In this article, we will take a detailed look at the 10 Biggest AI Stock News and Ratings.
The much-feared correction in mega-cap tech stocks is here as investors keep pulling out of AI winners to pile into small-cap stocks as possible rate cuts from the Federal Reserve near. Brent Thill, Jefferies tech research analyst, recently said while talking to CNBC that we are seeing a rotation inside the tech industry where semiconductor and internet companies are performing well while software companies are underperforming. However, Thill reiterated his view that in the back half of the year things will start to change and tech companies will start their rebound. The analyst cited a few software earnings that suggest no signs of “demand cracks.” He said that many semiconductor stocks are now in the overbought territory.
Brent Thill said the selloff has made software stocks more “attractive.”
But Thill also sees a broader rotation ongoing in the stock market, where sectors like financials and industrials are benefitting amid investor exodus from tech.
Asked what is causing a sudden rebound in small-cap stocks, Thill said that interest rate cut expectations and a broader rotation out of mega-cap stocks have a role to play here, in addition to the M&A activity which has increased significantly recently.
Thill thinks the AI “payoff” time is still years away and companies are still at the beginning of the AI spending curve.
For this article we compiled the biggest AI news updates and analyst rating upgrades/downgrades around AI stocks over the past few 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 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: 57
Earlier this month UBS upgraded Accenture Plc (NYSE:ACN) to Buy from Neutral with a $400 price target.
UBS analyst Kevin McVeigh said in a note that cybersecurity and generative AI should lead to “higher and more durable growth” for Accenture Plc (NYSE:ACN). The analyst thinks the stock is not reflecting the extent of how big generative AI could be for the company.
Accenture Plc (NYSE:ACN) is one of the dominant names in the IT services and consulting industry with $5.06 billion in cash flows as of the end of last year. Accenture is set to benefit from the AI boom as companies need help and consultancy for the actual deployment and implementation of AI technologies.
Accenture Plc (NYSE:ACN) will benefit from secular growth catalysts in the IT services industry. By 2033, IT Service industry revenues are projected to reach $1.06 trillion, from $578.1 billion in 2023, growing at a 6.3% CAGR.
In June Accenture Plc (NYSE:ACN) posted fiscal Q3 results. New bookings in the quarter jumped a whopping 22% year over year, the highest growth in new bookings over the past two fiscal years. The company has made a whopping 35 acquisitions in the fiscal year so far and it’s in an aggressive growth mode. Talking about generative AI business, Accenture Plc (NYSE:ACN) management said during the latest earnings call:
We also have leaned into the new area of growth, GenAI, which is comprised of smaller projects as our clients primarily are in experimentation mode, and this quarter we hit two important milestones. With over $900 million in new GenAI bookings this quarter, we now have $2 billion in GenAI sales year-to-date, and we have also achieved $500 million in revenue year-to-date. This compares to approximately $300 million in sales and roughly $100 million in revenue from GenAI in FY 2023. Leading in GenAI positions us to help our clients take the actions needed to reinvent and to benefit from GenAI, which frequently means large-scale transformations
The stock is trading at 26 times its 2025 EPS estimate of $12.79 set by Wall Street.
Polen Focus Growth Strategy stated the following regarding Accenture plc (NYSE:ACN) in its Q2 2024 investor letter:
“Autodesk and Accenture plc (NYSE:ACN) were also notable absolute detractors in the quarter. For Accenture, the past year has proven to be a weak backdrop for the IT services industry as enterprises rationalize their IT budgets and defer spending on discretionary, shorter-cycle deals. Accenture has not been immune to this broader weakness, as evidenced by slowing growth in recent quarters. However, we would note that later in the quarter, the stock responded very positively to results that showcased AI bookings growing rapidly, though still a small portion of overall bookings. Additionally, as we head into 2025, growth comparisons should ease considerably.”
9. Tesla Inc (NASDAQ:TSLA)
Number of Hedge Fund Investors: 74
Amid a decline in EV sales growth, Elon Musk’s only option is to go all-in on AI. After a Twitter poll that overwhelmingly voted in favor of Tesla Inc (NASDAQ:TSLA) investing capital in xAI, Musks’ AI company, the CEO of Tesla said he’d discuss investing $5 billion in xAI with Tesla Inc (NASDAQ:TSLA).
Elon Musk said in a latest earnings call with analysts that massive discounts from Tesla Inc (NASDAQ:TSLA) competitors created headwinds for the company in the most recently reported quarter.
Tesla Inc (NASDAQ:TSLA) has also delayed its robotaxi event until October. All possible catalysts for Tesla stock lie far into the future and the reality is revealing itself to Elon Musk who admitted during the latest earnings call that he’s been overly optimistic about robo taxis.
“It’s difficult, obviously, my predictions on this have been overly optimistic in the past. So I mean, based on the current trend, it seems as though we should get miles between interventions to be high enough that — to be far enough in excess of humans that you could do unsupervised possibly by the end of this year. I would be shocked if we cannot do it next year.”
During the second quarter, Tesla Inc (NASDAQ:TSLA) automotive gross margin fell to 18.47% from 19.22% the previous year. Non-automotive revenue, now 22% of total sales compared to 14.67% in Q2 2023, has a lower gross margin, negatively impacting overall profitability. Tesla Inc (NASDAQ:TSLA) is still heavily reliant on EVs where demand is falling. Tesla energy business is not strong enough to offset declines in the core business.
Cathie Wood recently set a $2600 price target on Tesla Inc (NASDAQ:TSLA) for 2029, which present a whopping 1300% upside potential from the current levels. Wood thinks the robo taxi project has the potential to deliver $8 to $10 trillion in revenue by 2030.
However, many believe Tesla Inc (NASDAQ:TSLA) won’t be able to live up to the hype around its robo taxi plans. Each robo taxi is expected to have a price target of around $150K to $200K, with some estimates suggesting Tesla Inc (NASDAQ:TSLA) would need about $35 billion to develop a global feet of such cars. Amid inflation and lack of preference for electric cars, American families will probably stay away from spending a fortune on robo taxis, which could cause a blow to Tesla Inc’s (NASDAQ:TSLA) plans in the future.
Baron Partners Fund stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its first quarter 2024 investor letter:
“The vast majority of the Fund’s underperformance this quarter stemmed from the Fund’s 10-year investment in Tesla, Inc. (NASDAQ:TSLA). Tesla’s shares fell 29.3% during the period and detracted 13.41% from the Fund’s first quarter results. Although Tesla has contributed importantly to the Fund’s performance since 2014, on occasion it has detracted from quarterly performance. In previous instances when Tesla shares have underperformed during a discrete period, they have shortly afterwards reflected the strong growth of the underlying business and the stock has appreciated considerably. We believe that will be the case again, although cannot guarantee it.
A significant decline also occurred at the end of 2022. In that instance, investors had become concerned about a host of external factors. Investors believed the company founder, visionary, and CEO Elon Musk was distracted by his acquisition of Twitter. They also believed a weak Chinese economy emerging from COVID and U.S. government policies would curtail the purchases of Tesla vehicles. These fears proved to be overblown. As the company achieved milestones in the succeeding year, the stock subsequently doubled over the next 12 months…”
8. Applied Materials, Inc. (NASDAQ:AMAT)
Number of Hedge Fund Investors: 79
Analysts at Stifel kept a bullish on on Applied Materials, Inc. (NASDAQ:AMAT) after attending Semicon West 2024 in San Francisco. Brian Chin and Denis Pyatchanin believe Taiwan Semiconductor’s continued spending will benefit the stock. They increased the stock’s price target to $275 from $240.
“Ultimately, we see Applied Materials, Inc. (NASDAQ:AMAT) as well on track to establish higher peak revenue/profitability through the ensuing upcycle, and warranting a higher multiple as it demonstrates improved financial performance across the cycle, and in particular during the downturn,” they said.
Applied Materials, Inc. (NASDAQ:AMAT) is one of those non-fancy AI stocks that don’t get much limelight from the Wall Street. The stock, up 59% this year so far, received an upgrade from Barclays. The investment firm expects the stock to benefit from higher spending in the semiconductor equipment industry. Barclays expects wafer fab equipment spending to hit $96.3 billion in 2024 and $106.4 billion in 2025, up from its previous estimate of $80.6 billion and $89.1 billion, respectively.
In May, Applied Materials, Inc. (NASDAQ:AMAT) posted solid Q2 results. Mizuho Securities analyst Vijay Rakesh upped his price target on the stock to $245 from $225 and kept his Buy rating. Citi analyst Atif Malik also increased his price target on the stock to $250 from $170. The analyst sees “further upside” to Applied Materials, Inc.’s (NASDAQ:AMAT) 2025 estimates.
Applied Materials, Inc.’s (NASDAQ:AMAT) moat is strong and wide. The company makes equipment used to make semiconductor chips. It has a diverse equipment portfolio that addresses the high-growth ICAPS industry (IoT, Communications, Automotive, Power, and Sensors). Last year Applied Materials, Inc. (NASDAQ:AMAT) made a breakthrough announcement by launching Centura Sculpta, a machine that dramatically reduces the number of steps required in chips production. Applied Materials, Inc. (NASDAQ:AMAT) said chipmakers can save a whopping $250 million per 100K wafer starts per month of production capacity in costs.
Wall Street expects Applied Materials, Inc.’s (NASDAQ:AMAT)’ revenue to surge 11% in 2025 while earnings growth is forecasted to come in at 15.60% in the year. The stock’s forward P/E is 23.73, not much higher than the industry average of 27, when seen in the context of growth.
7. Broadcom Inc (NASDAQ:AVGO)
Number of Hedge Fund Investors: 115
TD Cowen in a fresh note named Broadcom Inc (NASDAQ:AVGO) as one of the stocks that can benefit from the rise in AI spending. Analysts at the firm said there are “no signs” of generative AI demand abating and highlighted that Broadcom Inc (NASDAQ:AVGO) recently raised its full-year AI outlook. Broadcom Inc (NASDAQ:AVGO) expects AI-related revenue for 2024 at $11 billion.
Broadcom Inc (NASDAQ:AVGO) recently reported second-quarter results. Revenue in the quarter rose about 43% year over year. AI revenue in the period rose a whopping 280% year over year. Broadcom’s revenue stream is diverse and does not rely on a single source. It includes enterprise, networking, storage, data center/hyperscaler, industrial, and consumer space. For 2024 AVGO has increased its annual revenue guidance to over $51 billion, anticipating growth of over 40%. A significant portion of this growth is expected to come from software, which would also help margins.
The company’s Ethernet business is also strong amid partnerships with Arista Networks (ANET), while the company is also collaborating with Dell (DELL), Juniper (JNPR), and Super Micro (SMCI) in the networking business and other segments. Broadcom has also developed ASIC AI chips in partnership with Google and Meta Platforms.
Based on this strong growth and upcoming catalysts, AVGO’s forward P/E of about 25 makes the stock look undervalued.
Aristotle Atlantic Large Cap Growth Strategy stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its Q2 2024 investor letter:
“Broadcom Inc. (NASDAQ:AVGO) is a global technology leader that designs, develops and supplies a broad range of semiconductor and infrastructure software solutions. The company strategically focuses its research and development resources to address niche opportunities in target markets and leverage its extensive portfolio of U.S. and other patents and other intellectual property to integrate multiple technologies and create system-on-chip component and software solutions that target growth opportunities. Broadcom designs products and software that deliver high performance and provide mission-critical functionality. The company has a history of innovation in the semiconductor industry and offers thousands of products that are used in end products such as enterprise and data center networking, home connectivity, “set-top boxes broadband access”, telecommunication equipment, smartphones and base stations, data center servers and storage systems, factory automation, power generation and alternative energy systems, and electronic displays. Broadcom differentiates itself through its high-performance design and integration capabilities and focuses on developing products for target markets where it believes it can earn attractive margins.
We view Broadcom’s semiconductor business as being very well positioned to benefit from secular growth in data center networking, which is being driven by AI and cloud computing. The company continues to invest in research and development, and we see this as a competitive advantage for the company. Broadcom’s infrastructure software business is a recurring revenue business model that provides mission-critical mainframe support software to its customer base. The recent VMware acquisition will enhance this business strategy and accelerate the growth rate of this business unit, as VMware’s product suite includes key tools for AI server upgrades. Our long-term investment thesis is supported by Broadcom’s success in its strategy of maintaining technology and market share leadership in mission-critical markets with high switching costs and deep profit pools.”
6. Micron Technology Inc (NASDAQ:MU)
Number of Hedge Fund Investors: 115
Bank of America analyst Vivek Arya recently talked about the latest declines in semiconductor stocks. However, the analyst said most of the declines were due to temporary factors and fundamentals are still “intact.”
“AI still the strongest and most dependable area of capex, driven by domestic US tech companies with solid balance sheets, proven monetization and mission-critical imperatives…” Arya said.
Micron Technology Inc (NASDAQ:MU) posted quarterly results earlier in the month which came in better than expected but the market didn’t welcome the in-line guidance and rising expenses. However, this short-term view misses the fact that Micron Technology Inc (NASDAQ:MU) is investing heavily in high bandwidth memory (HBM) production that is expected to generate billions in sales by fiscal 2025 compared with just hundreds of millions in 2024.
After the earnings, BofA analyst Vivek Arya reiterated a Buy rating and gave a $170 price target on Micron Technology Inc (NASDAQ:MU).
“Mgmt emphasized both CY24 and CY25 volumes are now fully sold out with pricing generally secured, providing visibility to its healthy sales and margin expansions (HBM is GM accretive),” Arya said.
Here is what Micron Technology Inc (NASDAQ:MU) said about HBM during fiscal Q3 earnings call:
“Our HBM shipment ramp began in fiscal Q3, and we generated over $100 million in HBM3E revenue in the quarter, at margins accretive to DRAM and overall Company margins. We expect to generate several hundred million dollars of revenue from HBM in fiscal 2024 and multiple billions of dollars in revenue from HBM in fiscal 2025. We expect to achieve HBM market share commensurate with our overall DRAM market share sometime in calendar 2025. Our HBM is sold out for calendar 2024 and 2025, with pricing already contracted for the overwhelming majority of our 2025 supply. We are making significant strides toward expanding our HBM customer base in calendar 2025, as we design-in our industry-leading HBM technology with major HBM customers. We have sampled our 12-high HBM3E product and expect to ramp it into high-volume production in calendar 2025 and increase in mix throughout 2025.”
ClearBridge Value Equity Strategy stated the following regarding Micron Technology, Inc. (NASDAQ:MU) in its Q2 2024 investor letter:
“Stock selection in the IT sector proved to be the largest contributor to performance, particularly driven by the strong performance of Micron Technology, Inc. (NASDAQ:MU) The company, which designs, develops, manufactures and sells memory and storage products, continued its strong performance alongside other AI beneficiaries as the anticipated demand for new and additional storage essential for housing and training large language AI models continues to grow.”
5. Apple Inc (NASDAQ:AAPL)
Number of Hedge Fund Investors: 150
Apple Inc (NASDAQ:AAPL) AI initiative Apple Intelligence has started to make sense to Wall Street analysts. Recently, Baird raised its price target on the stock to $240 from $200, citing a potential upgrade cycle in iPhone because of Apple Inc (NASDAQ:AAPL) Intelligence.
Baird analyst William Power said in a note that he estimates a whopping 95% of iPhones in the world will need an upgrade at “some point” to take advantage of Apple Intelligence. The analyst mentioned lower upgrade rates at AT&T and Verizon, suggesting consumers might be waiting for AI-integrated smartphones. Based on this catalyst, the analyst upped his fiscal 2025 iPhone estimates by about 20 million units, now projecting iPhone revenue to reach $216.1 billion, a 9% year-over-year increase, surpassing the consensus estimate of 6% growth. Apple Inc (NASDAQ:AAPL) is expected to generate $418.1 billion in full-year revenue and $7.30 per share in earnings, up from previous forecasts of $394.6 billion and $6.73 per share.
However, the assumption that we will see a huge upgrade cycle of iPhone just because of AI is big and comes with a lot of risks. Apple Inc (NASDAQ:AAPL) trades at a forward PE multiple of around 35x, well above its 5-year average of nearly 27x. Its expected EPS forward long-term growth rate of 10.39% does not justify its valuation, especially with the iPhone upgrade cycle assumption. Adjusting for this growth results in a forward PEG ratio of 3.33, significantly higher than its 5-year average of 2.38.
Polen Focus Growth Strategy stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q2 2024 investor letter:
“The largest relative detractors in the quarter were NVIDIA, Apple Inc. (NASDAQ:AAPL), and Salesforce. In a reversal from some of the concerns driving the stock down in the first quarter, Apple re-emerged as a top performer in the second quarter. The company reported better-than-feared results in its iPhone segment that quelled concerns over weakness in China. Additionally, the company forecast a return to sales growth and announced a $110 billion stock buyback plan, the largest in U.S. history. Later in the period, at its Worldwide Developers Conference, Apple introduced long-awaited new AI features that spurred some optimism around an upgrade cycle for the iPhone and, more generally, the important role Apple may be able to play in the emerging AI landscape. We continue to study Apple closely, which we previously owned the company for many years during its growth phase, to determine if it is poised for another significant revenue and earnings growth period.”
