We recently compiled a list of the 10 Best Tech Stocks to Buy According to Brad Gerstner. In this article, we are going to take a look at where Meta Platforms Inc (NASDAQ:META) stands against the other tech stocks.
Gerstner is Bullish on Tech in 2024
On December 1, 2023, Brad Gerstner, the CEO of Altimeter Capital, appeared in an interview on CNBC where he explained that tech stocks are expected to outperform non-tech stocks in 2024. Over the past 10 years, tech earnings have compounded at almost 16% and non-tech earnings have compounded at 6%. 2023 was a rebound year for the tech industry after a downturn in 2022 due to rising interest rates. Big Tech companies and their operational efficiencies have poised them for strong growth. While inflation and interest rates will determine what goes down, companies that have invested in augmented intelligence will experience secular growth. Gerstner thinks that the spread between 16% and 6% will be a recurring trend in 2024.
Gerstner Thinks Now is the Right Time to Invest in Tech
On June 11, Brad Gerstner made another appearance on CNBC and addressed the speculation surrounding the software industry. Gerstner suggested that despite headwinds, the software industry is still valuable as companies and startups are still making deals. Gerstner believes there are three main reasons for the downward trajectory of the software industry. He thinks that CEOs and CTOs are cautious when it comes to making investments in software. Executives want a clearer picture of the AI boom before making risky investments. Moreover, interest rates are higher than expectations, due to delayed rate cuts and compressing multiples. Lastly, general uncertainty about the future has been detrimental to the growth of the software industry. Gerstner pointed out that since the software industry is trading at 20% below its ten-year average, this may be the best time to allocate stakes in software companies. You can also take a look at the best Robinhood stocks under $20.
Gerstner thinks data and databases are extremely vital to AI applications. He thinks that companies using data to power AI are far ahead of companies simply automating services. Big Tech companies have data at the forefront of all their artificial intelligence applications. You can also read our piece on the stocks hedge funds are crazy about right now.
Brad Gerstner is bullish on tech, and particularly software and AI. In Q1 2024, he initiated 6 new positions and also raised his stakes in 2 stocks, ending the quarter with a portfolio of $6.5 billion in 13F securities. With that, let’s discuss his top tech stock picks.
Our Methodology
We scanned Altimeter Capital’s Q1 portfolio and picked growth stocks from the fund’s top 13F holdings. Additionally, we’ve also added overall hedge fund sentiment, as of Q1 2024. 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).
Note: All pricing data is as of June 28.
A team of developers working in unison to create the company’s messaging application.
Meta Platforms Inc (NASDAQ:META)
Altimeter Capital’s Stake Value: $1,144,706,778
Number of Hedge Fund Holders: 246
Second on our list and Brad Gerstner’s portfolio is Meta Platforms Inc (NASDAQ:META). In the first quarter of 2024, the company launched Generative AI image expansion tools on Facebook and Instagram reels. The update has witnessed widespread adoption by small businesses. The company has been making significant progress on AI and Metaverse and plans to increase spending from $35 billion to $40 billion. The decision is driven by significant investments in AI, data centers, chip designs, and R&D. In April, Meta Platforms Inc (NASDAQ:META) introduced its next generation of custom chips to manage the company’s AI workloads. The chips are designed to balance compute, memory bandwidth, and memory capacity for ranking and recommendation models. Last year, the company launched its Meta Training and Inference Accelerator (MTIA), its first-gen AI inference accelerator. The accelerator is focused on developing efficient architecture for the company’s workloads.
At the close of Q1 2024, 246 investors disclosed positions in the stock with total stakes amounting to $46.92 billion, up by $44.17 billion from the previous quarter. Considering analysts expect Meta’s earnings to grow by 27% this year and 46% by 2025, it is a great pick by Brad Gerstner.
In 2022, Gerstner sent an open letter to the CEO of META, Mark Zuckerburg, asking for cost-cutting and improving efficiencies. Exactly a year later, on October 26, 2023, Brad Gerstner appeared in an interview on CNBC, where he stated that he regained confidence in the stock after META decided to pursue efficiency throughout the year. He stated that the company has increased its free cash flow from $18 billion to $35 billion in a year, and reduced its headcount by 24% to become a more efficient company. Here are some comments from the interview:
“A couple months after we wrote the letter, that mark first declared it the year of efficiency, discipline, and rigor. And has he delivered imagine a year ago thinking that they could reaccelerate the top line of the business, while doubling free cash flow from $18 billion to $35 billion, and let’s talk about efficiency. He and Elon Musk stand atop the heap of efficiency and reduced head count 24% year over year. From 85,000 to 65,000 employees. Find me another large company in Silicon Valley other than those two that can demonstrate accelerating top lines while reducing head count and get more fit.”
On February 2, Gerstner later appeared in interviews on CNBC and talked about how Meta reacted to his letter. He pointed out that the stock gained nearly 270% since his letter, and the company grew its free cash flow by 28% and revenue by 25% in the last quarter of 2023. Moreover, Meta’s earnings per person grew by 3x over the past 15 months. Gerstner is bullish on Meta’s investments in AI and tech particularly the $20 billion investment in its AR/VR business, which the hedge fund manager believes will add to its enterprise value.
Overall META ranks 2nd on our list of the best tech stocks to buy according to Brad Gerstner. You can visit 10 Best Tech Stocks to Buy According to Brad Gerstner to see the other tech stocks that are on hedge funds’ radar. While we acknowledge the potential of META as an investment, our conviction lies in the belief that 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 META but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.