In this article, we will take a detailed look at 10 AI stocks insiders are selling.
Positive sentiment is prevailing in the market after strong bank earnings and increasing hopes of a soft landing. Ryan Detrick, Carson Group chief market strategist, said while talking during a recent program on CNBC that he sees more runway for the current bull market.
“This is a bull market. Now we’re in the third year of a bull market. My friend Sam Stovall said once you get to 65 years old, the odds of getting to 85 are really, really high. Bull markets work that way. Going back 50 years, there’s five other bull markets that made it into their third year, like this one is right now. The worst any of them went was another three years. A five-year total. The average was eight years. I’m not saying we have another six years of a bull market but what we’re saying is this is an economy that keeps surprising to the upside.”
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However, the analyst said large-cap tech stocks are “pricey.” He believes small- and mid-cap stocks are cheap and labeled financials and industrials as fairly valued.
There are some top AI stocks that are seeing insider selling activity. In this article, we take a look at those stocks and analyze their fundamentals and market sentiment. With each company, we have mentioned its hedge fund sentiment. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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10. Palantir Technologies Inc (NYSE:PLTR)
Number of Hedge Fund Investors: 44
On September 24, 2024, Palantir Technologies Inc (NYSE:PLTR) Director Peter Thiel sold 16,178,415 shares at $36.90 per share, reducing his ownership by 16% to 83,283,878 shares. The sale was valued at approximately $597 million. The stock is up 17% since then.
On September 27, 2024, Thiel made another sale, disposing 12,412,322 shares at $36.85 per share, further decreasing his ownership by 15% to 70,871,556 shares. This transaction was valued at roughly $457 million.
What makes Palantir Technologies Inc (NYSE:PLTR) one of the top AI stocks? Its technologies are actually solving the problems of businesses. Palantir’s data technology Ontology is solving the famous hallucination problem for AI systems, thanks to the company’s years of experience with military and defense systems. Earlier this year at an event with customers, Palantir Technologies Inc (NYSE:PLTR) shared some specifics on how its customers are being able to reduce costs and increase profits due to its artificial intelligence platform (AIP) that was launched about a year ago.
Airbus accelerated A350 production by 33%, BP reduced costs per barrel by 60%, and Jacobs Connect cut power usage by 30%. Panasonic decreased waste by 12%, ESI Group sped up ERP harmonization by 70%, and PG&E reduced transformer ignitions by 65%. Eaton boosted productivity by 25%, while Tyson Foods achieved $200 million in cost savings.
However, Palantir Technologies Inc (NYSE:PLTR) stock’s valuation has been a concern for many.
The stock is trading at about 21.2 times the next 12 months (NTM) revenue. For fiscal year 2024, Palantir expects revenue growth of 24% year-over-year (YoY) to $2.746 billion, with an adjusted operating income of $970 million, representing a 35.3% margin. However, revenue growth is expected to slow over the next two years, with estimates suggesting a 22% YoY growth rate, potentially bringing revenues to around $4 billion by fiscal 2026. If Palantir Technologies Inc (NYSE:PLTR) can improve margins by 100 basis points annually, it would be able to generate about $1.5 billion in adjusted operating income by FY26, with a present value of $1.3 billion when discounted at 8%. Applying an S&P 500-like growth multiple of 2.5 to 2.75 times earnings, Palantir Technologies Inc (NYSE:PLTR) would have a P/E of 46, translating to a price target of $27, significantly down from its current price of $42.
9. AppLovin Corp (NASDAQ:APP)
Number of Hedge Fund Investors: 54
On September 12, 2024, AppLovin Corp (NASDAQ:APP) Corp CEO and Chairperson Arash Adam Foroughi sold 200,000 shares at $107.80 per share, reducing his ownership by 2% to 9,243,217 shares. The sale was valued at approximately $21.6 million. The stock is up 35% since then.
Ankur Crawford, Alger executive VP, while talking to CNBC in a latest program said that in about 3 to 5 years AI is going to provide us with superhuman intelligence.
“All of the CapEx being spent today is whole-heartedly justifiable because the opportunity to monetize that AI by that time is beyond what anyone has contemplated in the market so far.”
Ankur Crawford believes Applovin Corp (NASDAQ:APP) is one of the top underappreciated AI stocks.
She said that AppLovin is a gaming advertising platform.
“They are using AI to basically make you download more games and they can monetize inventory better than anyone else can. They have 70% market share, and they are going into ecommerce as well. So, instead of serving you up a game, they will serve you up a product and monetize their inventory better than they were able to before,” the analyst said.
Crawford said Applovin Corp (NASDAQ:APP) is “interesting” because their cost structure is already “embedded.”
“For every dollar they get, they get a almost a 100% fall through on the margin line. So, massively cash-flow generative. The Street has $6 in earnings (estimate) in 2026,” the analyst added.
Carillon Scout Mid Cap Fund stated the following regarding AppLovin Corporation (NASDAQ:APP) in its Q2 2024 investor letter:
“AppLovin Corporation (NASDAQ:APP) was another top contributor. The advertising technology platform, focused on mobile applications, reported strong earnings results in early May. Its AI-driven Axon 2.0 mobile advertising platform continues to produce strong returns for customers, which is leading to more than expected spending on the platform. Although the one-year anniversary of Axon 2.0’s release occurs this year, the company is already working to expand beyond mobile applications with opportunities in e-commerce and connected television. We believe AppLovin’s valuation, free cash flow, and leading market share remain attractive.”
8. Arista Networks Inc (NYSE:ANET)
Number of Hedge Fund Investors: 65
On September 6, 2024, Arista Networks Inc (NYSE:ANET) CTO and Senior Vice President of Software Engineering Kenneth Duda sold 38,311 shares at $317.23 per share, reducing his ownership by 7% to 548,183 shares. The transaction was valued at approximately $12.15 million. The stock is up 26% since this transaction.
The Information recently reported that Meta Platforms is preparing a cluster of over 100,000 NVIDIA H-100 GPUs to train the latest version of its Llama language model. Evercore ISI believes Arista Networks Inc (NYSE:ANET) is likely to be the networking partner for Meta Platforms’ cluster. Ethernet will handle the networking for the project, as InfiniBand isn’t capable of supporting a cluster of this scale, leading Evercore to believe Arista Networks Inc (NYSE:ANET) will supply some of the infrastructure.
“Assuming GPU’s represent 80% of total spend on this AI cluster, this would imply total cost of around $2.5B, of which 10% is likely spent on infrastructure,” said Evercore analyst Amit Daryanani, in a note. “This could represent a $250M revenue opportunity for Arista, if they won the business.”
Arista Networks Inc (NYSE:ANET) has previously worked with Meta, providing switches for a cluster with 24,000 GPUs. Daryanani noted that their strong relationship makes it likely Arista will supply the switches for this new cluster. If successful, this could boost Arista’s $750 million AI revenue target for 2025. Evercore maintains an Outperform rating on Arista Networks Inc (NYSE:ANET) with a $400 price target.
What makes Arista Networks Inc (NYSE:ANET) a promising AI stock?
Arista Networks Inc (NYSE:ANET) is set to gain amid the AI-driven shift to high-speed networks due to its open Ethernet design and unified Arista EOS. The company’s partnership with Broadcom also created an opportunity for Arista Networks Inc (NYSE:ANET) to expand its integrated software and hardware solutions.
Arista Networks Inc (NYSE:ANET) claims its Ethernet architecture based on merchant silicon allows fast deployment for major hyperscalers and Tier-2 cloud providers.
Madison Mid Cap Fund stated the following regarding Arista Networks, Inc. (NYSE:ANET) in its Q2 2024 investor letter:
“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.”
