We recently published a list of 10 Best Innovative Stocks to Invest in According to Hedge Funds. In this article, we are going to take a look at where Salesforce Inc (NYSE:CRM) stands against other best innovative stocks to invest in according to hedge funds.
Technology is a Big Deal, Strategist Highlights
The Magnificent Seven continues to grasp a sizeable market share of the market gains over the past few years. That said, investors and analysts are excited to see what this earnings period has to offer for the magnificent seven and how much of an influence they have on the market. On October 31, Christian Dery, head of macro strategy at Capital Fund Management, appeared in an interview on Yahoo Finance to discuss the impact of the magnificent seven on the market.
Dery suggested that these companies have grown to become large entities and their market capitalization often fluctuates by $2 billion to $400 billion on earnings events. Looking at the dispersion of the index, Dery adds that individual stocks within the S&P are very diverse and more independent, hinting towards a very low correlation in the index.
He adds that generative AI and LLMs are very different from the traditional software business. Therefore, the hyperscaling model that is conventionally taken from software can not be applied here. For every new customer in the software business, the marginal cost often goes down to nearly zero. However, if you look at the “tech incumbents”, they have to increase their capital expenditures to develop compute clusters and scale their operations, suggests Dery.
In 2023, the chips industry generated revenue of about $3 billion, reflecting that we are yet to find a killer use case or see results of generous AI spending. Dery adds that the market is more likely to be “discerning” on the path to profitability since companies are going to focus more on capital expenditures and projections for capital expenditures. He is particularly interested in the CapEx projections of the Magnificent Seven and shares that if they miss there could be a negative reaction among those stocks.
Dery reiterated that the market is yet to see the investments pay off multiple times but maintains his interest in capital expenditures by these companies playing out. While he is bullish on technological innovation and believes artificial intelligence is disruptive and a “big deal”, he fails to see viable results as of now. Dery also emphasizes that these companies are directing their investments to AI because they do not want to fall behind competitors, with no proper timeline for AI monetization.
That said, some companies are investing heavily in innovation and are at the forefront of a technological revolution.
Our Methodology
To come up with the 10 best innovative stocks to invest in according to hedge funds, we went over multiple similar rankings on the internet from credible financial websites. We then examined the hedge fund sentiment of each stock and picked the most popular ones. Our list is in ascending order of the number of hedge fund holders as of the end of Q2 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).
A customer service team in an office setting using the company’s Customer 360 platform to communicate with customers.
Salesforce, Inc. (NYSE:CRM)
Number of Hedge Fund Holders: 117
Salesforce Inc (NYSE:CRM) is a leading cloud provider and one of the best innovative stocks to buy according to hedge funds. The company has one of the world’s most trusted customer relationship management platforms. What started as a collaborative cloud company is now an AI powerhouse that boasts advanced technological capabilities.
Salesforce Inc (NYSE:CRM) is committed to expand and innovate. MuleSoft, Salesforce’s software company that provides integration software to connect data and applications, launched AsyncAPI capable of building AI-powered customer experiences in real-time. The launch will facilitate the widespread adoption of event-driven infrastructures, allowing businesses to respond to real-time events faster. Fast forward to October 29, Salesforce Inc (NYSE:CRM) announced the general availability of Agentforce, a new feature on the Salesforce platform, that will help companies develop and deploy autonomous AI agents.
As Salesforce Inc (NYSE:CRM) transcends to making AI a reality, new bookings for its AI products more than doubled during Q2 2024 sequentially. In addition to that, the company signed 1,500 AI deals during the same period. The company’s Data Cloud saw a 130% increase in paid customers and the number of customers spending more than $1 million in a year has more than doubled.
Overall, Salesforce Inc (NYSE:CRM) claims that this is its first step to becoming an AI enterprise and is expecting a major tailwind in revenue due to AI adoption in the coming years. Analysts are also bullish on the stock and their median price target of $317.5 implies an upside of 8%.
Overall, CRM ranks 8th on our list of best innovative stocks to invest in according to hedge funds. While we acknowledge the potential of CRM to grow, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CRM 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.