In this piece, we will take a look at Goldman Sachs’ best phase 2 AI stock picks.
While consumer technology stocks had soared in the aftermath of the coronavirus pandemic, back then, their share price gains were due to. the growing demand for technology products and services due to lock downs. Now, big technology stocks have persisted in their strong performance despite high interest rates since they have been judged by the market as the top innovators and performers in the artificial intelligence industry.
Since AI is somewhat of a ubiquitous technology, its impact is on several industries. So far, we’ve seen most of the stock market returns related to AI directly tied to just one stock. This stock continued to be the fifth most trending AI stocks as recently as in mid October and its share price returns are nothing short of unbelievable. From its bottom in October 2022 when the split adjusted share price was a mere $11.23, the shares have gained a stunning 1,100%. In other words, if you had invested just $100 back then in the shares and then held onto them for dear life, your investment would be worth $1,200 today.
This is the magic of AI, a technology that has caught Wall Street and retail investors alike by storm. However, AI’s impact, and its enablement, aren’t limited to the GPU designer we’ve mentioned above. While GPUs are the ‘oil’ for this technology, a wide variety of other components from data center infrastructure, networking equipment, connectivity, and energy all will have to play their part if OpenAI CEO Sam Altman’s plans of initially building as many as 7 AI data centers across the US, with each data center guzzling an unbelievable 5 Gigawatts of electricity, are to come to fruition.
This then makes us ask, what are such stocks that might enable 35 Gigawatts of AI data centers across the US? After all, in order to meet the world’s demand for AI chips, Altman believes that an unfathomable $7 trillion will need to be spent for building 36 chip manufacturing fabs and additional AI data centers. This money has to be spent somewhere, and therein lies the answer to our question. Things get clearer when we look at a detailed research report from investment bank Goldman Sachs. This report segregated the AI sector into four categories.
The first category only included Wall Street’s AI darling, the second was made of AI capacity providers like server companies, other semiconductor firms, and utilities, the third included firms that sell AI products and software, and the fourth category firms were those that will benefit from AI adoption. In its report, the investment bank shared that year to date in July, the first category had returned 139%. As of mid October, this category has gained 179% on the stock market, so safe to say returns have accelerated despite some turbulence in between. By July, the second group of firms was also doing well. Its returns ranged between ~-8% to ~50%, with the average stock having delivered 22%.
Zooming into these firms, the utility sector is one which had particularly impressed the bank. It shared that utilities were the best performing sector in the flagship S&P index between March and May courtesy of their 16% returns. Their three month returns ranked in the 98th percentile since 2022 and were the third highest after 2003 and 2020 rallies. This outperformance is unsurprising given the strong investments in data centers that have taken the US by storm this year.
These investments have led to estimates suggesting that America’s data center hub, Northern Virginia, will require 11,000 megawatts of electricity by 2035 – demand which has already spurred $5.2 billion in investments for transmission lines and coal fired power plants. Estimates from Boston Consulting Group believe that by 2030, AI will account for 16% of America’s energy consumption and touch 130 gigawatts. For a detailed look at the link between electricity use and data centers, you should read 15 Best Data Center Stocks To Buy According to Jefferies, Citi and Wall Street Analysts.
The bustling optimism surrounding AI is also reflected in revenue estimates. Goldman’s September 2024 research shows that 2025 revenue estimates of semiconductor firms, software enablers, and hardware firms except semiconductors are roughly 2.3x, 2.05x, and 1.8x over 2019 levels, respectively. Similarly, non semiconductor hardware companies have seen their revenue forecasts for Q4 2025 jump to $450 billion for a $380 billion gain over Q1 2024’s $70 billion. Makes us wonder whether it’s this group of companies that might see a stock mirror the 1,100% returns of Wall Street’s AI darling.
With these details in mind, let’s take a look at the top phase two AI stocks according to Goldman Sachs.
Roman Tiraspolsky/Shutterstock.com
Our Methodology
To make our list of Goldman Sachs’ best phase 2 AI stocks, we ranked the 20 stocks with the highest year to date returns and some other big tech and data center names that have announced multi billion dollars in capital expenditure by their year to date performance.
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).
24. Microsoft Corporation (NASDAQ:MSFT)
Year To Date Share Price Gain: 12.25%
Number of Hedge Fund Investors in Q2 2024: 279
Microsoft Corporation (NASDAQ:MSFT) is the global leader in operating systems and one of the biggest players in the cloud and enterprise computing industry. It is also one of the leading players in the AI industry due to its partnership with OpenAI. Microsoft Corporation (NASDAQ:MSFT)’s multi billion dollar investment in AI means that it is entitled to a share of OpenAI’s revenue, and the firm’s Azure cloud computing platform is one of the biggest beneficiaries of the new technology. Through Azure, the company enables customers to store, analyze, and run other operations with their data. Microsoft Corporation (NASDAQ:MSFT)’s cloud raked in $28.5 billion in FYQ4 revenue, and its AI investments mean that investors are razor focused on its ability to generate AI profits. This is also why Microsoft Corporation (NASDAQ:MSFT) ranks at the bottom of our list, as a lack of profits has made its shares lose 2% since its fourth quarter report. Consequently, the ability to drive AI profits is key to Microsoft Corporation (NASDAQ:MSFT)’s hypothesis.
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.”
23. Alphabet Inc. (NASDAQ:GOOGL)
Year To Date Share Price Gain: 17.88%
Number of Hedge Fund Investors in Q2 2024: 216
Alphabet Inc. (NASDAQ:GOOG) is the mega cap technology company that earns most of its revenue through its search engine, Google Search. Its dominance in the global search industry, which sees it operate across all ends from serving as a marketplace for ads to running the ads on its platforms, has enabled Alphabet Inc. (NASDAQ:GOOG) to build a fortress balance sheet. Its cash and equivalents sit at $111 billion which enables the firm to play a leading role in the cloud computing industry. Alphabet Inc. (NASDAQ:GOOG) is a diversified AI company, since not only does it offer AI products and services along with the Gemini APU, but it also offers tensor processing unit (TPU) chips to others to run their AI workloads. One of its biggest TPU customers is Apple, and its AI platform means that Alphabet Inc. (NASDAQ:GOOG) is both an AI enabler and an AI beneficiary.
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.”
22. Amazon.com, Inc. (NASDAQ:AMZN)
Year To Date Share Price Gain: 25.94%
Number of Hedge Fund Investors in Q2 2024: 308
Amazon.com, Inc. (NASDAQ:AMZN) is the world’s largest eCommerce company and a dominant player in the cloud computing industry. This offers it an unmatched business diversification, with the eCommerce business providing high volume top line contributions and the cloud business offering a high margin business with stable revenues. Amazon.com, Inc. (NASDAQ:AMZN)’s partnership with Anthropic, a firm set up by former OpenAI employees, has provided it with access to a foundational AI model. When coupled with its in house processors and data center infrastructure, it makes Amazon.com, Inc. (NASDAQ:AMZN) one of the few firms in the world to provide an end to end AI stack to businesses and other users. The firm’s AI software also allows it to improve merchant advertising on its eCommerce site and become an AI beneficiary. Amazon.com, Inc. (NASDAQ:AMZN)’s tools such as Amazon Bedrock provide generative AI for application development and enable broader AI access in the industry.
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.”
21. NetApp, Inc. (NASDAQ:NTAP)
Year To Date Share Price Gain: 47%
Number of Hedge Fund Investors in Q2 2024: 44
NetApp, Inc. (NASDAQ:NTAP) is a diversified storage hardware and software company that caters to the needs of the cloud computing and data center industries. Its products enable cloud operators to physically store their data on flash drives and manage storage through software tools. Since there is no AI without massive amounts of data to train the models, NetApp, Inc. (NASDAQ:NTAP)’s products are essential to enable businesses to run their AI models and workloads. The firm is an industry leader when it comes to unstructured data management, which is key for unsupervised training for AI models. Additionally, NetApp, Inc. (NASDAQ:NTAP)’s dual business of selling hardware and software allows it to command high ASPs for strong top line profits and beefy margins for sizeable bottom line income. The company also expects to bring in $40 billion in revenue through its flash segment by 2027 by providing the high speed memory modules that are key for AI data work.
Ariel Investments mentioned NetApp, Inc. (NASDAQ:NTAP) in its Q2 2024 investor letter. Here is what the fund said:
“Market leader for computer storage systems, NetApp, Inc. (NASDAQ:NTAP) advanced over the quarter following a top- and bottom-line earnings beat. Strong growth across its All-Flash, Block, Artificial Intelligence (AI) and Public Cloud products, tight cost controls and operating margin expansion drove the outperformance. Additionally, management raised the quarterly dividend, announced a buyback program and reiterated its commitment to return 100% of free cash flow to shareholders in 2025, further aiding shares. We believe NetApp is well-positioned to benefit from its cloud storage service as it helps companies move data between public and private clouds seamlessly. Meanwhile, we remain excited about the company’s digital transformation projects involving business analytics, AI and data security.”
20. Public Service Enterprise Group Incorporated (NYSE:PEG)
Year To Date Share Price Gain: 42.44%
Number of Hedge Fund Investors in Q2 2024: 34
Public Service Enterprise Group Incorporated (NYSE:PEG) is the first utility stock on our list. It is a regulated utility, which means that the firm has to negotiate with state regulators to set its electricity prices. This creates a double edged sword for Public Service Enterprise Group Incorporated (NYSE:PEG) since while at one end the firm can keep rates high even if excess supply lowers prices, on the other hand, it risks its margins if generation costs grow. The firm also has exposure to clean energy through a solar power generation capacity of 158 megawatts in its portfolio. October has been an important month for Public Service Enterprise Group Incorporated (NYSE:PEG) as its negotiations with New Jersey regulators enabled it to secure its first price hike in six years. AI related bullishness for the firm is primarily due to its presence in New Jersey and plans to supply data centers with power from nuclear plants.
Public Service Enterprise Group Incorporated (NYSE:PEG)’s management shared insights about its data center plans during the Q2 2024 earnings call:
“We also continue to pursue potential incremental investment opportunities for future regulated growth. Along those lines, PSE&G is experienced an increase in new business requests and feasibility studies from potential data center customers across our service area compared with 2023 activity, which combined with increased electric vehicle charging is expected to drive load growth and system investment needs in the future. Switching to regulated transmission solicitations, which are scheduled for this summer, PSE&G expects that the BPU will announce the winner or winners of the pre-built offshore wind infrastructure during the second half of 2024.
Last month, the BPU postponed its second state agreement approach process to procure transmission to support offshore wind generation, while it evaluates the impact of FERC and PGM activity on long-term transmission planning, cost allocation and interconnection queue reform. The BPU may reevaluate this timing and the need for a second SAA solicitation in six months, which would be this coming December. PJM opened the 2024 regional transmission Expansion Plan Window 1 solicitation earlier this month, which reflects their higher load growth forecast on the 2029 to 2032 plan horizon. That has been influenced by increased electrification expectations and data center load growth throughout PJM. We are evaluating the Window 1 solicitation for potential opportunities to bid this September.
Now crossing the Hudson for a moment, and as expected, the Long Island Power Authority opened a request for proposal process to select the manager to operate their electric grid. Our existing operating services agreement and power supply contract with LIPA runs through the end of 2025. We intend to submit proposals into their RFP process and LIPA is expected to make selections early next year. At PSEG Power, we are also continuing to explore opportunities for the potential sale of electricity from our nuclear facilities pursuant to long-term agreements to supply large power energy users such as data centers and hydrogen producers.”
19. Onto Innovation Inc. (NYSE:ONTO)
Year To Date Share Price Gain: 50.64%
Number of Hedge Fund Investors in Q2 2024: 39
Onto Innovation Inc. (NYSE:ONTO) is a mid sized backend semiconductor company. The firm provides lithography systems for panel packaging, defect inspection products, and other items. Consequently, it’s a classic phase two AI stock according to Goldman Sachs’ classification since its products are essential for manufacturing chips. Onto Innovation Inc. (NYSE:ONTO) is essential to the AI wave particularly because of its packaging products. Packaging is a bottleneck area of AI chip manufacturing. It is one of the final stages of semiconductor fabrication in which chips are packaged into forms that are usable by data centers. Shortage of packaging capacity has forced TSMC to invest billions in bolstering capacity, and Onto Innovation Inc. (NYSE:ONTO) can benefit from this demand as well. Consequently, the stock’s 50.64% year to date gain is unsurprising.
Carillon Tower Advisers mentioned Onto Innovation Inc. (NYSE:ONTO) in its Q2 2024 investor letter. Here is what the fund said:
“Onto Innovation Inc. (NYSE:ONTO) provides process control solutions and inspection systems primarily used in the fabrication of semiconductors and other solid-state devices. The company’s quarterly earnings report exceeded expectations and raised guidance, led by an inflection in advanced nodes and continued strength in packaging inspection, especially tied to semiconductors that enable artificial intelligence. Investors are excited about the prospects of the company’s packaging technology being critical in the manufacturing of next-genera[1]tion artificial intelligence (AI) semiconductors.”
18. Corning Incorporated (NYSE:GLW)
Year To Date Share Price Gain: 52.38%
Number of Hedge Fund Investors in Q2 2024: 35
Corning Incorporated (NYSE:GLW) is a specialty industrial and communications materials and equipment provider that deals primarily with glass based items. Its customers include consumer technology companies and communications firms. Corning Incorporated (NYSE:GLW) is a stage two Goldman Sachs AI stock since its fiber optic cables are essential not only for high speed internet but also for a new use case involving data centers. While Corning Incorporated (NYSE:GLW)’s fiber glass cables were initially used to connect data centers to each other, another growing use case is their use within data centers. The hot demand for its products is evident by the fact that telecommunications firm Lumen has reserved 10% of Corning Incorporated (NYSE:GLW)’s global fiber capacity for the next two years for its AI enabled data centers. The firm’s Optical division also accounts for 30% of its revenue, and growth in data center revenue can help the firm meet its Springboard Plan. This aims for a 20% operating margin by 2026 and is a key part of its hypothesis.
O’keefe Stevens Advisory mentioned Corning Incorporated (NYSE:GLW) in its Q2 2024 investor letter. Here is what the fund said:
“Corning Incorporated (NYSE:GLW), another long-time holding, announced Q2 results would come in better than anticipated due to outperformance in their optical connectivity products used for Generative AI. Corning has long been a disappointing investment; with leading-edge technology, it consistently underperforms expectations. Their “springboard” plan, which revolves around $3 billion of excess capacity, seems to be the first sign in a long time that they are ready for a surge in growth. Management has frequently discussed the potential for operating leverage in nearly every conference call, anticipating a return to normal business conditions. Margins should expand over the coming quarters, driving EPS growth. The $3B in incremental sales could be worth in excess of $900m in EBITDA.”
17. Pure Storage, Inc. (NYSE:PSTG)
Year To Date Share Price Gain: 52.79%
Number of Hedge Fund Investors in Q2 2024: 38
Pure Storage, Inc. (NYSE:PSTG) is another storage focused hardware and software company that caters to the needs of the data center industry. The firm operates primarily through its Evergreen model which enables businesses to manage their storage consumption based on need instead of pre defined packages. This makes Pure Storage, Inc. (NYSE:PSTG)’s products attractive to businesses on a budget, and the firm also competes in the market by enabling users to bypass slower solid state drives from their storage architecture and rely primarily on faster flash storage instead. Pure Storage, Inc. (NYSE:PSTG)’s Pure//E family of products provides an end to end flash storage option for all kinds of data sets and offers storage for as much as 30 petabytes of data. However, while up 52.79% year to date, the shares are down by 13% since late August after the firm revised downwards its STaaS bookings downward by $100 million for a 25% growth over the previous estimate of 50% growth.
Pure Storage, Inc. (NYSE:PSTG)’s management attributed this to tighter evaluations. Here’s what they shared during the Q2 2025 earnings call:
“Well, I think your supposition would be correct if customers — the same customer was switching from an Evergreen//One deal to a CapEx deal. What we’ve seen instead is large opportunities — large Evergreen//One opportunity staying opportunities longer than we expected and therefore stretching out. A little bit whether that’s based on caution or whether that’s based on by the customer or whether that’s based on other — we had indicated that customers are looking very closely at their subscription expenses now given increases in software and SaaS expenses that were raised over the year. We’ve yet to really fully diagnose that. But what we’re seeing is a lengthening of large deal size Evergreen//One opportunities.”
16. Monolithic Power Systems, Inc. (NASDAQ:MPWR)
Year To Date Share Price Gain: 55.38%
Number of Hedge Fund Investors in Q2 2024: 35
Monolithic Power Systems, Inc. (NASDAQ:MPWR) is a Washington based semiconductor products provider. Its chips include voltage control, power management, and other chips. These products, along with others such as inductors provide it with a wide exposure to data centers as they are essential for efficient power management of the facilities that AI companies estimate can use as much as one gigawatt of electricity. The strong demand for Monolithic Power Systems, Inc. (NASDAQ:MPWR)’s products has meant that not only are its shares up by more than 55% year to date, but that the firm has also grown its revenue consecutively year over year. In 2021, 2022, and 2023, Monolithic Power Systems, Inc. (NASDAQ:MPWR) earned $1.2 billion, $1.79 billion, and $1.82 billion in revenue, respectively. Over the 2020 figure of $844 million, the 2023 revenue marks a whopping 116% growth. In Q2, the firm posted $507 million in revenue for a 10.8% growth. Enterprise data sales have powered Monolithic Power Systems, Inc. (NASDAQ:MPWR)’s growth, as the segment’s sales jumped by 217% during Q1.
ClearBridge Investments mentioned Monolithic Power Systems, Inc. (NASDAQ:MPWR) in its Q2 2024 investor letter. Here is what the firm said:
“Another top individual contributor was Monolithic Power Systems, Inc. (NASDAQ:MPWR), in the IT sector, which makes semiconductor-based power electronics for the computing and storage, automotive, industrial, communications and consumer markets. Continued demand for AI-related companies and beneficiaries and anticipation of greater demand for data center components such as power management hardware for CPUs helped drive strong performance in the quarter. We believe Monolithic is one of the most attractive semiconductor plays within the SMID universe and that the company will continue to gain share in analog semiconductors as it wins design contracts.”
15. Belden Inc. (NYSE:BDC)
Year To Date Share Price Gain: 56.34%
Number of Hedge Fund Investors in Q2 2024: 16
Belden Inc. (NYSE:BDC) is a data center operations and connectivity equipment provider. The firm’s products include copper cables, fiber cables, panels, cooling products, and airflow management products. These expose it directly to the growing data center market and imply that even if AI demand fails to take off, Belden Inc. (NYSE:BDC) will still be well positioned to benefit from pent up enterprise IT spending from the high interest rates. Its exposure to the data center industry has also allowed the firm to achieve sizeable revenue growth. Between 2020 and 2023, Belden Inc. (NYSE:BDC)’s revenue has grown from $1.7 billion to $2.5 billion, or by 47%. This hasn’t stopped the firm from focusing on growth, and it acquired a fiber company earlier this year to further increase broadband market penetration, particularly for enterprise and data center users. Over the long term, Belden Inc. (NYSE:BDC) expects its broadband revenue to account for 20% of its sales compared to the current figure of roughly 10%.
Belden Inc. (NYSE:BDC) management believes that the acquisition will help it penetrate the data center market. Here is what they shared during the Q2 2024 earnings call:
“So if you really look at Precision Optical Technologies, they’ve spent a lot of time building this position as a value-added supplier of optical transceivers with a lot of proprietary software and configuration capability, right, I think that’s unique. In many ways, that’s a little bit similar to how, for example, you can think of our active products on the industrial side. So you have this one capability that’s extremely differentiated, very sticky. And then, as a result, every time, for example, a big MSO customer has to do new infrastructure deployment or upgrades or any changes, it always starts at that end of their, let’s say, data center, where Precision is plugged in and all the discussions then come down to architectural design, so that they work through linked loss budgets and go from end to end, and then — so Precision was covering both ends.
Our Broadband business, pre-Precision, was covering that middle ground. And now we’re in a position where we connect all of that end-to-end, right? So we now participate — or we can participate in more systems architectural discussions. So how is that going? It’s still early days, obviously, Rob. We’ve disclosed, but the initial discussions with — between the two teams and with our customers have been very encouraging. We’ve already found a number of pull-through opportunities. We are bringing the teams together faster than we have done historically in terms of integration. So we are combining go-to-market more rapidly than we might have done in the past. And all our customers, in fact, as I may have mentioned on a previous call, part of that acquisition process was getting endorsement from some key customers.
And so they’ve really supported us during the process and they continue to support us as we roll this out. So, yes, I think in many ways, Precision Optical’s acquisition will allow our Broadband business to enter solutions in a way that would have been difficult organically because they didn’t have that kind of architecture in road into that discussion. So that is indeed the big change for us.”
14. Broadcom Inc. (NASDAQ:AVGO)
Year To Date Share Price Gain: 67.20%
Number of Hedge Fund Investors in Q2 2024: 130
Broadcom Inc. (NASDAQ:AVGO) is one of the biggest technology companies in the world. The firm has multiple exposures to the AI sector courtesy of its diversified business model. For starters, Broadcom Inc. (NASDAQ:AVGO) is one of the leading chip designers in the world. It makes and sells modems and network controllers. Additionally, the firm’s application specific integrated circuits (ASICs) provide it with one of the most unique exposures to the AI sector. ASICs are customizable chips that compute user defined workloads, which allows Broadcom Inc. (NASDAQ:AVGO) to design AI chips for other firms such as OpenAI (which is reportedly in discussions with the company). This makes the firm a classic phase two AI stock, and Broadcom Inc. (NASDAQ:AVGO) also benefits from its cybersecurity division’s AI exposure. With data centers expected to grow in number, the demand for security products will also increase and can provide sizeable catalysts for Broadcom Inc. (NASDAQ:AVGO).
Baron Funds mentioned Broadcom Inc. (NASDAQ:AVGO) in its Q2 2024 investor letter. Here is what the firm 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.”
13. Super Micro Computer, Inc. (NASDAQ:SMCI)
Year To Date Share Price Gain: 67.43%
Number of Hedge Fund Investors in Q2 2024: 47
Super Micro Computer, Inc. (NASDAQ:SMCI) is a Taiwanese data center and networking equipment company. The firm enjoys a key differentiated product in the sense that its server building blocks enable it to ship plug and play products. Super Micro Computer, Inc. (NASDAQ:SMCI)’s stock has been on quite a ride this year. The shares soared by more than 300% by March but then lost steam as the firm struggled to sell its shares even at a lower price of $862 from the then trading price of roughly $1,000. Super Micro Computer, Inc. (NASDAQ:SMCI)’s woes deepened in August after it announced a delay in filing its Form 10K after a scandalous short seller report. Consequently, the stock is down by 60% since its March peak. However, Super Micro Computer, Inc. (NASDAQ:SMCI) has kept its focus on the AI industry and it plans to leverage its strength in providing liquid cooling solutions by aiming to deliver 100,000 liquid cooled GPUs to AI factories each year. Under or over delivery could create ripples in the stock price.
Artisan Partners comments for Super Micro Computer, Inc. (NASDAQ:SMCI) during its Q2 2024 investor letter were quite telling:
“Super Micro Computer manufactures server racks for central processing units and GPUs that have experienced an artificial intelligence-driven uptick in demand from its cloud and enterprise customers. This company has been on our radar for years, and we met with them in our Milwaukee offices in early 2023. However, we don’t consider the stock investable given corporate governance issues.
12. Oracle Corporation (NYSE:ORCL)
Year To Date Share Price Gain: 68.91%
Number of Hedge Fund Investors in Q2 2024: 93
Oracle Corporation (NYSE:ORCL) is one of the biggest enterprise computing software providers in the world. In the AI era, the firm has also established itself as one of the dominant entities in AI capacity. In an industry that is thirsty for NVIDIA’s Blackwell GPUs, Oracle Corporation (NYSE:ORCL) opened pre orders for its Oracle Cloud Infrastructure (OCI) in September to allow customers access to as many as 131,072 Blackwell GPUs with availability estimated for 2025. Initiatives like OCI mean that Oracle Corporation (NYSE:ORCL) becomes the backbone of the AI industry as its infrastructure is indispensable for training heavy duty models and workloads. Consequently, it’s also unsurprising that the stock is up 68.91% year to date to surpass Microsoft’s 12.25% as while Microsoft’s profits from AI might be in the future, Oracle Corporation (NYSE:ORCL) stands the chance to earn immediate revenue through its AI infrastructure offerings.
Janus Henderson mentioned Oracle Corporation (NYSE:ORCL) in its Q2 2024 investor letter. Here is what the fund said:
“Enterprise software company Oracle Corporation (NYSE:ORCL) was a top contributor to relative performance. The company reported revenue and bottom line metrics that were in line to slightly below consensus; however, it also reported record bookings for new business. This accelerating revenue growth outlook is being driven by AI cloud infrastructure deals and boosted sentiment in the stock.”
11. Meta Platforms, Inc. (NASDAQ:META)
Year To Date Share Price Gain: 70.36%
Number of Hedge Fund Investors in Q2 2024: 219
Meta Platforms, Inc. (NASDAQ:META) is the final mega cap big tech company on our list with access to self developed foundational AI models. While originally being a social media company that currently has a user base of 3.2 billion people, Meta Platforms, Inc. (NASDAQ:META)’s focus on high technology has meant that it is one of the leaders in the AI industry. The firm’s Llama foundational AI model and broader AI focus have enabled it to become one of the few that are offering AI products to consumers. Meta Platforms, Inc. (NASDAQ:META)’s AI offerings include a voice AI assistant, AI based photo editing, AI translations, and AI image generation. Its Facebook platform earns through running advertisements, and like Amazon, Meta Platforms, Inc. (NASDAQ:META) is also offering a suite of AI products to businesses. These include AI customer support tools and AI advertisement tools. They give the firm one of the broadest AI portfolios in the market, making it unsurprising that the stock is up 70.36% year to date.
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.”
10. NRG Energy, Inc. (NYSE:NRG)
Year To Date Share Price Gain: 75.12%
Number of Hedge Fund Investors in Q2 2024: 56
NRG Energy, Inc. (NYSE:NRG) is a sizeable and diversified energy company. The firm operates as an independent utility, and it also provides generators, HVAC installation, home protection products, and other services. It serves customers primarily in Texas and relies on a mix of renewable and traditional power generation sources. As of 2023, NRG Energy, Inc. (NYSE:NRG) had 13GW in power generation capacity, and the firm also benefits from the fact that it is not beholden to regulators for its rates. A turnaround story with influence from Elliot Management, NRG Energy, Inc. (NYSE:NRG)’s stock soared by 6% in late September after it increased FY24 midpoint operating income guidance by 5.1%, indicating to investors that it was now on stable footing. NRG Energy, Inc. (NYSE:NRG) is also part of a bid of $5.38 billion in Texas funding for gas fired power plants, which could increase its capacity to serve data centers. Speaking of which, the firm is also aiming to grow its load 3x at its Hyperscaler and data center sites which cover a whopping 21,000 acres.
NRG Energy, Inc. (NYSE:NRG)’s management commented on its Hyperscaler plans during the Q2 2024 earnings call. Here is what they said:
“Our singularly devoted development team is diligently working to maximize the value of these sites. As a reminder, our portfolio includes 21 sites encompassing 21,000 acres of land in competitive markets. These sites are ideally suited for new large loads and power plant development, offering co-location opportunities both behind and in front of the meter.
To identify the sites best suited for data centers, key factors include access to water for cooling, premium fiber channel access for low latency, and existing grid access and infrastructure for rapid market entry. As you can see, our sites possess these attributes, but also have potential for other large load applications. In this appendix, we provide several paths to value under consideration. I look forward to discussing this more with you as we progress.”
9. Arista Networks, Inc. (NYSE:ANET)
Year To Date Share Price Gain: 80.05%
Number of Hedge Fund Investors in Q2 2024: 65
Arista Networks, Inc. (NYSE:ANET) is a cloud computing hardware and software company. The firm provides networking software, Ethernet products, switches, analytics software, and other associated products and services. For AI, Arista Networks, Inc. (NYSE:ANET) benefits from its Ethernet business division which carries the potential to compete with fiber for data center connectivity. While the firm has seen competition from NVIDIA, which offers the InfiniBand product lineup for data center networking, Arista Networks, Inc. (NYSE:ANET)’s business of being a pure play networking provider enables it to enjoy expertise and economies of scale that translate into lower cost and brand value. Additionally, Arista Networks, Inc. (NYSE:ANET)’s networking software works in tandem with its hardware and allows the firm to generate recurring revenue following hardware sales. Its prominent role in the industry has also led to reports suggesting that Arista Networks, Inc. (NYSE:ANET) is Meta’s partner of choice for a 100,000 GPU AI cluster to create a multi million dollar opportunity for the firm. Goldman Sachs kept its $430 price target and a Buy rating for Arista Networks, Inc. (NYSE:ANET)’s shares in September as it projected 20% revenue growth for 2024 and 2025.
Madison Funds mentioned Arista Networks, Inc. (NYSE:ANET) in its Q2 2024 investor letter. Here is what the fund said:
“We trimmed our positions in Arista Networks, Inc. (NYSE:ANET) and Carlisle Companies. Both of these companies have witnessed strong multi-year growth in their stock prices, which have resulted in elevated valuations. While we remain confident in the long-term prospects of both of these businesses, we trimmed our holdings to more appropriate position sizes given the risk/reward offered.”
8. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Year To Date Share Price Gain: 87.93%
Number of Hedge Fund Investors in Q2 2024: 156
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is the world’s largest contract chip manufacturer. This means that while NVIDIA might design the world’s best AI chips, without TSMC, its designs might be unable to see the light of day. While other contract foundry options such as Samsung and Intel are available, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) by far has the best yields and the most robust operating model to easily churn out thousands of silicon wafers annually. Consequently, the firm’s lead in the industry is undisputed, particularly as billions of dollars in investment are required to set up chip manufacturing foundries. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is currently preparing its next generation 2 nanometer manufacturing process for mass production next year, and rumors suggest that the AI GPUs are made with the N4P manufacturing technology. This is a high end variant of Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)’s 5 nanometer process, and with the 3 nanometer technology already in mass production for less power intensive chips, it’s only a matter of time before this technology is available to AI designers. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) also benefits from its packaging investments and is reportedly ahead of schedule with its AI chip packaging capacity.
Baron Funds mentioned Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q2 2024 investor letter. Here is what it said:
“Taiwan Semiconductor Manufacturing Company Limited (TSMC), the world’s leading semiconductor foundry, contributed to performance in the second quarter, driven by continued strong data center AI accelerator demand, optimism on a potential edge AI replacement cycle for smartphones and PCs, and expectations for price hikes next year (“selling our value,” in the words of C.C. Wei, TSMC’s CEO). In contrast with the sluggish broader semiconductor foundry market, TSMC is enjoying a record- breaking year, with management guiding for revenue to grow in the low to mid-20% range year-over-year in 2024, thanks to the company’s near- monopoly in manufacturing the world’s most advanced chips. According to C.C. Wei, “almost all the AI innovators are working with TSMC to address the insatiable AI-related demand for energy-efficient computing.” This strong AI demand, coupled with TSMC’s unrivaled competitive position, is driving “a high level of customer interest and engagement at N2” (TSMC new process node which will start production in 2H25), with N2 revenue expected to “certainly be larger” and with a “better margin profile” than N3 (TSMC’s most advanced node today). We believe TSMC will sustain strong double-digit earnings growth for years to come, driven by rapidly growing demand for advanced chips and continued market share gains enabled by its superior technology, reliability, and customer service.”
7. Credo Technology Group Holding Ltd (NASDAQ:CRDO)
Year To Date Share Price Gain: 108%
Number of Hedge Fund Investors in Q2 2024: 36
Credo Technology Group Holding Ltd (NASDAQ:CRDO) is a data center networking products provider. The firm sells products such as cables, signal processors, and cards. With a market cap of $6.35 billion, Credo Technology Group Holding Ltd (NASDAQ:CRDO) is a smaller company on our list which increases the chances for it to grow its valuation. It also means that the biggest hypothesis driver for the firm is its ability to land mega deals which inject significant revenue into the income statement. On this front, Credo Technology Group Holding Ltd (NASDAQ:CRDO) shared earlier this year that it expects to land a new 10% customer in the current quarter, to enable not only revenue growth but also customer diversification from the two entities that currently also account for 10% or more of the firm’s revenue each. To help with retaining customers, Credo Technology Group Holding Ltd (NASDAQ:CRDO) is also focusing on key failure points of electric cables called link flaps which can lead to server down times and lost money. These could help enable it to establish a stable footing in the market and grow its revenues.
TimesSquare Capital Management mentioned Credo Technology Group Holding Ltd (NASDAQ:CRDO) in its Q2 2024 investor letter. Here is what the fund said:
“Among the wide variety of Information Technology companies, we prefer critical system providers, specialized component designers, systems that improve productivity or efficiency for their clients, and others that closely tie to increasing shares of corporate IT budgets. Credo Technology Group Holding Ltd (NASDAQ:CRDO), a supplier of high-speed connectivity solutions, surged ahead by 51%. The company reported inline April quarter results and management’s July quarter guidance met expectations; AI spending is a growth driver.”
6. Arm Holdings (NASDAQ:ARM)
Year To Date Share Price Gain: 119.76%
Number of Hedge Fund Investors in Q2 2024: 38
Arm Holdings (NASDAQ:ARM) is a British semiconductor design IP company. While the firm does not sell its own processors, its blueprints power the vast majority of the world’s smartphone processors. Arm Holdings (NASDAQ:ARM) also offers designs and cores for GPUs and other chips. Its exposure to the AI industry comes particularly because of custom chips. Advances in semiconductor fabrication have meant that while traditionally x86 processors were more powerful due to instruction set architecture (ISA) differences, newer chip manufacturing technologies enable manufacturers to increase core counts within a small package size to maintain efficiency and increase performance. As a result, Arm Holdings (NASDAQ:ARM)’s designs, which were originally used for efficiency requiring applications such as smartphones, are now a mainstay of custom data center chip designs for big ticket names such as Amazon, Google, and Alibaba. This means that Arm Holdings (NASDAQ:ARM) has a wide moat and exposure to AI data centers, making it unsurprising that at one point, NVIDIA was interested in buying the firm. However, a long term threat could come from the open source RISC-V model disrupting the firm’s business.
Bireme Capital mentioned Arm Holdings (NASDAQ:ARM) in its Q4 2023 investor letter. Here is what the fund said:
“Another stock we bet against in the second half of 2023 was ARM Holdings. We find the valuation to be far too rich at more than 20x sales and 100x FY 2023 operating income. To garner such a large multiple in the public markets, majority owner Softbank seems to have pulled out all the short-term levers at its disposal. From the FT:
Arm is seeking to raise prices for its chip designs as the SoftBank-owned group aims to boost revenues ahead of a hotly anticipated initial public oering in New York this year. The UK-based group, which designs blueprints for semiconductors found in more than 95 per cent of all smartphones, has recently informed several of its biggest customers of a radical shift to its business model, according to several industry executives and former employees. These people said Arm planned to stop charging chipmakers royalties for using its designs based on a chip’s value and instead charge device makers based on the value of the device. This should mean the company earns several times more for each design it sells, as the average smartphone is vastly more expensive than a chip.
In our view this was a transparent attempt to boost revenue growth ahead of the IPO. This might work as a one-time boost to sales, but it is not sustainable and will anger and alienate customers. ARM’s largest customers increasingly choose to license just the ARM instruction set architecture (ISA) rather than purchase ARM’s o-the-shelf chip designs. They prefer to design their own chips so they can better optimize their hardware with their software, as Apple has done to great effect with its custom silicon. It is hard to imagine ARM getting significantly more revenue share while their value-add diminishes.”
. . . .We believe ARM’s short-term price increases are unlikely to be converted to long-term revenue growth, but this is what is required to justify the current valuation.”
5. Constellation Energy Corporation (NASDAQ:CEG)
Year To Date Share Price Gain: 130.99%
Number of Hedge Fund Investors in Q2 2024: 71
Constellation Energy Corporation (NASDAQ:CEG) is nearly a pure play clean energy company. The firm generates 32 gigawatts of electricity, out of which 90% comes from clean sources such as nuclear. Its shares have been one of the top performing in the energy industry this year, primarily due to Constellation Energy Corporation (NASDAQ:CEG)’s role as one of America’s biggest nuclear power generation companies. Nuclear power has seen renewed attention from big banks who are eager to open their wallets to rely on it to meet climate goals. This has been met by big tech eager to find clean energy capable of meeting high baseload requirements simultaneously. Nuclear is suited to its use case as it does not depend on time dependent sunlight or wind for power generation. The tech demand is a big reason Constellation Energy Corporation (NASDAQ:CEG)’s stock has gained 130.99% year to date. From the start of the year to September 19th, the shares were up an already impressive 81%. Then, Microsoft announced it would restart the Three Mile Island nuclear reactor for AI power, which sent Constellation Energy Corporation (NASDAQ:CEG)’s shares soaring by 22%.
Constellation Energy Corporation (NASDAQ:CEG) shared its insights into data center demand during theQ2 2024 earnings call:
“I understand why there is a lot of attention on that, but we don’t want to leave this topic without saying that we are making great progress on power sales for on grid data centers through our 24/7 product. Utilities across PJM, and I think you’ve seen this in a bunch of the earnings calls, have been highlighting the growth of data centers in their service territory. In total, as you could see on Slide 6, they now identified 50 gigawatts or more that would come in over time. Now look, in fairness, I think there’s a bunch of duplication in those numbers and it’s going to occur over a longish time line. But the point is, I think it’s powerful that everyone is seeing the same thing, growth in this area. And those growth opportunities are good for Constellation because each of these grid data center projects, whether they’re located in Illinois, Ohio or anywhere else in PJM or in other regions, they present an opportunity for our commercial team to sell clean and reliable power through our 24/7 product and other offerings to these clients.”
4. Vertiv Holdings Co (NYSE:VRT)
Year To Date Share Price Gain: 145.05%
Number of Hedge Fund Investors in Q2 2024: 92
Vertiv Holdings Co (NYSE:VRT) is another data center equipment provider. The firm’s products range from busbars and racks to analytical software and project deployment services. Vertiv Holdings Co (NYSE:VRT) also provides data center liquid cooling products, which are some of the most important ones when it comes to data center infrastructure as they are 25x more efficient compared to alternatives. Goldman’s data shows that a ChatGPT query consumes as much as 10x the energy of a Google Search query, with other estimates showing that global AI demand could require a stunning 4.2 billion cubic meters of water for cooling. Consequently, and as evidenced by SuperMicro’s meteoric ride on the stock market, cooling is all the rush in the data center market. Budding data center demand has also translated into growth for Vertiv Holdings Co (NYSE:VRT). The firm’s second quarter saw it grow organic sales by 54%, which enabled it to grow its market share. Additionally, it has also teamed up with NVIDIA for cooling systems to potentially unlock more market share as NVIDIA pitches its AI products to businesses.
Baird Equity Asset Management mentioned Vertiv Holdings Co (NYSE:VRT) in its Q2 2024 investor letter. Here is what the fund said:
“We made several adjustments to our technology sector mix. We also added Manhattan Associates and Vertiv Holdings Co (NYSE:VRT). Vertiv is a power equipment company benefitting from secular growth in data center spending and in artificial intelligence-driven thermal management solutions.”
3. Coherent, Inc. (NYSE:COHR)
Year To Date Share Price Gain: 148.39%
Number of Hedge Fund Investors in Q2 2024: 47
Coherent, Inc. (NYSE:COHR) is a diversified optoelectronics, optical components, and laser company. Its exposure to the data center industry comes via the firm’s optical business which sells optical transceivers and other products for networking applications. The primary reason that Coherent, Inc. (NYSE:COHR)’s stock is up 148% year to date is the fact that it has already started to realize revenue from its data center exposure. During its fiscal Q4, datacom revenue grew by 58% annually and management ascribed the uptick primarily to data center and AI demand driven by the 800G datacom transceiver product lineup. Not one to take it slow, Coherent, Inc. (NYSE:COHR) already has its eye on the future since it has sampled its next generation 1.6T transceiver products. If they are well received, then the firm could see additional tailwinds in 2025. The new transceivers are crucial particularly as their higher prices help firms beef up margins.
NCG Investors mentioned Coherent, Inc. (NYSE:COHR) in its Q2 2024 investor letter. Here is what the fund said:
“Coherent Corp. (NYSE:COHR) is a market leader in engineered materials, optoelectronic components, and lasers for use across various end markets, with attractive growth opportunities in areas such as the data center and electric vehicles. COHR recently hired a new CEO with a track record of enhancing business strategy to deliver consistent revenue growth and margin expansion, and we believe he has the opportunity to do the same at COHR.”
2. Palantir Technologies Inc. (NYSE:PLTR)
Year To Date Share Price Gain: 162.42%
Number of Hedge Fund Investors in Q2 2024: 44
Palantir Technologies Inc. (NYSE:PLTR) is a software company that caters to the needs of governments and the private sector. Its government business enables users to consolidate intelligence and derive insights, while the commercial arm provides it with important exposure to the AI industry. When compared to most other software firms, Palantir Technologies Inc. (NYSE:PLTR) benefits from the fact that its engineers work directly with customers for software implementation. This allows for efficient AI implementations, and the results are already evident in Palantir Technologies Inc. (NYSE:PLTR)’s financials. The firm’s US commercial revenue grew by a whopping 70% in the second quarter, and it closed the three month period by adding 96 contracts worth $1 million or more and an impressive 27 deals that were worth more than $10 million. Palantir Technologies Inc. (NYSE:PLTR)’s inclusion in the S&P 500 has also helped the shares.
mentioned Palantir Technologies Inc. (NYSE:PLTR) in its Q1 2024 investor letter. Here is what the fund said:
“The top contributor to return for the quarter was Palantir Technologies. Sentiment improved on Palantir after it reported stronger than expected commercial customer revenue and free cash flow. U.S. commercial growth was especially encouraging, as U.S. commercial revenue was up by a large percentage year over year for the fourth quarter and U.S. commercial customer count grew nearly as much. We expect Palantir to become one of the premier artificial intelligence (AI) software providers, built on its Foundry and AIP platforms.”
1. Vistra Corp. (NYSE:VST)
Year To Date Share Price Gain: 229%
Number of Hedge Fund Investors in Q2 2024: 92
Vistra Corp. (NYSE:VST) is a Texas based electricity utility. This means that it benefits from the ability to set prices due to not having to deal with regulators. Vistra Corp. (NYSE:VST) accounts for roughly one fifth of Texas’ electricity generation, which provides it with key economies of scale to keep costs low. It also has exposure to the AI data center industry because of the fact that clean sources such as nuclear play a key role in its power generation portfolio. In fact, Vistra Corp. (NYSE:VST) has had its eye on the ball for more than a year when it comes to nuclear power generation. Back in 2023, the firm created a new entity after buying nuclear generation assets. It bought the remaining assets in this entity this year, and the day the deal was certain, Vistra Corp. (NYSE:VST)’s shares soared by a cool 25%. In fact, Vistra Corp. (NYSE:VST)’s year to date share price gain of 229.10% means that it has beaten NVDA’s 179.84% gain, hinting that perhaps the era of Goldman Sachs’ phase two AI stocks is already with us. Its shares have also been helped by record grid payouts in the US utility industry this year.
Fidelity Investments mentioned Vistra Corp. (NYSE:VST) in its Q2 2024 investor letter. Here is what the fund said:
“An overweight stake in utility company Vistra Corp. (NYSE:VST) (+24%) was the top individual relative contributor. In Q1, the Texas-based independent power producer completed its acquisition of Ohio-based nuclear fleet operator Energy Harbor. The new Vistra, with its expanded geographic footprint, is in strong position to gain from the buildout of AI-capable data centers, which require enormous amounts of power to run. It is expected that local grids in the U.S. will need to invest heavily over the coming years to improve their power infrastructure and meet growing demand. In the nearer term, firms may choose to contract with independent power producers, like Vistra, rather than rely on the local provider.”
VST is one of the top phase two AI stocks according to Goldman Sachs. While we acknowledge the potential of VST 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 VST but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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