In this article, we will take a detailed look at Top 10 AI Stocks Investors are Talking About in October.
Venu Krishna, Barclays head of U.S. equity strategy, said while talking to CNBC in a latest program that he is not revising his S&P 500 year-end projection of 5,600 because he believes stock valuations are “full.”
“If you see what’s happening, numbers (earnings) have been cut sharply going into the end. What is still anchoring the market is big tech, even though their earnings themselves are kind of decelerating. Then seasonality comes into play. October is the weakest month, and you don’t want to get ahead of that.”
Asked whether he does not believe the market really broadened out, Krishna said while there were some signs of market broadening, the “anchor” of the rally remains big tech, which according to him, are just six stocks.
Moving beyond the earnings and valuations debate, another factor still impacting investor sentiment is the Federal Reserve’s next moves.
Talking about the latest Fed minutes released October 9, Wolfe Research’s Stephanie Roth said on CNBC that a “substantial” majority of Fed officials wanted a 50-basis-point rate cut. However, she said in the next meeting, a 50bps rate cut is “off the table.”
For this article we picked 10 AI stocks trending on latest news. With each stock we 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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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10. Accenture Plc (NYSE:ACN)
Number of Hedge Fund Investors: 68
Accenture made news after the company expanded its AI partnership with Nvidia. The deal includes launching a new Accenture division called Nvidia Business Group.
NVDA CEO Jensen Huang also commented on the deal.
“AI will supercharge enterprises to scale innovation faster. Nvidia’s platform, Accenture’s AI Refinery, and our combined expertise will help businesses and nations accelerate transformation for greater productivity and growth.”
Wedbush Securities analyst Dan Ives said the deal is setting the stage for AI’s impact on the enterprise. “This major partnership will drive corporate AI adoption and signals the next phase of the AI revolution,” Ives wrote in a note to clients. He highlighted the ripple effects expected across the tech sector.
Accenture also impressed Wall Street with strong quarterly results. The key news here was $20.1 billion in new bookings, up 21% from Q4 2023. Management highlighted strong demand for its generative AI tools, signaling growth potential into 2025 and beyond. AI-related services now make up over 5% of the business after just one year.
Higher profitability followed, with the Q4 operating margin reaching 15%, up 10 basis points from last year, thanks to cost efficiencies and tech investments. The company expects further margin growth.
At 28 times its fiscal 2025 EPS estimate of $12.77, Accenture looks attractive. This forward P/E ratio is below its 5-year average, suggesting the stock may be undervalued given its strong momentum.
Aoris International Fund stated the following regarding Accenture plc (NYSE:ACN) in its Q2 2024 investor letter:
“The largest detractors for the quarter were Accenture plc (NYSE:ACN) and CDW Corp, which both fell by around 14%. Accenture and CDW are currently experiencing flattish years in terms of revenue and earnings growth. This follows a period of post-pandemic elevated demand. We believe both companies continue to gain market share.
Accenture is the world’s largest IT outsourcing and consulting company. While earnings in its quarter ended May was essentially flat, we were very encouraged by underlying demand. This demand strength is reflected in a 22% year-on-year increase in client bookings for the quarter. Further, the number of $100m+ contracts signed in the nine months to May was 92, up from 85 in the same period a year earlier. All this bodes well for Accenture’s revenue and earnings in the next few years.”
9. Dell Technologies Inc (NYSE:DELL)
Number of Hedge Fund Investors: 88
Dell Technologies Inc (NYSE:DELL) has seen its shares surge more than 60% year-to-date and 80% over the past year, driven by a boom in AI-related server spending. Deutsche Bank believes there’s more upside ahead.
“We expect top-line growth to accelerate into the double digits over the next several quarters, as Dell Technologies Inc (NYSE:DELL) benefits from a confluence of tailwinds across key segments, where it is a share leader (servers, storage, and commercial PCs),” noted Deutsche Bank analyst Matt Niknam, who holds a Buy rating and a $144 price target on the stock.
Niknam pointed to Dell’s momentum in AI servers, combined with a recovery in traditional servers, as key factors supporting the company’s medium and long-term growth. “We believe DELL is well positioned to capitalize on the next legs of AI growth/proliferation across enterprises, given its product scale, breadth of services/solutions, and go-to-market footprint,” he added.
While Dell has benefited from AI-related spending, the PC market has been more volatile. Still, Niknam expects a PC refresh cycle to boost the company’s Client Solutions Group, particularly in the commercial sector. He forecasts low-to-mid teens growth (10-15%) in the next three quarters and consolidated growth of 8% and 6% in FY26 and FY27, respectively—well above Dell’s multi-year outlook of 3-4%.
Dell Technologies Inc (NYSE:DELL) strong capital return program is another bright spot. Niknam expects earnings per share to grow at a compound annual rate of 14% between fiscal 2025 and fiscal 2028, with net income rising 12%, partly due to share buybacks. Around 80% of Dell’s free cash flow is being returned to shareholders through dividends and buybacks, providing what Niknam calls a “clean and simple capital allocation framework.” He expects Dell’s adjusted free cash flow to hit $4.8 billion this year, climbing to $7.4 billion by fiscal 2028.
Currently paying $1.78 in annual dividends, Dell Technologies Inc (NYSE:DELL) dividend is expected to grow by 10-12% over the next several years.
Carillon Scout Mid Cap Fund stated the following regarding Dell Technologies Inc. (NYSE:DELL) in its Q2 2024 investor letter:
“Dell Technologies Inc. (NYSE:DELL) was a top contributor despite reporting disappointing first-quarter earnings results, because investors looked through the near-term disappointment and expected strong growth from AI-related servers and personal computers. We expect Dell to participate in the growth of artificial intelligence hardware, especially as enterprises invest more aggressively. We like the company’s depth and breadth of products and services, as well as its focus on keeping costs low.”
8. Salesforce Inc (NYSE:CRM)
Number of Hedge Fund Investors: 117
Salesforce Inc (NYSE:CRM) recently introduced Agentforce, a platform allowing customers to deploy autonomous AI agents for various tasks. According to Wedbush, this new tool is gaining traction among Salesforce’s core clients and will be generally available on October 25.
“Based on recent checks and after a plethora of conversations with customers at Dreamforce, the company’s AI strategy is now resonating well among its core customer base by providing an agent-first ecosystem that interacts with customers and employees across applications for a wide array of use cases while providing an extended omni-supervisor to track what agents do with humans,” noted Wedbush analysts, led by Daniel Ives, in a recent investor note.
Wedbush reiterated its Outperform rating on Salesforce Inc (NYSE:CRM) and raised the price target to $325 from $315. “One of the biggest initiatives in the field is around monetizing the AI theme within the CRM massive installed base as we believe this is a major land grab opportunity that could significantly benefit CRM over the coming years and could increase overall revenue by $4B-plus annually based on our estimates and field work by CY2025,” Ives added.
Wedbush sees Salesforce as a key beneficiary of the AI boom and expects its stock to rise by around $40 over the next 12 to 18 months as its AI strategy solidifies.
In the second quarter, Salesforce’s revenue rose 8% year over year while gross profits jumped 10%.
Salesforce Inc (NYSE:CRM) is also on investors’ radar because of its acquisitions. The company recently agreed to acquire AI voice agent firm Tenyx. This acquisition follows Salesforce’s strategic partnership with Workday to develop an AI-powered assistant for employees. The company has also agreed to buy SaaS data protection startup Own for $1.9 billion in cash.
Wall Street expects $11.12 per share in profits for Salesforce Inc (NYSE:CRM) next year, representing a 10% year-over-year increase. For the current financial year, profits are expected to grow by 23%, with estimates trending upwards. Based on these forecasts, Salesforce trades at a forward price-to-earnings ratio of 22, which is attractive given the AI-related growth catalysts.
Columbia Threadneedle Global Technology Growth Strategy stated the following regarding Salesforce, Inc. (NYSE:CRM) in its Q2 2024 investor letter:
“In a tough backdrop for software companies, shares of Salesforce, Inc. (NYSE:CRM) cratered after the company reported quarterly results that surprised to the downside due to a tougher spending environment. The company reported revenue growth that missed on expectations, while also lowering its outlook for revenue growth, due to a more measured buying environment from its customers. Salesforce experienced elongated sales cycles, deal compression and elevated budget scrutiny, which pushed some deals to following quarters. Taking a step back, the company’s evolving AI story should not be overlooked as it is integrated across the company’s sprawling suite of cloud and digital assets.”
7. Micron Technology Inc (NASDAQ:MU)
Number of Hedge Fund Investors: 120
Answering a question about Micron Technology Inc (NASDAQ:MU) and whether its growth and guidance would be sustainable, Aaron Rakers, Wells Fargo analyst, said on CNBC that the “customization aspect” of Micron’s HBM AI memory chips is underappreciated.
“We think there’s longevity in this. The mix towards those solutions continues to be positive, not just for the top line, but also for the margin profile of Micron Technology Inc (NASDAQ:MU). It gives us better visibility in terms of what has been historically considered a very cyclical memory market in general that Micron plays into.”
During the last quarter, Micron Technology Inc (NASDAQ:MU) saw record revenues for NAND and storage business units, fueled by robust demand in the data center and automotive industries.
However, Micron Technology Inc (NASDAQ:MU) faces stiff competition in a sector characterized by a narrow “moat.” Major competitors like Samsung and SK Hynix also boast comparable technological expertise, intensifying price wars and cyclical oversupply issues that can significantly impact profitability and cause substantial fluctuations in Micron Technology Inc (NASDAQ:MU)’s valuation.
Micron Technology Inc (NASDAQ:MU) has $4 billion in net debt when accounting for its long-term marketable securities. Yet, Micron Technology Inc (NASDAQ:MU)’s guidance suggests a promising outlook, projecting nearly 40% non-GAAP gross margins. This robust margin profile mitigates many concerns raised by skeptics. For fiscal Q1 2025, Micron Technology Inc (NASDAQ:MU)’s non-GAAP projections indicate earnings of around $1.80 per share.
Despite ongoing uncertainties regarding its ability to sustain these profit margins and questions about its competitive advantages, Micron Technology Inc (NASDAQ:MU)’s valuation remains appealing. Without needing substantial acceleration in its core operations, Micron Technology Inc (NASDAQ:MU) could easily achieve $9 in non-GAAP EPS for fiscal 2025, placing its stock at a price-to-earnings ratio of 12 times this year’s non-GAAP EPS—an attractive figure.
Parnassus Value Equity Fund stated the following regarding Micron Technology, Inc. (NASDAQ:MU) in its Q2 2024 investor letter:
“Micron Technology, Inc. (NASDAQ:MU) posted fiscal-third-quarter results that met expectations. Micron’s DRAM (dynamic random access memory) and NAND (non-volatile storage technology) segments grew revenue strongly, continuing the company’s recovery from a cyclical downturn last year. We believe Micron is well positioned to capitalize on AI-driven demand for greater memory.”
6. Alphabet Inc (NASDAQ:GOOG)
Number of Hedge Fund Investors: 165
Google Cloud (NASDAQ: GOOG)(NASDAQ: GOOGL) outlined a variety of artificial intelligence agent use cases during its Google Gemini at Work event on Tuesday.
“We come away from the keynote with increased conviction in the strength of Google’s enterprise generative AI offerings and their emerging contribution to Google Cloud growth,” said Wedbush analysts, led by Scott Devitt, in an investor note. “Google is actively working with enterprise customers to develop AI agents across a variety of use cases.”
Some of the enterprises highlighted include Snap (SNAP), Volkswagen (OTCPK: VWAGY), Warner Bros. Discovery (WBD), and Best Buy (BBY). The six primary uses of AI agents employed by enterprises include customer agents, employee agents, code agents, data agents, security agents, and creative agents.
Google reported that over 2 million developers are building with Google’s GenAI solutions, and it has seen 36x growth in Gemini API usage on Vertex AI since the beginning of the year. “Google is well positioned to drive adoption of generative AI tools given its AI-optimized compute infrastructure supported by custom silicon, and unmatched breadth of data to develop and train AI models across text, images, and video,” Devitt noted.
Wedbush maintains its Outperform rating on Google with a 12-month price target of $205.
Despite constant alarms going off about its search business, Alphabet Inc Class C (NASDAQ:GOOG) search revenue jumped about 13.7% in the second quarter year over year. As of the end of June, Google has about 91.06% share of the search engine market, just 1.65% lower than the December 2019 levels. With AI overviews and other search initiatives, Alphabet Inc Class C (NASDAQ:GOOG) will be able to stave off any competitors given its dominance in the market. According to StatCounter report, Bing search engine’s market share only increased from 3.03% in August 2023 to 3.91% in August 2024. This shows MSFT has not been able to make any notable dent in Google’s market share.
Cloud and YouTube are two key strong catalysts for Alphabet Inc Class C (NASDAQ:GOOG) shares. During the second quarter, Alphabet’s Cloud revenue rose 28.8% to $10.35 billion, crushing past analysts’ forecasts of $10.16 billion. Alphabet Inc Class C (NASDAQ:GOOG) is on the path to reach a $100 billion revenue run-rate from YouTube Ads and Google Cloud by the end of 2024.
Diamond Hill Large Cap Strategy stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q2 2024 investor letter:
“Among our top individual contributors in Q2 were Amazon, Texas Instruments and Alphabet Inc. (NASDAQ:GOOG). Media and technology company Alphabet also continued delivering strong results in its search, YouTube advertising, YouTube subscription and cloud businesses. Shares rose amid an environment that continues favoring mega-cap technology companies.”
5. NVIDIA Corp (NASDAQ:NVDA)
Number of Hedge Fund Investors: 179
Wedbush analyst Dan Ives has yet again reiterated that NVIDIA Corp (NASDAQ:NVDA) will be among the top beneficiaries of the huge AI spending.
“The supply chain is seeing unparalleled demand for AI chips led by the Godfather of AI Jensen and NVIDIA Corp (NASDAQ:NVDA) and ultimately leading to this tidal wave of enterprise spending as AI use cases explode across the enterprise,” analyst Dan Ives wrote in a note to clients. “We believe the overall AI infrastructure market opportunity could grow 10x from today through 2027 as this next generation AI foundation gets built, with our estimates [showing] a $1 trillion of AI cap-ex spending is on the horizon [over] the next 3 years.”
Nvidia’s declines after the Q2 results were more or less expected amid Blackwell delay reports confirmed by management. However, the delays were mainly due to a change in Blackwell GPU mask. That does not affect the main functional logic or design of the chip, according to analysts. While Blackwell has been delayed for a few months, it does not change the core growth thesis for Nvidia.
Nvidia is set to see huge growth on the back of the data center boom amid the AI wave.
At Nvidia’s GPU Technology Conference in March 2024, CEO Jensen Huang estimated annual spending on data center infrastructure at about $250 billion. Over the next decade, this could total between $1 trillion and $2 trillion, depending on how long this level of investment continues. During the same Q&A session, Bank of America’s Vivek Arya echoed this estimate, suggesting the total addressable market would fall in the $1-2 trillion range, particularly as countries invest in their own AI infrastructure. By the end of the decade, spending could be at the high end of that range.
Of course, Nvidia won’t dominate the entire $2 trillion opportunity, as it faces competition from companies like AMD and internally developed AI accelerators from Google, Amazon, and even Apple. Some analysts believe Nvidia’s data center market share between 2025 to 2029 will be over $950 billion—less than half of the total market—but still enough to make it the leader in the sector.
Generation Investment Management Global Equity Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2024 investor letter:
“Recent net performance is behind market averages. However since the fund’s inception, we have spent only about 8% of the time underperforming on a rolling five-year basis.1 We do not enjoy these spells. A number of different factors has contributed to the current period of underperformance. The fact that we do not own NVIDIA Corporation (NASDAQ:NVDA) is one. That single company accounted for roughly 25% of returns in the benchmark so far this year, meaning almost everyone who does not own Nvidia has lost out. Year-to-date, not owning Nvidia explains about a third of our relative underperformance.
Nvidia is, clearly, an earnings juggernaut. In the past year its revenue has more than tripled, as cloud companies load up on hardware to power AI models. So while its earnings multiple has increased, we are not seeing a repeat of the dotcom mania of the late 1990s. This company’s valuation is backed by cold, hard cash…” (Click here to read the full text)
4. Apple Inc (NASDAQ:AAPL)
Number of Hedge Fund Investors: 184
Apple Inc (NASDAQ:AAPL) iPhone 16 delivery times are lagging behind historical trends, but analysts suggest this could be due to stronger supply and high-end buyers holding off for the upcoming Apple Intelligence.
“In Week 3 of our Apple Product Availability Tracker, delivery lead times are showing trends which, if continued, will explain the weaker lead times for the Pro models in the initial weeks as only an aberration led by a combination of better supply mix as well as delay in pick up in momentum from higher-end consumers awaiting the release of Apple Inc (NASDAQ:AAPL) Intelligence,” J.P. Morgan analysts, led by Samik Chatterjee, stated in a note to investors.
Shipping times for iPhone 16 base models in the U.S. improved to 10 days in week three, compared to 17 days the previous week. However, the iPhone 16 Pro and Pro Max models saw no change, remaining at 23 and 29 days, respectively. The trend in China mirrored this, with base models seeing faster delivery times while Pro versions stayed steady.
“In aggregate, although overall lead times for the iPhone 16 models are still lower relative to iPhone 15 last year, narrowing of the gap between the two groups (Base vs. Pro) over the last week as well as steady lead times for the Pro models are highlighting the likelihood that the initial slower momentum in demand for the Pro models is correcting itself with the release of Apple Inc (NASDAQ:AAPL) Intelligence drawing closer,” Chatterjee added.
Morgan Stanley’s data echoed this sentiment. “iPhone 16 lead times as of Sept 27th are still tracking lower than the past 3 iPhone cycles, but lead times for 16 Pro/Pro Max models are now extending/stabilizing across all regions that we track, an unexpectedly positive development,” noted analysts led by Erik Woodring.
Interestingly, lead times for the Pro and Pro Max have grown by two days since last week, a trend more in line with the iPhone 12 and 13 models, rather than the iPhone 14 and 15, which saw shorter wait times at this stage in the cycle. “But interestingly, iPhone 16 Pro/Pro Max lead times have extended by 2 days since last Tuesday, an unexpectedly positive trend that more closely resembles the trajectory of the better-performing iPhone 12 and 13 Pro/Pro Max models,” Woodring added.
Columbia Contrarian Core Fund stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q2 2024 investor letter:
“Apple Inc. (NASDAQ:AAPL) – Despite the stock falling after announcing earnings in late May, Apple regained ground toward the end of the quarter, fueled by the company’s long-awaited AI announcement at its annual Worldwide Developers Conference (WDC). At the conference, the company showcased some of its new AI features powered by Apple Intelligence that would be coming to Apple products and also announced a partnership with ChatGPT. Investors greatly welcomed the announcement of Apple’s AI strategy and the stock surged, passing Microsoft as the world’s most valuable company (although this hallmark wouldn’t last). Beta testing of these new features will be coming later this summer, but the initial promise and excitement looks to be a potential catalyst for an upgrade cycle, as the company looks to persuade users who have had the same smartphone for years to consider an upgrade.”
3. Meta Platforms Inc (NASDAQ:META)
Number of Hedge Fund Investors: 219
Gene Munster, Deepwater Asset Management managing partner, while discussing Meta Platforms Inc (NASDAQ:META) latest products and the company’s competition with Apple during a program on CNBC, said:
“If you were going to think of this as kind of a match between Apple and Meta from that perspective, there has been more momentum around Meta Platforms Inc (NASDAQ:META) and innovation. And to the higher-level question—what’s more important to an investor, an innovative CEO or an operator? The answer is, it’s clearly an innovator. An innovator is more important. On that question, more specifically, an innovator is much more important.”
Answering about what side he’d take as a whole, the analyst said:
“If you look at the growth rate of Meta Platforms Inc (NASDAQ:META) over the past five years, they’ve grown their business by, let’s call it, 68%. Apple has grown by 42%. But Apple’s stock is up 195%, and Meta is up 160%. These are both class-act CEOs, no question about that.”
Meta Platforms Inc (NASDAQ:META) crushed past analyst estimates for its Q2 results, giving signs that the huge AI spending it’s doing would bear more results in the future.
The market has been reluctant about Meta Platforms Inc (NASDAQ:META) massive spending on AI. What does Meta want to achieve with its AI spending? The company wants to use AI to improve engagement and language models like Llama 3 to improve user interactions, boost engagement, and better monetize its 3.2 billion daily active users.
But can Meta Platforms Inc (NASDAQ:META) sustain this high spending? The company’s free cash flow margin is around 30%, and it’s well on track to report $50 billion in free cash flow this year. Based on this target the stock is trading at around 26 times this year’s free cash flow. Given the current trajectory continues Meta Platforms Inc (NASDAQ:META) can post $58 billion in free cash flow by next year, which means the stock is trading at 21 times next year’s free cash flow. With a whopping $35 billion in net cash, a strong user base, and a key position in the consumer-facing side of the AI industry, Meta Platforms Inc (NASDAQ:META) could be a solid long-term investment.
Rowan Street Capital stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q2 2024 investor letter:
“We are pleased to report that Meta Platforms, Inc. (NASDAQ:META), our largest position in the fund, has delivered a remarkable performance, +450% since our November 2022 note. Our investment in Meta dates back to 2018, with an average cost basis of approximately $172 per share. Today, the stock trades around $535, reflecting a 3x return over the six-year holding period, equating to a 20% annualized return.
We would like to remind you that achieving these types of returns is never a straight path. From time to time, we might experience volatility — that’s simply part of the investment journey. In fact, wealth creation and volatility go hand in hand. There’s no escaping it; it’s the “price of admission” the market demands. If you take a look at the chart below, you’ll notice the drawdowns META stock has faced over the years, with 2022 standing out as a particularly challenging period, where the stock saw a 75% drop…” (Click here to read the full text)
2. Microsoft Corp (NASDAQ:MSFT)
Number of Hedge Fund Investors: 279
Wedbush Securities highlights Nvidia and Microsoft Corp (NASDAQ:MSFT) as frontrunners in the ongoing AI revolution, with new data suggesting the AI infrastructure market could expand tenfold by 2027. AI spending is rising across the tech supply chain, driven by the regular launch of generative AI projects in enterprise settings, according to Dan Ives. This signals that AI is becoming a “top priority” for IT budgets heading into 2025, potentially unlocking new AI applications.
“While Nvidia and Microsoft are the core drivers of AI now, we are seeing many other tech stalwarts join the AI party, including Oracle, ServiceNow, Palantir, Salesforce, Dell, IBM, Apple, AMD among others,” Ives said. He believes tech stocks are poised to gain more than 10% by year-end, with an additional 20% rise expected in 2025, as the AI-driven tech bull market enters its next phase.
However, some believe OpenAI was the only key edge Microsoft Corp (NASDAQ:MSFT) had in the AI race and it’s quickly fading away.
DA Davidson recently downgraded the stock, with analyst Gil Luria saying the company’s advantages in the cloud and code generation sectors have diminished, making it difficult for Microsoft Corp (NASDAQ:MSFT) to maintain its previous performance. He highlighted that Amazon Web Services is now nearly matching Azure in cloud growth, while Google Cloud is also gaining momentum.
Luria downgraded Microsoft Corp (NASDAQ:MSFT) from Buy to Neutral, maintaining a $475 price target. He pointed out that Amazon and Google have made significant strides in integrating custom silicon into their data centers, putting Microsoft at a disadvantage. This reliance on NVIDIA (NVDA) for technology means Microsoft is effectively transferring wealth from its shareholders to NVIDIA’s, according to Luria.
Following a year of margin expansion, Microsoft Corp (NASDAQ:MSFT) is now projecting a decline in operating margins due to increased data center capital expenditures rising from 12% to 21% of revenue. This increase outpaces that of Amazon and Google, largely due to Microsoft’s dependence on NVIDIA.
Luria said that if Microsoft Corp (NASDAQ:MSFT) continues to overinvest at the current rate, margins could drop by at least 1 percentage point cumulatively, potentially necessitating layoffs of around 10,000 employees each year to maintain margins.
The analyst also thinks Microsoft Corp (NASDAQ:MSFT) has lost much of its edge with GitHub Copilot, as Amazon and GitLab (GTLB) have caught up in capabilities.
The concerns voiced by the analyst are not unfounded. Microsoft is also losing its edge in open-source models as enterprises shift toward cost-effective, transparent open-source solutions like Meta’s Llama 3.1.
Generation Investment Management Global Equity Strategy stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:
“Generative AI’s hunger for power has increased disproportionately with its intelligence. According to one estimate, OpenAI’s GPT-4 required 50 gigawatt hours (GWh) of electricity to train, much more than the 1.3 GWh needed for GPT-3.3 And then AI requires even more power when it is put to use (so called ‘inference’). Some of the latest trends worry us. Microsoft Corporation (NASDAQ:MSFT) appears to be slipping in its ESG goals, with its greenhouse gas emissions rising again last year, as it invests in becoming a big player in AI. It is struggling in particular to curb its Scope 3 emissions in the capital goods category – nowhere more so than in the activity associated with the construction of data centres: both the embedded carbon in construction materials like steel and cement, as well as the emissions from the manufacturing of hardware components such as semiconductors, servers and racks. Google’s emissions have risen by close to 50% in the past five years.
We feel it is worth dwelling on Microsoft for a few moments, since we suspect you will be hearing a lot more about the relationship between AI and sustainability in the coming months. The bottom line is that we continue to see Microsoft as a sustainability leader. In the case of Scope 2 emissions, the company covers 100% of its electricity use with purchases of renewable energy. Crucially, though, the majority of this green energy is directly sourced via power purchase agreements, which bring new renewable capacity to the grid. Microsoft is also committed to operating 24/7 on renewable power by 2030, a policy that will help bring energy storage onto the grid as well…” (Click here to read the full text)
1. Amazon.com Inc (NASDAQ:AMZN)
Number of Hedge Fund Investors: 308
Talking to CNBC, Brad Gerstner explained why he is invested in Amazon.com Inc (NASDAQ:AMZN).
“Because we think their retail business their margins are gonna go up. Jassy has absolutely found religion. He’s in animal mode when it comes to making sure they are running as efficiency as possible.”
However, the investor said there is “a lot of worry” when it comes to AWS amid concerns that the company might be at risk of losing market share to Azure. Brad Gerstner said Amazon.com Inc (NASDAQ:AMZN) “has to invest” in Anthropic because MSFT currently has an edge because of its OpenAI investments.
AWS’s revenue growth accelerated from 17.2% in Q1 to 18.8% in Q2, driven by a shift from on-premises infrastructure to cloud solutions and increasing demand for AI capabilities. Amazon.com Inc (NASDAQ:AMZN) advertising segment added over $2 billion in revenue year-over-year, indicating significant potential in video advertising and opportunities within Prime Video offerings.
Like other tech companies, fears stemming from high CapEX are keeping investors on the sidelines. Amazon.com Inc (NASDAQ:AMZN) spending is expected to rise amid broadband project Project Kuiper and AI growth. Investors are still figuring out whether AI monetization and ROI will come anytime soon. Amazon.com Inc (NASDAQ:AMZN) is also facing a slowdown in consumer spending, especially for higher-ticket items like electronics and computers.
Based on Amazon.com Inc (NASDAQ:AMZN) Q3 guidance, its revenue growth would be 11%. The stock is trading 35x its fiscal 2025 earnings estimates set by Wall Street. This shows the stock is fairly priced and investors looking for strong growth could look elsewhere.
Meridian Hedged Equity Fund stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q2 2024 investor letter:
“Amazon.com, Inc. (NASDAQ:AMZN) is a global technology company that operates e-commerce, cloud computing, digital advertising, and other businesses. We own Amazon because we believe it is well-positioned to benefit from several strong secular trends, including the shift to online shopping, the growth of cloud computing, and the increasing importance of digital advertising. The company exceeded expectations in the first quarter, with cloud-computing revenue growth accelerating, driven by easing cost optimization pressures and the ramp of generative AI workloads. The North American retail segment drove record operating margins, highlighting the success of Amazon’s efforts to improve efficiency and lower its cost to serve. International retail also showed promise, as emerging markets steadily progressed towards profitability. Given the strength across these key segments, we continue to hold the position in the company.”
While we acknowledge the potential of Amazon.com, Inc. (NASDAQ:AMZN), 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 AMZN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.
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