. This means that the phone is key to Apple Inc. (NASDAQ:AAPL)’s hypothesis and is baked into the share price. This is based on investor belief that Apple Inc. (NASDAQ:AAPL)’s design strengths and robust ecosystem allow the firm to rely on its user base of roughly 1.5 billion users as of 2023 regularly upgrading its smartphones. This ensures that the iPhone continues to bring in billions of dollars in revenue annually. Apple Inc. (NASDAQ:AAPL) benefits from its world class design and engineering facilities which have also allowed it to reduce dependence on third party suppliers for key components such as smartphones and notebook processors. Apple Inc. (NASDAQ:AAPL)’s $61.5 billion in cash and equivalents also means that it can splurge on developing new products to maintain its competitive edge.
Baron Funds mentioned Apple Inc. (NASDAQ:AAPL) in its Q2 2024 investor letter. Here is what the firm said:
“Recent Activity This quarter we re-initiated a position in Apple Inc., 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 shis, 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- 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.”
4. Alphabet Inc. (NASDAQ:GOOG)
Number of Hedge Fund Investors in Q2 2024: 165
GS’ Number Of Funds: 51
Alphabet Inc. (NASDAQ:GOOG) is the world’s biggest search engine operator – a position that has also enabled it to play a pivotal role in the global advertising industry. The firm’s primary line of business is selling ads to run on its search engine as well as for sites that have partnered up with it. While the scale of these operations provides Alphabet Inc. (NASDAQ:GOOG) with a wide competitive moat, 2024 has been an important year for the firm. Not only has the Justice Department purportedly considered anti trust action against the company for being a monopoly after a court ruling, but the advent of artificial intelligence has created a new industry that could potentially disrupt the decades old internet search engine business model. However, Alphabet Inc. (NASDAQ:GOOG)’s considerable resources, as evidenced by a whopping $111 billion in cash and equivalents means that it can spend all the money that it wants to create new products. Additionally, its DeepMind division is one of the oldest players in the AI industry, and Google Cloud is Apple’s preferred partner for AI training – both of which position it favorably in the AI race.
Patient Capital Management mentioned Alphabet Inc. (NASDAQ:GOOG) in its Q2 2024 investor letter. Here is what the fund said:
“Alphabet Inc. (GOOGL) was a top contributor in the second quarter, finally catching up to its peers in the Magnificent 7. The company gained 20.8% in the period following strong first quarter earnings, a new $70B repurchase program (3% of shares outstanding) and the initiation of a cash dividend ($0.20 per share; 0.42% yield). We continue to believe the market underappreciates Google’s exposure to AI with its Gemini model being integrated into search results, YouTube advertising and its cloud offering. We continue to think that the cloud players will be the AI winners in the long-term, with Google being well positioned to take advantage. While the company trades at 24x 2024 earnings, if you remove the money-losing and under-earning businesses, you realize that you are paying below a market multiple for the core Google business. We do not believe there are many other AI winners trading at such an attractive multiple.”
3. Meta Platforms, Inc. (NASDAQ:META)
Number of Hedge Fund Investors in Q2 2024: 219
GS’ Number Of Funds: 77
Meta Platforms, Inc. (NASDAQ:META) is one of the biggest social media companies in the world. The parent company of Facebook, Instagram, and WhatsApp, it enjoys a sizeable user base of more than 3.2 billion people as of March. This provides Meta Platforms, Inc. (NASDAQ:META) a wide moat in the social media sector, as it only has to improve its services to ensure user retention instead of having to focus on growth like other companies. Additionally, the keys to its hypothesis are its ability to ensure that users spend more time on its platform and the ability to monetize this time spent. Meta Platforms, Inc. (NASDAQ:META) focuses on two broad based monetization strategies. The first is based on targeting its products like WhatsApp to business users and the second is using new technologies such as artificial intelligence to improve ad placement and drive up ad sales to advertisers. Meta Platforms, Inc. (NASDAQ:META) is also a key player in the AI race and has announced new features that it can monetize such as AI Studio which lets anyone on its platform create AI.
Meta Platforms, Inc. (NASDAQ:META)’s management shared details for Meta Studio during the Q2 2024 earnings call:
“And this week we launched AI Studio, which lets anyone create AIs to interact with across our apps.
I think the creators are especially going to find this quite valuable. There are millions of creators across our apps, and these are people who want to engage more with their communities, and their communities want to engage more with them, but there are only so many hours in the day. So now they are going to be able to use AI Studio to create AI agents that can channel them to chat with their community, answer people’s questions, create content and more. So I’m quite excited about this. But this goes beyond creators too. Anyone is going to be able to build their own AIs based on their interests or different topics that they are going to be able to engage with or share with their friends. Business AIs are the other big piece here. We’re still in Alpha testing with more and more businesses.
The feedback we’re getting is positive so far. Over time, I think that just like every business has a website, a social media presence, and an email address, in the future I think that every business is also going to have an AI agent that their customers can interact with. And our goal is to make it easy for every small business, eventually every business, to pull all of their content and catalog into an AI agent that drives sales and saves them money. When this is working at scale, I think that this is going to dramatically accelerate our business messaging revenue. There are a lot of other new opportunities here that I’m excited about too, but I’ll save those for another day when we’re ready to roll them out. The engine that powers all these new experiences is the Llama family of foundation models.”
2. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Investors in Q2 2024: 279
GS’ Number Of Funds: 79
Microsoft Corporation (NASDAQ:MSFT) is another big tech giant. Like Alphabet, the firm plays a key role in the artificial intelligence industry, and it benefits from its close partnership with OpenAI – the firm that’s responsible for popularizing AI in the collective imaginations of investors and the general public. While the exact figure isn’t known, what is clear is that Microsoft Corporation (NASDAQ:MSFT) has invested billions of dollars in AI, which means that the technology – and its monetization – are now a fundamental part of the big tech firm’s $3 trillion market capitalization. In fact, Microsoft Corporation (NASDAQ:MSFT)’s enterprise computing business, which accounted for $28.5 billion of its $64 billion in FYQ4 revenue, is another key component of the AI hypothesis as the firm is expected to earn revenue from AI by targeting products to business and enterprise users. In fact, this exposure to enterprise spending has been part of the reason why Microsoft Corporation (NASDAQ:MSFT)’s shares are down by 11% since July while Apple’s shares have lost just 2.89% as investors are increasingly worried about near term AI revenue generation.
Baron Funds mentioned Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter. Here is what the firm said:
“Microsoft Corporation is the world’s largest software and cloud computing company. Microsoft was traditionally known for its Windows and Oice 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 Oice 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.”
1. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Investors in Q2 2024: 308
GS’ Number Of Funds: 99
Amazon.com, Inc. (NASDAQ:AMZN) is the world’s biggest eCommerce retailer. Along with its eCommerce platform, the firm is a key player in the lucrative enterprise computing market through its Amazon Web Services (AWS) business division. These two are Amazon.com, Inc. (NASDAQ:AMZN)’s biggest businesses, and its sizeable resources have enabled the firm to become another key player in the AI race through its work with Anthropic. Anthropic allows Amazon.com, Inc. (NASDAQ:AMZN) with access to a foundational AI model called Claude. Like OpenAI’s ChatGPT, Meta’s Llama, and Google’s Gemini, Claude allows Amazon.com, Inc. (NASDAQ:AMZN) and its customers to build AI powered experiences for a multitude of use cases such as chat bots. The firm’s eCommerce business also makes it a key player in the advertising industry, especially since it attracted 3.25 billion users in June. Data shows that a growing number of advertisers are now focused on customized advertising through sites such as Amazon, and AI enables Amazon.com, Inc. (NASDAQ:AMZN) to improve its advertising product portfolio for merchants and publishers. However, legal headwinds in the form of predatory merchant practices or anti trust action could create troubles for the firm.
Patient Capital Management mentioned Amazon.com, Inc. (NASDAQ:AMZN) in its Q2 2024 investor letter. Here is what the fund said:
“Amazon.com Inc. (AMZN) moved higher throughout the second quarter as AI demand helped to reaccelerate growth in their AWS business. It looks as though the cloud business is finally past the customer cost optimization period with customers restarting their cloud migrations as well as expanding spend on AI projects. Despite the top and bottom-line improvement seen in the first quarter, the company is significantly underearning its long-term potential as it continues to reinvest aggressively in the business. With 80% of global retail sales still being done in physical stores and 85% of global IT spending still on-premises, we see a long-run way for the dominant player in the cloud, retail, and increasingly logistics and advertising space.”
AMZN tops our list of Goldman Sachs’ top hedge fund stocks. But 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 AMZN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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