In this article, we will take a detailed look at the Hedge Funds are Buying and Selling These 10 AI Stocks.
The AI-led rally in the stock market is expected to ripple through other sectors and smaller tech companies, but analysts believe for now large-cap companies are still the key focus of money managers. Morgan Stanley in its August key themes report said that while small-cap stocks rebounded on rate-cut hopes, the window for their outperformance is “too narrow.”
“Historically small cap outperformance depended primarily on economic growth acceleration. Greater risk exposure to a “higher-for-longer” rate environment has added inverse rate correlation to the mix. While periods of growth acceleration with lower rates are plausible (e.g. end-2023), we see this combination as relatively unlikely in the current inflation environment. The recent decline in interest rates was a tailwind to small cap stocks, but softer economic data likely limits the durability of this trade,” the firm said.
The latest earnings season showed that ROI on the huge AI spending by major companies is small in the short term, but long-term gains seem promising. Many companies have already started seeing monetization on their AI investments. Goldman Sachs analysts Joseph Briggs, Kash Rangan, and Eric Sheridan said in a June report titled GEN AI: TOO MUCH SPEND, TOO LITTLE BENEFIT? that they remain more optimistic about AI’s economic potential even if we don’t see immediate benefits for now.
Hedge funds are one step ahead of average individual investors due to the sheer scale of resources and capital they have. That’s why it’s always interesting to see which stocks they are buying and selling. In this article we take a look at the 10 most important AI stocks which were on the radar of elite money managers based on their second-quarter filings. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10. Arm Holdings PLC – ADR (NASDAQ:ARM)
Total Number of Hedge Fund Investors as of the End of Q2: 38
Total Number of Hedge Fund Investors as of the End of Q1: 29
Billionaire Paul Singer believes Mag. 7 stocks might be in a bubble land, but he opened a new stake in Arm Holdings PLC – ADR (NASDAQ:ARM) during the second quarter, buying 150,000 shares of the company.
Arm Holdings PLC – ADR (NASDAQ:ARM) shares fell after the company posted fiscal first-quarter results and gave guidance that failed to impress Wall Street. Analysts believe extremely high expectations are affecting the stock as the market continues to expect rapid growth at once. ARM revised its guidance for the full year which still points to about 27% year-over-year revenue growth.
Revenue growth at Arm Holdings PLC – ADR (NASDAQ:ARM) is expected at around 22% over the next few years.
Why is ARM a promising stock? The company makes advanced microprocessors that are key to most electronic devices, known for their power efficiency and high performance. These processors are used in everything from smartphones and laptops to automotive systems and cloud data centers. The company generated revenue by licensing its designs to manufacturers and earning royalties from products that use its technology. Demand for its technology is rising, particularly in AI, smartphones, and cloud computing. New product launches and partnerships with companies like Google and AWS further bolster its market position. Arm anticipates continued growth in licensing and royalty revenues, fueled by the adoption of its v9 architecture.
Despite this, the stock’s forward P/E of 80 is too high a price to pay right now when competition is increasing and investors’ patience on AI monetization is running thin.
9. Intel Corp (NASDAQ:INTC)
Total Number of Hedge Fund Investors as of the End of Q2: 75
Total Number of Hedge Fund Investors as of the End of Q1: 77
Billionaire Ray Dalio’s Bridgewater Associates exited its stake in the company worth over $18 million. Billionaire David Tepper of Appaloosa Management decreased its stake in Intel to 2.78M shares from 3.75M shares.
Intel Corp (NASDAQ:INTC) shares recently saw a bloodbath following the company’s weak Q2 results and disappointing guidance. The results show the AI growth everyone was talking about won’t come cheap. Intel Corp (NASDAQ:INTC) expects its gross margin in the third quarter to decline to 34.5% from 38.7% reported in the second quarter, which was a significant decline from the company’s expectation of 43.5%.
While Intel Corp (NASDAQ:INTC) has suspended its dividend and announced massive layoffs, its problem of inventory won’t be resolved anytime soon. Intel has 137 days of inventory, worth over $11.2 billion. This is much higher than the industry average of 90 days. Intel Corp (NASDAQ:INTC) has close to $52 billion in long-term debt and analysts believe its cost-cutting measures along with AI growth initiatives won’t let it fix this problem soon. S&P Global recently put the stock’s credit rating on “watch” saying:
“While these cost-cutting measures, including significant capital expenditure reductions, could alleviate some near-term cash-flow-generation challenges, it is unclear whether these steps will be sufficient to maintain its business competitiveness and enable healthy growth.”
Raymond James said in a report after earnings that Intel’s margin issues are expected to continue until 2025. AI PC growth has become a larger headwind for margins, as the higher cost of external wafers offsets modest average selling price premiums.
Amid these factors, investors are better off looking for other AI stocks and avoid Intel for now until there’s visibility on how exactly Intel Corp (NASDAQ:INTC) would resolve its core problems.
ClearBridge Large Cap Value Strategy stated the following regarding Intel Corporation (NASDAQ:INTC) in its Q2 2024 investor letter:
“The massive ramp up in spending on AI spending has crowded out spending in other technology verticals such as software and traditional enterprise infrastructure. This has also driven a market where “AI winners” have enjoyed strong multiple expansion, while perceived “AI losers” have been severely punished. One example of a perceived AI loser temporarily cast aside was the Strategy’s top detractor for the quarter, Intel Corporation (NASDAQ:INTC), whose shares declined as it put out financial targets for 2027 that were below Wall Street expectations, and also noted that demand for its core PC and server chips remained depressed. We take a contrarian view of Intel and do not think it will be an AI loser, but rather see underappreciated opportunity as AI PCs ramp over the next few quarters in enterprises, where Intel has a stronghold. We also believe that the company’s technology roadmap remains intact, which we believe will lead to a stabilization in market share in its core PC and server markets. Both markets remain depressed, but we believe that aging infrastructure and the ongoing growth of IT workloads will lead to a cyclical recovery in both markets, which should benefit shares.”
8. Qualcomm Inc (NASDAQ:QCOM)
Total Number of Hedge Fund Investors as of the End of Q2: 100
Total Number of Hedge Fund Investors as of the End of Q1: 78
Billionaire Phillipe Laffont’s Coatue Management increased its stake in Qualcomm Inc (NASDAQ:QCOM) by 43.1% to 5.24M shares during the second quarter. Late billionaire Jim Simons’ Renaissance Technologies opened a new stake in QCOM, worth $218.5 million.
QUALCOMM Inc (NASDAQ:QCOM) was seen as a laggard in the AI arms race but all of a sudden the stock has a new growth catalyst: AI PCs and AI handsets.
O’keefe Stevens Advisory explained its bullish thesis on the stock based on these two factors in its latest investor letter, saying:
“During the quarter, the A.I. rally broadened beyond the obvious players of Nvidia, AMD, and hyperscalers. QUALCOMM Incorporated (NASDAQ:QCOM), a long-standing investment, is gaining recognition for integrating artificial intelligence into mobile phones. Qualcomm’s A.I. on-device capabilities enable real-time language translation, improved voice recognition, and sophisticated imaging techniques as A.I. becomes more integral to mobile experiences. Qualcomm benefits by leading the market in providing robust, efficient, and versatile A.I. solutions. A.I. could be the first technology advancement in several years to accelerate the smartphone replacement cycle as users desire these advanced capabilities.”
The company’s Snapdragon 8 Gen 3 Mobile Platform can power smartphones to process up to 10 billion parameters of generative AI models, effectively making them intelligent personal assistants.
What about AI PCs? Microsoft has announced that its Surface Laptop and Surface Pro will be powered by QUALCOMM Inc (NASDAQ:QCOM) chips. These devices can run several AI tasks without the internet. QUALCOMM Inc (NASDAQ:QCOM) is a key partner of Microsoft to deliver Copilot+ PCs.
Wall Street expects Qualcomm’s revenue to grow 10% in 2025 and earnings to rise by 13.10% in the year. Despite these growth catalysts, QUALCOMM Inc (NASDAQ:QCOM) is trading at a forward P/E of 20, lower than the industry median of 23.73.
7. Adobe Inc (NASDAQ:ADBE)
Total Number of Hedge Fund Investors as of the End of Q2: 107
Total Number of Hedge Fund Investors as of the End of Q1: 108
Billionaire Stanley Druckenmiller opened a new stake in Adobe Inc (NASDAQ:ADBE) during the second quarter, worth about $20.4 million.
Adobe has crushed all market fears around generative AI potentially denting the demand for company products. Some believed the rise of generative AI tools would dampen the demand for Adobe’s tools since everyone can now just give simple text-based commands to AI to make images and edit videos. But Adobe turned the tables around and used AI to its advantage. Adobe Inc (NASDAQ:ADBE) Digital Experience segment is integrating AI tools to enhance its tools and deliver AI-driven features for automation and personalization, catering to marketers, advertisers, ad agencies, publishers, and business executives. Through Adobe Experience Cloud, it offers solutions for B2B marketing and content creation.
A new addition to this segment is Adobe GenStudio, a generative AI product designed for marketing. It creates AI-generated images and supports content planning and management. Despite its content creation features, Adobe Inc (NASDAQ:ADBE) classified GenStudio under Digital Experience due to its primary focus on marketing applications.
After the Q2 results more Wall Street analysts think Adobe is in a position to use the generative AI revolution to its advantage. For the third quarter, the company expects $5.38 billion in revenue for Q3, marking a 12.1% year-over-year growth and signaling sequential acceleration.
Growth at Adobe Inc (NASDAQ:ADBE) is aided by AI products like Firefly, which has not only attracted new users but also boosted retention rates.
JPMorgan has upgraded Adobe Inc (NASDAQ:ADBE) to Overweight from Neutral and raised its price target to $580 from $570. Analysts believe the stock has significant upside potential and is poised to recover to its previous highs, potentially outperforming the broader market. They think current investor concerns, particularly around the Firefly product, might be overblown, and that monetization could start to improve in the latter half of this year and into the next.
Polen Global Growth Strategy stated the following regarding Adobe Inc. (NASDAQ:ADBE) in its Q2 2024 investor letter:
“With Adobe Inc. (NASDAQ:ADBE), in some ways, we see it as a microcosm of the market’s “shoot first, ask questions later” approach to categorizing AI winners and losers. In the early part of last year, Adobe came under pressure with a perception that generative AI (GenAI) would represent a material headwind to their suite of creative offerings. In short order, the company introduced its GenAI offering, Firefly, which shifted the narrative to Adobe as a beneficiary with a real opportunity to monetize GenAI in the near term. Earlier this year, that narrative was again challenged as the company reported a slight slowdown in revenue growth. Results in the most recent quarter were robust as the company raised its full-year forecast across a number of key metrics and showcased better-than-expected results.”
6. Salesforce Inc (NYSE:CRM)
Total Number of Hedge Fund Investors as of the End of Q2: 117
Total Number of Hedge Fund Investors as of the End of Q1: 154
Activist investor Starboard Value increased its stake in Salesforce Inc (NYSE:CRM) by 40% to $432,408,777 during the second quarter. Billionaire George Soros’ fund added a new position in the company during the period, while Whale Rock Capital Management exited its stake.
BofA Securities believes Salesforce Inc (NYSE:CRM) is one of the best beaten-down tech stocks presenting an attractive entry point following the latest selloff.
According to Yahoo Finance data, Salesforce Inc (NYSE:CRM) is expected to see earnings growth of about 16% on a per-annum basis over the next five years. Data also shows the company is expected to deliver double-digit YoY EPS growth in the next ten out of eleven quarters.
While Salesforce Inc (NYSE:CRM) is primarily a customer relationship software company, with notable tools and platforms like Sales Cloud, Service Cloud, Marketing Cloud, Tableau, MuleSoft, and Slack, its most promising platform is Data Cloud when it comes to AI and software. The platform has 90% year-over-year growth and clocking in $400 million in FY2024. What does this platform do? It helps organizations process data from various departments and third-party cloud solutions. Powered by an AI-driven data engine, it analyzes metadata in real time to provide valuable insights, supporting sales, marketing, and customer service workflows.
As of the end of Q1 Salesforce Inc (NYSE:CRM) had $17.7 billion in cash and low financial leverage.
Mizuho Securities analyst Gregg Moskowitz thinks the company is still “well situated” to help customers in digital transformation. However, the analyst thinks Salesforce Inc. (NYSE:CRM) would do so by prioritizing profitable growth. The analyst reiterated his Buy rating on the stock but cut his price target to $300 from $345.
Morgan Stanley analyst Keith Weiss, who has an Overweight rating and a $320 price target on Salesforce Inc. (NYSE:CRM), said that Salesforce’s PEG ratio of 1.2 shows the market is not pricing in operational discipline and earnings growth sustainability.
Polen Focus Growth Strategy stated the following regarding Salesforce, Inc. (NYSE:CRM) in its Q2 2024 investor letter:
“Salesforce, Inc. (NYSE:CRM) declined nearly 20% due to a slowdown in revenue and bookings growth, part of a wider trend we’ve observed across enterprise software as companies defer spending on large projects given the uncertain macroeconomic environment. As mentioned, there has been an emerging narrative about prioritized spending on AI, cloud, and security over enterprise software spending that could eventually impair seat-based software over the longer term. Though there may be some near-term shifts in dollars toward GenAI, we believe the market for mission-critical enterprise software will remain robust well into the future. We will monitor the position closely, but we continue to believe that Salesforce is well-placed with its mission-critical software and high customer retention rates to weather these headwinds, lean on pricing power, and effectively monetize generative AI in its product suite.”
5. Apple Inc (NASDAQ:AAPL)
Total Number of Hedge Fund Investors as of the End of Q2: 184
Total Number of Hedge Fund Investors as of the End of Q1: 150
Perhaps the biggest news around Apple Inc (NASDAQ:AAPL) related to the latest 13F filings from hedge funds was Warren Buffett’s Berkshire cutting its stake in the company by 50%. Who else is jumping the Apple ship? Billionaire Stanley Druckenmiller’s Duquesne Family Office cut its stakes in Apple (NASDAQ:AAPL) to 24,000 shares during Q2 from about 115,000 shares. Billionaire Ray Dalio’s fund reduced its position in the company to 469K shares from 1.84 million shares. Billionaire DE Shaw’s fund cut its Apple stake by 33%. Billionaire Israel Englander, on the other hand, increased his stake in the company by 68% via Millennium Management.
Apple Inc (NASDAQ:AAPL) has a new bull: billionaire Dan Loeb. The founder of the New York-based hedge fund Third Point said in a latest letter to investors that Apple has a significant upside potential due to AI.
“We believe Apple Inc (NASDAQ:AAPL) recently announced ‘Apple Intelligence’ suite of AI-enabled smartphone features – the most compelling of which is a next-generation virtual assistant – will start driving meaningful new demand within Apple’s installed base, resulting in accelerating revenue growth on two fronts. First, iPhone revenue is going to see a marked improvement because Apple Intelligence features will not be backwards-compatible with existing iPhone models, creating the conditions for a forced upgrade cycle. Second, Apple’s App Store is likely to become the primary distribution platform for most new consumer focused AI apps such as OpenAI’s ChatGPT (with which Apple Inc (NASDAQ:AAPL) recently announced a partnership). We expect Apple’s claim on the future economics of these apps to be substantial as it exploits its distribution advantage.”
Loeb reiterated the bull case that many other Wall Street analysts have made. This case assumes that millions of people will upgrade their iPhones because they’d want to use AI-powered new models of Apple Inc (NASDAQ:AAPL) flagship device.
However, the assumption that we will see a huge upgrade cycle of iPhone just because of AI is big and comes with a lot of risks. Apple Inc (NASDAQ:AAPL) trades at a forward PE multiple of around 35x, well above its 5-year average of nearly 27x. Its expected EPS forward long-term growth rate of 10.39% does not justify its valuation, especially with the iPhone upgrade cycle assumption. Adjusting for this growth results in a forward PEG ratio of 3.33, significantly higher than its 5-year average of 2.38.
Wedgewood Partners stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q2 2024 investor letter:
“Apple Inc. (NASDAQ:AAPL) also contributed to performance after unveiling its AI strategy to its software developers. The Company has been at the forefront of proprietary computer processor development for over a decade. Given the compute-intensive nature of AI applications, Apple is well-situated to develop a suite of compelling, consumer-friendly AI services that are also cost-effective. While revenue growth has been relatively flat post-Covid-19, we expect Apple’s AI value proposition will be compelling enough for consumers to continue growing their engagement in the Apple ecosystem over the next several years.”
4. Alphabet Inc (NASDAQ:GOOG)
Total Number of Hedge Fund Investors as of the End of Q2: 165
Total Number of Hedge Fund Investors as of the End of Q1: 165
Billionaire Bill Ackman’s Pershing Square reduced its stake in Google-parent Alphabet’s class C capital stock (GOOG) by 19.5% to 7.55 million shares and in its class A capital stock (GOOGL) by 8.5% to 3.99 million shares. Chris Hohn’s TCI increased its hold in the company by about 400% while billionaire Philippe Laffont reduced his stake in Alphabet by 39% to $504 million.
Cooper Investors Global Equities Fund stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q2 2024 investor letter:
“Unsurprisingly the portfolio’s best performers in the very short term reflect this pattern, having narrowed to those most obviously exposed to the AI story – TSMC and Alphabet Inc. (NASDAQ:GOOG). While the portfolio has owned semiconductor companies for years it remains diversified and is underweight the group from an active risk perspective, dragging on relative performance in the last six months. The portfolio is currently positioned to take advantage of the Value Latency we see in smaller sized companies, and the performance of the quarter has been more aligned with those factors.
While this positioning is painful in the short-term, we see considerable embedded value in our portfolio. We also see considerable risks and uncertainties existing in the AI theme that are not reflected in the Value Latency on offer in many stocks that have surged.
Returning to the AI story, today the portfolio has around 10% of capital invested across TSMC and Alphabet. Meantime, Alphabet has multiple value levers to pull across AI-augmented search, YouTube (now the ‘must-have’ streaming platform for young people) and Google Cloud.”
3. NVIDIA Corp (NASDAQ:NVDA)
Total Number of Hedge Fund Investors as of the End of Q2: 179
Total Number of Hedge Fund Investors as of the End of Q1: 186
Billionaire Rajiv Jain’s GQG Partners cut its stake in NVIDIA Corp (NASDAQ:NVDA) by 44% during the second quarter, while billionaire DE Shaw’s fund reduced its position by 52%. Billionaire Ken Griffin’s stake in the company fell 80% to $299 million. Billionaire Paul Singer, who recently said NVIDIA Corp (NASDAQ:NVDA) and other top AI stocks are in bubble land, sold his entire stake in the company during Q2.
Patient Capital Opportunity Equity Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2024 investor letter:
“NVIDIA Corporation (NASDAQ:NVDA) continued to lead both the market and the portfolio, remaining a top performer in the period gaining 36.7%. Nvidia is the market leader in designing and selling Graphics Processing Units (GPU), which has recently benefited from the insatiable demand of artificial intelligence (AI) models. The company currently captures 92% market share of data center GPUs and grew revenue, earnings and free cash flow (“FCF”) an astounding 126%, 392%, and 610%, respectively, over the last year. While we expect competition to increase, we think NVDA can continue to maintain top market share. While many are concerned with backlog times shortening, we think the rollout of the B100, which promises 2.5x better performance for only 25% more cost, later this year will create more shortages. With leading edge technology, an increasing innovation cycle and strong cash generation, the company is well positioned for the increased adoption of artificial intelligence (AI).”
2. Meta Platforms Inc (NASDAQ:META)
Total Number of Hedge Fund Investors as of the End of Q2: 219
Total Number of Hedge Fund Investors as of the End of Q1: 246
Billionaire David Tepper’s Appaloosa Management slashed its Meta Platforms (NASDAQ:META) stake to 935K shares during the second quarter from 1.12M shares.
3G Capital Partners of Brazilian billionaires Brazilian billionaires Alexandre Behring and Jorge Paulo Lemann cut its stake in Meta Platforms by about 28% in the second quarter to $34,034,850.
Polen Focus Growth Strategy stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q2 2024 investor letter:
“In the second quarter, the top relative contributors to the Portfolio’s performance were all names we do not hold: Home Depot, Meta Platforms, Inc. (NASDAQ:META), and AbbVie. Meta Platforms delivered robust results in the period, with revenue growth accelerating in the first quarter. However, revenue comparisons for Meta will become more difficult from here, and its guidance for 2Q revenue fell below market expectations. After the company’s “year of efficiency,” where it cut costs in its core business, management is now indicating another ramp-up in GenAI and metaverse spending, spurring concerns about future profit margins. Metaverse spending, by our calculations, is now over $20 billion per year with little to no expected return on the foreseeable horizon.”
1. Microsoft Corp (NASDAQ:MSFT)
Total Number of Hedge Fund Investors as of the End of Q2: 279
Total Number of Hedge Fund Investors as of the End of Q1: 293
Billionaire investor Philippe Laffont’s Coatue Management’s stake in Microsoft Corp (NASDAQ:MSFT) inched up by 0.6% to about $1.7 billion during the second quarter. Rajiv Jain’s GQG Partners decreased its stake by 22% while Michael Platt and William Reeves’ BlueCrest Capital Mgmt. increased their hold on Microsoft Corp (NASDAQ:MSFT) by over 1,000%. Billionaire Dalio’s Bridgewater increased its take in MSFT to 1.09 million shares from 580K.
Polen Focus Growth Strategy stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:
“The top absolute contributors were Alphabet, Microsoft Corporation (NASDAQ:MSFT), and Amazon. Microsoft was another top absolute contributor in the quarter, speaking to a growing appreciation for all the ways the company has an opportunity to monetize GenAI, be it in its Office suite or Azure cloud business. In the latter case, it contributed 7% to Azure’s revenue growth in the most recent quarter. We believe Microsoft remains a highly advantaged business with many secular tailwinds driving durable growth for the foreseeable future, even at its immense scale.”
While we acknowledge the potential of Microsoft Corp (NASDAQ:MSFT), our conviction lies in the belief that under the radar 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 MSFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.
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