In this article, we’ll explore Jim Cramer’s 10 Handpicked Stocks to Watch.
In a recent episode of Mad Money, Jim Cramer expressed concern that there’s too much negativity in the market despite recent movements. He pointed out that while the Dow gained 38 points on Wednesday, the S&P fell 1.16%, and the NASDAQ dropped 3%, people seemed overly focused on what was going wrong. Although he’s not calling it a market bottom, he suggests it’s worth paying attention to what’s going right.
“On a day when the Dow inched up 38 points, the S&P dipped 1.16%, and the NASDAQ declined 3%, I’m willing to declare that there’s too much doom and gloom out there. Look, I’m not trying to call a bottom, let’s make that crystal clear, but I think it’s worth taking a hard look at what’s actually going right—not just what’s going wrong.”
Cramer emphasized that even though the market has been strong this year, heading into a historically tough election season and the worst month of the year means it’s not the time to declare everything is fine. He noted that according to his trusted S&P oscillator, which measures overbought or oversold conditions, the market isn’t oversold yet, so it’s risky to go all-in.
“Sure, the market’s up a lot this year as we head into a tricky election period and historically the worst month of the year. So, only a fool would ring the all-clear bell. Plus, we aren’t even oversold yet—at least not according to the S&P oscillator I swear by, which gauges whether there’s too much buying or selling compared to normal times. You don’t go all-in when the market is overbought like it is now; that rarely works.”
Cramer also countered the idea that a recession is inevitable due to the Federal Reserve’s struggle to control the economy. He agreed the economy is slowing, which is why consumer packaged goods and utility stocks are rallying while more sensitive sectors are struggling.
“At the risk of sounding too bullish, let me refute some of the biggest and baddest stories out there. First, let’s tackle the popular narrative that the economy is slowing at a faster pace than the Federal Reserve can control, leading to an inevitable recession. That’s why consumer packaged goods stocks and utilities are rallying while economically sensitive stocks have been crushed. I won’t deny that the economy is weakening.”
However, he stressed that a Fed rate cut is meant to counter economic weakness, not strength, and hoping for a rate cut while ignoring the downturn is unrealistic. He added that if the upcoming labor report is weak, recession-proof stocks may surge, but if it’s strong, hopes for a rate cut will fade.
“But let’s be realistic: You can’t hope for a Fed rate cut without acknowledging that there’s going to be some economic fallout. The Fed doesn’t cut rates when business is booming. That’s foolish thinking. Rate cuts are meant to combat economic weakness, not strength. If Friday’s labor report is weak, sure, we might see a huge rally in the so-called “recession-proof” stocks. But if the non-farm payroll number is too strong, forget about any rate cut hopes. You can’t have it both ways.”
Our Methodology
The article summarizes a recent episode of Jim Cramer’s Mad Money, where he discussed and recommended several stocks. This article focuses on ten companies that Cramer highlighted and examines how hedge funds perceive these stocks. The companies are ranked based on their level of hedge fund ownership, starting with the least owned and moving to the most owned.
At Insider Monkey we are obsessed with 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).
Jim Cramer’s 10 Handpicked Stocks to Watch
10. AeroVironment Inc. (NASDAQ:AVAV)
Number of Hedge Fund Investors: 24
Last week, AeroVironment Inc. (NASDAQ:AVAV), the defense contractor known for its Switchblade drones used by Ukraine, secured a nearly $1 billion contract to supply these drones to the U.S. Army. This significant deal led to a sharp rise in AeroVironment Inc. (NASDAQ:AVAV)’s stock price, which jumped from $177 to $203 in a few days. Despite this positive development, AeroVironment Inc. (NASDAQ:AVAV) experienced a decline in after-hours trading recently. According to Jim Cramer, the drop is partly due to Wall Street’s reaction to AeroVironment Inc. (NASDAQ:AVAV)’s earnings report, which did not meet analysts’ expectations for an upgraded forecast.
“Last week, we got some great news from AeroVironment, the defense contractor best known for its Switchblade suicide drones, which have played a major role in helping Ukraine fend off the Russian invasion. These guys won a nearly $1 billion contract to supply those same drones to the U.S. Army. In response, the stock surged from $177 to $203 over the next couple of days.
That’s something to keep in mind when you see the stock getting slammed in after-hours trading today because Wall Street doesn’t seem to love the numbers AeroVironment reported after the close. The actual results were fantastic, but the company only reiterated its previous full-year forecast rather than raising it, which analysts were expecting. Then again, that forecast doesn’t include the big U.S. Army contract they just won last week, which makes the whole situation a little confusing. We’ll clear that up.”
AeroVironment Inc. (NASDAQ:AVAV) presents a strong investment opportunity due to its impressive financial performance and increasing demand for its defense products. In fiscal Q1 2024, AeroVironment Inc. (NASDAQ:AVAV) saw a 40% increase in revenue, reaching $152.3 million, and achieved a net income of $11.9 million, reversing a $3.4 million loss from the previous year. AeroVironment Inc. (NASDAQ:AVAV) has also raised its revenue forecast for fiscal 2024 to $645–$675 million, highlighting its growth prospects.
This positive outlook is driven by high demand for its UAVs and tactical missile systems, including the Puma, Raven, and Switchblade models, which are critical for modern defense. Recent contracts for the Switchblade 300 and expanding partnerships with the U.S. and NATO further underscore AeroVironment Inc. (NASDAQ:AVAV)’s key role in global military operations. With rising defense budgets worldwide, AeroVironment Inc. (NASDAQ:AVAV) is well-positioned for long-term growth, making it a promising investment choice.
9. Celsius Holdings Inc. (NASDAQ:CELH)
Number of Hedge Fund Investors: 27
Jim Cramer has expressed concerns about Celsius Holdings Inc. (NASDAQ:CELH), suggesting that the company’s partnership with PepsiCo, Inc. (NYSE:PEP) does not seem to be benefiting it as expected. Although Celsius Holdings Inc. (NASDAQ:CELH) was once a high-flying stock, it has recently fallen back. Cramer prefers to wait until a company stabilizes before considering it for investment, and he views Celsius Holdings Inc. (NASDAQ:CELH) as still struggling.
“I think there’s something wrong with Celsius Holdings, Inc. (NASDAQ:CELH). Whatever that relationship is with PepsiCo, Inc. (NYSE:PEP), it sure isn’t helping them. The stock had been a rocket ship, but it’s come back down. I like to wait until companies have some sort of footing. This one is still in free fall. A lot of it is the belief that perhaps they’re selling it at lower prices than they thought, or maybe the convenience stores aren’t selling it as well. I don’t trust it.”
Celsius Holdings Inc. (NASDAQ:CELH) is quickly becoming a major force in the energy drink market by focusing on fitness-oriented products and meeting the growing demand for healthier beverages. In Q2 2024, Celsius Holdings Inc. (NASDAQ:CELH) achieved impressive results, with revenue climbing 112% year-over-year to $325.9 million, driven by a 143% increase in sales across North America. Its gross profit rose to $168.7 million, and net income jumped to $37.3 million, up from $9.4 million a year earlier.
This strong financial performance is supported by Celsius Holdings Inc. (NASDAQ:CELH)’s partnership with PepsiCo, Inc. (NYSE:PEP), which boosts distribution through Pepsi’s vast network and accelerates the company’s growth. Celsius Holdings Inc. (NASDAQ:CELH) is also expanding internationally, particularly into European and Asian markets, which will further fuel its growth. Recent marketing efforts, such as influencer collaborations, are expected to enhance brand visibility and attract younger consumers. These combined factors position Celsius Holdings Inc. (NASDAQ:CELH) for continued success and make it a promising growth stock in the energy drink sector.
8. Signet Jewelers Limited (NYSE:SIG)
Number of Hedge Fund Investors: 33
Jim Cramer is concerned not about the price of gold and silver but about the poor performance of Signet Jewelers Limited (NYSE:SIG). Despite this, he notes that Signet Jewelers Limited (NYSE:SIG) is priced at just seven times its earnings, indicating it is relatively cheap. Cramer has confidence in Gina Drosos, CEO of Signet Jewelers Limited (NYSE:SIG), who he believes is doing an excellent job. He recommends starting with a small investment in Signet Jewelers Limited (NYSE:SIG) now and potentially increasing it if the price drops further.
“What worries me isn’t the price of gold and silver but the fact that the stock has been acting terribly. But it sells at seven times earnings, and I think Gina Drosos does a terrific job. So, I’m in favor of starting a small position right here and adding more if it comes down. The last quarter was fine—it wasn’t great, it wasn’t bad—but the stock is very inexpensive.”
Signet Jewelers Limited (NYSE:SIG), the largest global retailer of diamond jewelry with brands such as Zales, Kay Jewelers, and Jared, is set for continued growth despite a minor revenue decline in Q2 2024. Signet Jewelers Limited (NYSE:SIG) reported $1.61 billion in revenue, down from $1.75 billion the previous year, but improved its gross margin to 36.7% and achieved an EPS of $1.55, surpassing expectations of $1.45.
This positive outlook is supported by an increased full-year earnings forecast and a strong focus on growing digital sales. Notably, the acquisition of Blue Nile in August 2024 has enhanced Signet Jewelers Limited (NYSE:SIG)’s online presence and broadened its appeal to a tech-savvy customer base. Furthermore, investments in a new CRM system are expected to improve customer personalization, loyalty, and repeat purchases.
7. Dicks Sporting Goods Inc. (NYSE:DKS)
Number of Hedge Fund Investors: 34
Jim Cramer was surprised by the reaction to Dicks Sporting Goods Inc. (NYSE:DKS)’s latest earnings report. He initially thought Dicks Sporting Goods Inc. (NYSE:DKS) had a strong quarter, but the stock dropped more than 10% in response. The quarter was indeed impressive as Dicks Sporting Goods Inc. (NYSE:DKS) achieved 4.5% same-store sales growth, surpassing the expected 3.4%, and reported net sales and earnings per share well above forecasts. EPS hit $4.37, exceeding expectations by 51% and showing a 55% increase year-over-year. Despite Dicks Sporting Goods Inc. (NYSE:DKS)’s decline, Cramer remains optimistic. He believes the drop might be due to profit-taking, as the stock had risen substantially before the earnings report.
“What just happened with Dick’s Sporting Goods? This morning, I thought they reported a great quarter, but the market sent the stock down more than 10%. That’s insane! The quarter was strong—Dick’s delivered 4.5% same-store sales growth when the Street was only expecting 3.4%. Net sales were higher than anticipated, and earnings per share came in at $4.37, 51% higher than expected, and up 55% year-over-year. Pretax margins jumped from 10.1% last year to 13.9% this year—that’s very hard to do. In short, the company is firing on all cylinders. Plus, they raised part of their full-year forecast for the second quarter in a row, boosting their same-store sales outlook and earnings guidance.
I’m feeling pretty sanguine about Dick’s after the quarter—certainly more than the market seems to be. Although the stock has already recovered more than half of its losses from this morning’s 10.6% beatdown, at these levels, Dick’s is trading for less than 16 times this year’s earnings estimates. It’s a cream-of-the-crop retailer, and I think it has a lot more room to run.
I think Dick’s sold off today because it was up huge going into the quarter, and profit-takers were simply looking for an excuse to sell. After the selloff, though, I say you’re getting a fabulous buying opportunity in a stock that deserves to be substantially higher. Amid the gloom caused by conservative guidance—which is what we got here—you see what people think is hard gospel when it might just be a need to play it close to the vest in an obviously uncertain time.”
Dicks Sporting Goods Inc. (NYSE:DKS) is set for continued growth, demonstrated by its solid Q2 2024 financial performance and strategic moves. Dicks Sporting Goods Inc. (NYSE:DKS) reported a 5% increase in revenue, reaching $3.35 billion, driven by a 4.5% rise in same-store sales and a 7% boost in average transaction value. Its net income grew to $232 million, or $2.28 per share, exceeding analysts’ expectations.
A major factor in this success is Dicks Sporting Goods Inc. (NYSE:DKS) investment in its online platform, which led to a 15% increase in e-commerce sales. Additionally, Dicks Sporting Goods Inc. (NYSE:DKS)’s focus on private label products has improved profit margins. Recent news highlights a new partnership with a top athletic brand and plans for new store openings, showing confidence in further growth.
Dicks Sporting Goods Inc. (NYSE:DKS)’s commitment to sustainability, including efforts to reduce its carbon footprint and use more recycled materials, aligns with current consumer preferences for eco-friendly practices. These factors make Dicks Sporting Goods Inc. (NYSE:DKS) a strong investment choice with promising growth prospects.
6. The Coca-Cola Company (NYSE:KO)
Number of Hedge Fund Investors: 68
Jim Cramer expressed concern about The Coca-Cola Company (NYSE:KO)’s recent stock performance. He acknowledged that The Coca-Cola Company (NYSE:KO) is a solid company but believes the stock has risen too quickly, now trading at 26 times its earnings. Cramer feels that this valuation is too high and suggests waiting for the stock to drop to more reasonable levels before considering it as an investment.
“The Coca-Cola Company (NYSE:KO) has run up way too far, way too fast. It’s a good company, but at 26 times earnings? No, that doesn’t work for me. Let it come in.”
The Coca-Cola Company (NYSE:KO), a leading force in the non-alcoholic beverage market, is set for long-term growth due to its wide range of products, including soda, water, juices, energy drinks, and coffee. In Q2 2024, The Coca-Cola Company (NYSE:KO) reported net revenue of $12 billion, marking a 6% increase from the previous year, driven by strong sales volumes and strategic price adjustments. Organic revenue grew by 11%, with particularly strong performance in Latin America and Asia.
The Coca-Cola Company (NYSE:KO)’s EPS of $0.78 surpassed expectations of $0.72, fueled by higher demand for Coca-Cola Zero Sugar and its ready-to-drink coffee and sports drinks. The Coca-Cola Company (NYSE:KO) continues to strengthen its market position through innovations in zero-sugar beverages and energy drinks and by leveraging partnerships, like its ongoing collaboration with Monster Beverage Corp. (NASDAQ:MNST).
5. Alphabet Inc. (NASDAQ:GOOG)
Number of Hedge Fund Investors: 165
Looking ahead, the Department of Justice will soon take Alphabet Inc. (NASDAQ:GOOG) to court, accusing the company of misusing its dominance in digital advertising to disadvantage competitors. Cramer acknowledged that Alphabet Inc. (NASDAQ:GOOG) had previously faced criticism for paying to be the default search engine on Apple devices, but he finds the current legal challenge less credible.
“Stocks can’t stabilize until these weak shareholders sell out. History shows that significant market drops like this tend to offer great buying opportunities. On October 25th, 2023, Google dropped $180 billion, and since then, it’s come back with a 25% gain—not bad, but it’s the only stock on this list that failed to beat the S&P, which jumped 32% in that time.
Next week, Justice goes to court to try to stop Google. The Department claims in its brief that Google abuses its monopoly power to disadvantage website publishers and advertisers who dare to use competing ad tech products in search of higher quality or lower cost matches. According to the brief, Google uses “its dominion over digital advertising technology to funnel more transactions to its own ad tech products, where it extracts inflated fees to line its own pockets at the expense of the advertisers and publishers it purportedly serves.
Now, Google was recently found to be engaged in anti-competitive behavior when it paid to become the default search engine for Apple. Yeah, they got nailed for that. I get it—they paid to reach a huge audience. Microsoft could have outbid them to make Bing the default search engine, but they didn’t. However, this new case is more absurd. The Justice Department is going after Google in a business where they’re already losing market share in the open market.”
Alphabet Inc. (NASDAQ:GOOG), the parent company of Google, is positioned for strong long-term growth thanks to its leading role in digital advertising, cloud computing, and artificial intelligence. For Q2 2024, Alphabet Inc. (NASDAQ:GOOG) reported revenue of $74.6 billion, a 7% increase from the previous year, surpassing market expectations. Google Services, which includes advertising and YouTube, generated $63 billion, while Google Cloud revenue grew by 28% year-over-year to $10 billion.
Alphabet Inc. (NASDAQ:GOOG)’s net income also rose to $18.4 billion, with earnings per share reaching $1.44, exceeding analysts’ forecasts. Alphabet Inc. (NASDAQ:GOOG)’s growth is supported by its successful ad sales and efficient cost management. Recent advancements highlight Alphabet Inc. (NASDAQ:GOOG)’s expanding role in AI and cloud computing. In August 2024, Alphabet Inc. (NASDAQ:GOOG) introduced new AI tools integrated into Google Cloud, targeting industries like healthcare and finance.
These innovations are expected to boost Alphabet Inc. (NASDAQ:GOOG)’s cloud business and capitalize on the rising adoption of AI technology. Alphabet Inc. (NASDAQ:GOOG)’s investments in AI, including its Bard AI platform, position it as a leader in the field. With strong financial results, a growing share in cloud services, and leadership in AI, Alphabet Inc. (NASDAQ:GOOG) presents a compelling investment opportunity with significant growth potential.
4. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Investors: 179
Jim Cramer addressed concerns about NVIDIA Corporation (NASDAQ:NVDA)’s stock weakness and whether it signals an impending recession. He clarified that NVIDIA Corporation (NASDAQ:NVDA)’s recent quarter wasn’t impacted by low demand but rather by supply issues with its high-end Blackwell chips. The problem was not with demand but with NVIDIA Corporation (NASDAQ:NVDA)’s ability to produce enough chips due to these constraints. He noted that such fluctuations in NVIDIA Corporation (NASDAQ:NVDA)’s market cap are not unprecedented and will likely occur again.
“What about tech weakness as a recession signal? I keep hearing Nvidia may have missed its quarter due to economic softness. Let’s put that rumor to bed. The issue wasn’t demand; it was Nvidia’s inability to produce enough of its high-end Blackwell chips due to supply constraints. This wasn’t a demand issue.
Now, let’s address the overblown narrative surrounding Nvidia’s stock drop, which wiped out $279 billion in market capitalization. In isolation, that sounds terrifying, but keep this in perspective: Nvidia started the year with a $1.22 trillion market cap and soared to $2.93 trillion by the end of August. Yesterday’s drop to $2.65 trillion? Sure, it’s a big number, but in the context of a stock that’s up over 100% this year, it’s not as catastrophic as it seems.
This wasn’t the first time Nvidia’s market cap has dropped over $200 billion in a day, and it likely won’t be the last. Yet, I know what you’re thinking—Nvidia’s stock is on fragile ground. That’s fair. There are still far too many investors who don’t understand what Nvidia does or how it profits from the brainpower of CEO Jensen Huang and his team.
The stock can’t stabilize until these weak shareholders sell out. Meanwhile, we’re waiting to see how quickly Nvidia can get its Blackwell chip rolling and improve gross margins—the real reason for the stock’s recent pummeling.”
NVIDIA Corporation (NASDAQ:NVDA) is a leading player in the tech industry, particularly in AI, gaming, and high-performance computing. For Q2 2024, NVIDIA Corporation (NASDAQ:NVDA) reported record revenue of $13.51 billion, up 101% from the previous year, driven by a massive surge in demand for AI chips. NVIDIA Corporation (NASDAQ:NVDA)’s data center revenue soared by 171% to $10.32 billion, reflecting the growing need for GPUs in AI applications like generative AI and large language models.
NVIDIA Corporation (NASDAQ:NVDA)’s net income also jumped to $6.19 billion from $656 million a year earlier, and its earnings per share reached $2.70, exceeding Wall Street’s forecast. Recent updates highlight NVIDIA Corporation (NASDAQ:NVDA)’s expanding role in AI. In August 2024, NVIDIA Corporation (NASDAQ:NVDA) introduced its next-generation AI chip, the GH200 Grace Hopper Superchip, which is designed to further accelerate AI tasks.
3. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Investors: 184
Apple Inc. (NASDAQ:AAPL) is set to release a new phone, which Cramer believes will be impressive. However, he questioned whether the Justice Department might argue that Apple Inc. (NASDAQ:AAPL)’s new success could give it too much bargaining power over app developers.
“On September 3rd, 2020, Apple lost $180 billion in market cap, but it soared 83% versus the S&P’s 60% gain.
Apple Inc. (NASDAQ:AAPL), is about to unveil a new phone that should be fabulous. But maybe it’ll be too fabulous for the Justice Department? They might argue that Apple’s success could give it even more bargaining power over app developers if this phone is that good. But there are plenty of strong competitors to Apple. If you don’t like Apple, you can just buy a Samsung. There’s no smartphone monopoly, so how can there be monopolistic behavior?”
In Q3 2024, Apple Inc. (NASDAQ:AAPL) achieved record revenues of $85.78 billion, a 5% increase from the previous year, driven by a strong 14% rise in services revenue, which hit an all-time high of $24.21 billion. This growth highlights the success of key services like iCloud, Apple Music, and the App Store, showcasing Apple’s resilience and ability to thrive even in challenging economic conditions.
Apple Inc. (NASDAQ:AAPL)’s net income also grew nearly 8% year-over-year to $21.45 billion, with earnings per share reaching $1.40, surpassing analysts’ expectations. Despite a slight decline in iPhone sales, Apple Inc. (NASDAQ:AAPL)’s wearables, home, and accessories segment continued to perform well, contributing $8.4 billion in revenue. Additionally, Apple Inc. (NASDAQ:AAPL)’s gross margin improved to 44.5%, reflecting effective cost management and operational efficiency.
Recent innovations, including the iPhone 15 with new features and the upcoming Vision Pro AR/VR headset, demonstrate Apple Inc. (NASDAQ:AAPL)’s ongoing commitment to technological advancement
Mar Vista Focus strategy stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q2 2024 investor letter:
“Investors were reminded of the strength of the Apple Inc. (NASDAQ:AAPL) ecosystem as management demonstrated how generative AI solutions would be integrated into Apple’s 1.2 billion iPhone installed base. Apple plans to integrate generative AI features into its iOS 18, which will be broadly released in the fall with the iPhone 16. We believe Apple should benefit from generative AI as it will spur a meaningful iPhone upgrade cycle and create new avenues of monetization through its app store and advertising offerings. We believe this will support intrinsic value growth that will range between high-single-digits and low-double-digits over our investment horizon.”
2. Meta Platforms Inc. (NASDAQ:META)
Number of Hedge Fund Investors: 219
Meta Platforms Inc. (NASDAQ:META) lost $251 billion in market capitalization on February 3, 2022. However, Meta Platforms Inc. (NASDAQ:META) has since rebounded significantly, climbing 116%, while the S&P 500 only gained 23% over the same period. Cramer used this example to illustrate that major market dips can lead to substantial future gains for investors who buy in during these downturns.
“Stocks can’t stabilize until these weak shareholders sell out. History shows that significant market drops like this tend to offer great buying opportunities. For example, Meta Platforms shed $251 billion in market cap on February 3rd, 2022, but since then, it’s rallied 116%, outperforming the S&P’s 23% gain over the same period.”
Meta Platforms Inc. (NASDAQ:META), the parent company of Facebook, Instagram, and WhatsApp, is leveraging its vast user base and leading position in digital advertising to achieve substantial growth. In Q2 2024, Meta Platforms Inc. (NASDAQ:META) reported record revenue of $32 billion, a 12% increase from the previous year, driven by robust digital ad sales. Its net income more than doubled to $9.2 billion from $4.4 billion a year earlier, with earnings per share reaching $3.29, surpassing analyst expectations.
This financial performance is bolstered by a rise in daily active users to 3.07 billion across its platforms. A major factor behind Meta Platforms Inc. (NASDAQ:META)’s positive outlook is its focus on artificial intelligence (AI). Meta Platforms Inc. (NASDAQ:META) has made significant strides with AI-powered advertising tools that improve targeting and ad efficiency. Additionally, AI-driven content recommendations on Instagram and Facebook Reels have increased user engagement. Meta Platforms Inc. (NASDAQ:META)’s investment in the metaverse through its Reality Labs division is also a key growth driver, aiming to create an immersive digital environment.
Mar Vista Focus strategy stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q2 2024 investor letter:
“During the quarter, we established new investments in Broadcom and Meta Platforms, Inc. (NASDAQ:META). We previously divested from Meta during a period of stagnant advertising growth and the company’s initial, significant investment in the metaverse project. At that time, investors appeared complacent to the risks associated to an increasingly competitive landscape, and the Street’s robust financial expectations as the company transitioned towards monetizing short-format video (Reels). The subsequent decline in Meta’s stock price during 2022 reflected these concerns.
Since then, Meta has demonstrably shifted its strategic focus. The company has prioritized operational efficiency, implemented strategies to monetize Reels effectively, and initiated a robust artificial intelligence (AI) development program. We believe the focus on AI represents a more prudent capital allocation strategy compared to the earlier metaverse initiative. Meta AI holds significant potential to unlock substantial monetization opportunities and enhance user engagement, while maintaining tight controls on operating costs…” (Click here to read the full text)
1. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Investors: 279
Jim Cramer emphasized that for stocks to stabilize, weaker shareholders need to sell off their positions. He pointed out that history often shows large market drops can turn into great buying opportunities. As an example, Cramer highlighted Microsoft Corporation (NASDAQ:MSFT), which lost $178 billion in market value on March 16, 2020, but later surged by 202%, far outpacing the S&P 500’s 131% gain over the same period. This demonstrates how significant downturns can set the stage for strong recoveries.
“Microsoft lost $178 billion in market cap on March 16th, 2020, but went on to surge 202%, compared to a 131% gain for the S&P 500 over the same period.”
In Q2 2024, Microsoft Corporation (NASDAQ:MSFT) showed strong financial performance with $60.8 billion in revenue, an 11% increase from the previous year, driven mainly by its cloud and AI businesses. Azure, Microsoft Corporation (NASDAQ:MSFT)’s cloud platform, saw a 29% rise in revenue, reinforcing its leading position in the cloud market. Microsoft Corporation (NASDAQ:MSFT)’s net income grew to $21.5 billion, up 15% from last year, and earnings per share reached $2.85, surpassing analyst predictions.
Microsoft Corporation (NASDAQ:MSFT) introduced new AI features in August 2024 for Azure and Microsoft 365, such as tools for automating report summaries and drafting emails, which are expected to enhance productivity and attract more users. Microsoft Corporation (NASDAQ:MSFT)’s collaboration with OpenAI, known for its ChatGPT technology, strengthens its AI capabilities.
Additionally, Microsoft Corporation (NASDAQ:MSFT)’s gaming division benefits from the successful acquisition of Activision Blizzard Inc. (NASDAQ:ATVI) and the expansion of Xbox Game Pass, positioning it well in the growing gaming sector. Microsoft Corporation (NASDAQ:MSFT)’s strong earnings, advances in cloud and AI technology, and strategic moves in gaming make it well-positioned for future success.
Alger Spectra Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:
“Microsoft Corporation (NASDAQ:MSFT) is a beneficiary of corporate America’s transformative digitization. The company operates through three segments: Productivity and Business Processes (Office, LinkedIn, and Dynamics), Intelligent Cloud (Server Products and Cloud Services, Azure, and Enterprise Services), and More Personal Computing (Windows, Devices, Gaming, and Search).
During the quarter, shares contributed to performance after the company reported strong fiscal third quarter results, underscoring its leadership position in the cloud and highlighted its role as a primary facilitator and beneficiary of AI adoption. Company revenue growth, operating margin, and earnings growth surpassed consensus expectations. The utility scale Azure cloud business grew 31% in constant currency of which 7% was AI related versus 3% two quarters ago.
Further, management noted most of the AI revenue continues to stem from inference rather than training indicating high quality AI applications by Microsoft’s clients. Management also indicated that the significant cost-cutting programs in corporate America are done, suggesting that the cost optimization headwinds previously impacting Azure’s growth are over.
Separately, management provided color on their new AI-productivity tool, Copilot, noting that approximately 60% of Fortune 500 companies are already using Copilot, and that the quarter witnessed a 50% increase in Copilot assistance integration within Teams. We continue to believe that Microsoft has the potential to hold a leading position in AI, given its innovative approach and demonstrated high unit volume growth opportunity.”
While we acknowledge the potential of Microsoft Corporation (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 the ones on our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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