Jim Cramer in a latest program on CNBC talked about the ongoing “rebellion” against the data center and the impact of tariffs on the broader market. Cramer said that data centers have been a key story in the stock market for months but now it’s losing steam due to a variety of factors. He also mentioned the weakening economic indicators.
“I know these tariffs have people on edge. Consumer confidence indicators have just plummeted. Interest rates are sinking for fear of an economy gone soft. The key 10-year Treasury yield is back to where it was in mid-December when many thought we were looking at many more rate cuts than we’ve gotten. We have had to put rate cuts talk on hold. Now it’s right back because there’s a newfound paralysis—too many things happening at once, scaring people.”
Cramer said that the “seeds of doubt” about data center chip demand were sown following the launch of DeepSeek and the market is still reeling from its effects.
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For this article we picked 10 AI stocks the market is buzzing about these days. With each stock, we have mentioned the number of hedge fund investors. 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
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10. Palantir Technologies Inc (NASDAQ:PLTR)
Number of Hedge Fund Investors: 43
Jim Cramer reiterated his price target on Palantir Technologies Inc (NASDAQ:PLTR) a few weeks back on CNBC and said the company’s shares have been on a tear. He predicted the stock price will go up to $100.
“Palantir Technologies Inc (NASDAQ:PLTR) valuable, volatile, and unabashed CEO Alex Karp is a Messianic figure to some and a pied piper to others. He caters to his retail investor base, and the stock is a levitator. I call it GameStop with a brain. I’ve been saying it’s going to 100 ever since it was in the 50s. Now it’s at 82, showing no sign of letting up. Mark my words—$100.”
However, PLTR shares are falling after reports the US government is planning to cut defense spending.
Palantir’s valuation is concerning for many. Its 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 (NASDAQ: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 (NASDAQ:PLTR) would have a P/E of 46, translating to a price target of $27, significantly down from its current price.
Alger Mid Cap Focus Fund stated the following regarding Palantir Technologies Inc. (NASDAQ:PLTR) in its Q4 2024 investor letter:
“Palantir Technologies Inc. (NASDAQ:PLTR) builds advanced platforms for data integration, management, and security, enabling interactive, AI-assisted analysis for its users. Its core offerings include Palantir Gotham, designed for government clients, and Palantir Foundry, tailored for commercial customers. Originally focused on U.S. intelligence agencies, Palantir has expanded into defense contracts with western governments and entered the commercial market in 2016. During the quarter, shares contributed to performance after the company reported better-than-expected fiscal third quarter operating results, along with management raising its full year 2024 revenue guidance. Management noted that the recent launch of its AI platform (AIP), which leverages generative AI to optimize business operations, has driven significant growth and investor interest. Additionally, we believe Palantir could be a key partner for the U.S. government’s new Department of Government Efficiency (DOGE), as its AI-driven platforms are ideally suited to help identify inefficiencies, allocate resources effectively, and achieve cost reductions.”
9. Atlassian Corp (NASDAQ:TEAM)
Number of Hedge Fund Investors: 44
Jim Cramer in a latest program discussed Atlassian Corp (NASDAQ:TEAM) results and said the company is “loved” in offices because of its software. He also talked about how enterprise software companies like TEAM defy conventional valuation patterns:
“Enterprise software is the lifeblood of so many different people versus, say, Apple. They want to pay, they’ll pay 30 times cash flow for these 50 times sales, you know, all that stuff. Instead of what you’re saying about Apple, there’s no discipline when it comes to these companies because people want high growth. And those managers now have been given a green light to go back and buy all that stuff because of that last year.”
Atlassian Corp (NASDAQ:TEAM) is famous for Jira, a software project management software widely used in the industry. In the latest quarter, the company posted impressive results, with 21% year-over-year revenue growth. For the full year, the company raised its revenue growth guidance to 19%, up from the earlier 17%. The updated full-year outlook suggests fourth-quarter revenue of $1.359 billion, which would mark a 20% year-over-year growth acceleration.
Hardman Johnston Global Equity stated the following regarding Atlassian Corporation (NASDAQ:TEAM) in its Q3 2024 investor letter:
“The top sector detractors from relative performance during the quarter were Information Technology and Financials. Shares of Atlassian Corporation (NASDAQ:TEAM) declined following its earnings release in early August as the company laid out a 16% revenue growth target for the upcoming fiscal year. The guide missed investor expectations and implies a meaningful acceleration in revenue growth beyond FY25 to meet the company’s recently presented 3-year growth CAGR target of +20%. The near-term deceleration is driven mostly by an upcoming period of tough comparables due to the end of maintenance for its server product, which had been an event-driven tailwind for cloud and data center growth. Management has also demonstrated conservatism in its near-term guidance as it considers a worsening macro environment and some disruption as it evolves its go-to-market approach to scale with large enterprises. Atlassian has also been a victim of a challenging software industry, driven by a few top-down headwinds like digestion of software spend following very strong procurement during and exiting the pandemic, a shift of IT budgets from traditional software to AI initiatives, and the current lack of monetization observed by application software companies’ AI offerings.”
8. Lam Research Corp (NASDAQ:LRCX)
Number of Hedge Fund Investors: 58
While discussing major semiconductor stocks in a latest program on CNBC, Jim Cramer said Lam Research Corp (NASDAQ:LRCX) is one of the “winners.”
Lam Research Corporation (NASDAQ:LRCX) is one of the largest providers of etching equipment for the semiconductor industry. Etching refers to any technology that will selectively remove material from a thin film on a substrate.
China-related concerns have weighed on the stock but the bulls believe that’s an overreaction and the stock has secular growth catalysts, especially due to AI.
As the third-largest semiconductor equipment supplier globally, LAM Research (NASDAQ:LRCX) dominates the etching process. Over the past decade, LAM Research (NASDAQ:LRCX)’s market share has averaged between 45% and 55%. The semiconductor equipment market has consolidated among a few major players, creating an oligopoly. Similar to how ASML dominates lithography, AMAT and Tokyo Electron control deposition, and KLAC leads in process control, LAM Research (NASDAQ:LRCX) benefits from high switching costs, large R&D investments, and experience-driven improvements. These factors contribute to its strong EBIT margins and return on capital.
LAM Research (NASDAQ:LRCX)’s largest customers are memory manufacturers, who have increased their use of Memory Wafer Fabrication Equipment (WFE). From 2010 to 2023, memory WFE consumption accounted for 64% of total WFE, up from 46% during 2001-2009. Additionally, as semiconductor designs have evolved from 2D to 3D, more etching steps are required in the manufacturing process, further driving demand for LAM Research (NASDAQ:LRCX)’s equipment.
Vltava Fund stated the following regarding Lam Research Corporation (NASDAQ:LRCX) in its Q4 2024 investor letter:
“In the quarter just ended, we added to the portfolio two new companies from the technology sector: Applied Materials and Lam Research Corporation (NASDAQ:LRCX). Both are in the same industry as is another of our investments that we have held for some time, KLA Corporation. This industry is termed semiconductor devices and materials. One chapter in Hidden Investment Treasures is devoted to investing in technology companies and, among other things, the controversy over what really constitutes a technology company. As investors, we try to view technology companies not according to the industry into which they are formally classified but by whether the technologies and technological processes used in the production of their products and services are an essential element in value creation or if they are a source of long-term, sustainable competitive advantage. Among the companies that are formally categorized as technology-based and fall into either the Information Technology or the Communications Services sector, we find some that can be said to be just that but also others for which this classification is at least debatable. Similarly, among companies that do not formally belong to these two sectors, we find many that clearly are built to a large extent on technology and base their market positions and competitiveness on it. In the cases of Applied Materials and Lam Research, there can be no doubt that these are technology companies not only as a formality but also in fact.
Dozens of companies are directly or indirectly involved in the production of semiconductors. Within this broad group of companies, there are several without which it would not be possible to produce advanced types of semiconductors in the world today. These include a group of five very well-known companies, each of which has a dominant global position in its particular field, and which together operate more or less as oligopolies. These are Lam Research, Applied Materials, KLA Corporation, ASML, and Tokyo Electron. At the end of the year, we benefited from a significant correction in the share prices of Applied Materials and Lam Research, and, together with KLA Corporation, we now own three of them. We view these as one collective investment into a critical point within a very important segment of the global economy that is growing and will continue to grow over the long term.
Lam Research manufactures wafer fabrication equipment for the semiconductor industry and also provides related services. The company is a market leader in plasma etching, thin film deposition platforms, photoresist systems, as well as wet and plasma-based cleaning products for individual wafers. Its main customers are the four major semiconductor manufacturers Micron, Samsung, SK Hynix, and Taiwan Semiconductors. Lam Research is a business with net margins of around 27% and ROCE of about 30%. Capital outlays are relatively small. The company has good capital allocation with a preponderance of share buybacks…” (Click here to read the full text)
7. Intel Corp (NASDAQ:INTC)
Number of Hedge Fund Investors: 68
Jim Cramer recently commented on Intel Corp (NASDAQ:INTC)’s latest quarterly results on CNBC.
“I thought the cash flow was very good, better than I expected. The first quarter is historically not a great quarter for Intel Corp (NASDAQ:INTC); it will not be a great quarter. But I think they’re trying to stabilize the ship by talking about how they have enough cash to be able to get through. There was no Messianic message about Intel. Don’t expect the stock to go up, but perhaps the trajectory will not be just straight.”
Intel Corp (NASDAQ:INTC) latest results have increased fears the company will need a lot of time before seeing any kind of significant improvement. In the first quarter, the company sees revenue of $12.2 billion at the midpoint of its guidance, reflecting an 11-18% decline quarter-over-quarter. The company has also scrapped its plans to launch Falcon Shores, its next-generation AI GPUs. A few months back it was a key catalyst expected to debut in late 2025. Intel Corp (NASDAQ:INTC) Clearwater Forest AI data center server CPUs, which were set to use its 18A chip (similar to TSMC’s 3nm nodes), have had their launch delayed from FY2025 to FY2026. These setbacks are likely to affect Intel’s already struggling Data Center & AI business segment. Consensus expectations suggest the company won’t see positive free cash flow for at least the next three years.
Invesco Growth and Income Fund stated the following regarding Intel Corporation (NASDAQ:INTC) in its Q3 2024 investor letter:
“Intel Corporation (NASDAQ:INTC): The chipmaker reported weaker-than-expected quarterly results as revenues declined and earnings were below expectations. Management also provided weaker guidance going forward; the stock fell on the news. We sold the position during the quarter.
The chipmaker’s quarterly earnings report was weaker than anticipated as revenues declined and earnings were below expectations. Management also provided weaker guidance going forward. Given that a potential recovery appears to be further in the future than we originally anticipated, we sold the position.”
6. Tesla Inc (NASDAQ:TSLA)
Number of Hedge Fund Investors: 99
Jim Cramer in a latest program on CNBC said Tesla Inc (NASDAQ:TSLA) shares rallied after the company’s quarterly results not because of the numbers, but because of Elon Musk’s pitches and “showmanship.” Cramer said he “believes” the claims and promises made by Musk about autonomous driving.
“Tesla Inc (NASDAQ:TSLA) actually rallied almost 3% today after reporting numbers that were seemingly disappointing. The core business isn’t doing that well, but nobody seemed to care. Well, that’s because Elon Musk knows what his investors want, and it’s not great auto numbers from 2024. They want his vision for the future. Musk, a nonlinear thinker with terrific charisma and showmanship, knows how to come up with incredible ideas, pitch them, and most importantly, execute them. So, Tesla Inc (NASDAQ:TSLA) not rallying because of the numbers, which were indeed not that good. It’s rallying because of Musk’s extraordinary performance on the conference call.”
Cramer said Optimus robots is one of the key products he’s excited about and praised Musk’s track record:
“When talking about Robo-taxi and self-driving, Musk tells us not to worry—the tipping point is almost at hand. It’s simple: when we know for a fact that autonomous cars are much safer than humans, something he says will be obvious in a short period of time, then we all go autonomous. If any other CEO in America tried to pull off what he did last night—reporting a not-so-great quarter and then trying to dazzle shareholders with a grand vision of the future—they’d all be laughed out of the industry. But Musk has such an incredible track record that when he says this stuff, people believe him. And I don’t blame them; I believe him too. He’s made his investors so much money over the years, how can he not deserve the benefit of the doubt?”
Tsai Capital stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its Q4 2024 investor letter:
“Tesla, Inc. (NASDAQ:TSLA) (TSLA—Year of First Purchase: 2020) We’ve owned Tesla since February 2020 and initially paid an average of about $41.66 per share5 . Tesla is a leading AI company that has formidable competitive advantages across various sectors, including electric vehicles, software, and energy storage.
A true outlier, Tesla operates in an entirely unconventional way, often creating market confusion and attracting criticism from short sellers and from those who mistake the company for what it is fundamentally not—a traditional car manufacturer.
Under the visionary leadership of Elon Musk, Tesla has adopted a scale-economies-shared business model, deliberately lowering prices, enhancing the customer value proposition, driving adoption, and expanding the total addressable market…” (Click here to read the full text)
5. Apple Inc (NASDAQ:AAPL)
Number of Hedge Fund Investors: 158
Erik Woodring from Morgan Stanley said in a latest program on CNBC that Apple’s earnings were better than feared but China remains a key near-term challenge for the company. The analyst said Apple Inc (NASDAQ:AAPL) needs upgrade cycles for the company to come up to his bull thesis.
“Chinese consumers are looking for Apple Inc (NASDAQ:AAPL) Intelligence, but they can’t have Apple Intelligence. If they can’t have Apple Intelligence, they aren’t upgrading their iPhones. That means not upgrading leads to iPhone revenue declines. I think that is the challenge Apple faces. What we did not hear last night is any real concrete timeline for when Apple Inc (NASDAQ:AAPL) Intelligence will come to China. We know it will support Simplified Chinese starting in April, which is a good step forward. But, Scott, you need Apple Intelligence in China. Consumers in that market want it, and until they get it, China faces a challenge.”
Apple Inc (NASDAQ:AAPL) results were helped by Services revenue in the latest quarter, but the key challenges haunting the company remain as they were. Many analysts believe just a few AI apps would not be enough to trigger a broader upgrade cycle for iPhone. Apple Inc (NASDAQ:AAPL) is dealing with currency headwinds as the stronger US dollar is expected to reduce top-line growth by 2.5% next quarter. For Q2 FY2025, management expects overall revenue to grow in the low to mid-single digits. Apple Inc (NASDAQ:AAPL) stock is trading at a premium valuation, with a price-to-earnings ratio of 39-40x, a price-to-free-cash-flow ratio of 33-34x, and a PEG ratio exceeding 3x. Upcoming quarters would be difficult for Apple and its current valuation is not justified.
Tsai Capital stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q4 2024 investor letter:
“We initiated our investment in Apple Inc. (NASDAQ:AAPL) in 2016 and elevated it to a core holding in 2018, the same year the company introduced its redesigned 13-inch and 15-inch MacBook Pro models. Under Tim Cook’s visionary leadership, Apple has consistently redefined innovation in hardware and software.
The September 2024 launch of the iPhone 16, with its groundbreaking AI capabilities, including enhanced image generation tools, marks another inflection point. We believe this transformative device is the foundation for an AI-driven supercycle and could entice approximately 100 million consumers to upgrade, reinforcing Apple’s leadership in the industry.
Today, Apple’s ecosystem spans over two billion active devices, supported by a rapidly-growing base of subscription services. This strategy has helped to turbocharge customer engagement and spending. In the most recent fiscal year, which ended in September 2024, Apple’s high-margin services division accounted for 39.3% of total gross profits, up from 32.8% just two years ago.
Apple’s financial footing remains exceptional, with approximately $50 billion in net cash and marketable securities. Looking ahead, we expect earnings-per-share growth to outpace revenue growth, driven by margin expansion and continued share buybacks.”
