In this article, we will take a detailed look at the Top 10 Stocks Analysts are Watching as AI Selloff Deepens.
Major AI stocks are struggling to gain traction as investors rethink their strategies amid concerns of a slowdown in spending. Even top tech bulls are starting to use the word “bubble” for the AI trade. Gene Munster, Deepwater Asset Management managing partner, said in a latest program on CNBC that he believes we still have two years of the AI bull run before the bubble bursts.
“From a high-level perspective, I always return to the fundamentals as a tech investor. The fundamentals of these companies remain strong. I predict we have two good bullish years ahead before a spectacular bubble burst. When I see this, it shakes my confidence, but if I stay focused on the fundamentals, I still believe this trade will play out.”
READ ALSO 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In
For this article, we picked 10 stocks analysts are currently talking about. With each company 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).
Copyright: stokkete / 123RF Stock Photo
10. Cencora Inc (NYSE:COR)
Number of Hedge Funds Investors: 45
Josh Brown, CEO of Ritholtz Wealth Management, in a latest program on CNBC, talked about several top healthcare stocks. Cencora Inc (NYSE:COR) tops his list and here is how the analyst made the bull case for the drug wholesale company:
“Many of you know this stock—but you remember when its ticker was ABC—and we used to call it AmerisourceBergen. Very 20th-century name. Cencora is much sexier—much more modern. But basically, it’s a pharmaceutical distribution company. RSI of 63—not yet overbought. It’s within 3% of a 52-week high. Stock looks outstanding—up 2% during the volatility of this week. 15 times forward P—expecting 12% earnings growth. That’s a great setup for something contrarian.”
TimesSquare Capital U.S. Mid Cap Growth Strategy stated the following regarding Cencora, Inc. (NYSE:COR) in its Q3 2024 investor letter:
“Our preferences among Health Care stocks are those companies providing novel therapies for unmet needs that deserve premium pricing, or specialized service providers. Cencora, Inc. (NYSE:COR), a pharmaceutical products distributor, had a flat return due to uneven fiscal third quarter results. US health care revenues grew for the quarter, however, international fell short. Gross margins deteriorated due to a higher mix of GLP-1s.”
9. PepsiCo Inc (NASDAQ:PEP)
Number of Hedge Funds Investors: 60
Michael K. Farr, CEO and founder of Farr, Miller & Washington LLC, said in a latest program on CNBC that he likes Pepsi (NASDAQ:PEP) because of its dividend and earnings growth:
“Pepsicola, 3.4% dividend, 7% earnings growth. You know, if I got a 3% dividend and 7% earnings growth and a 10% return out of these kind of stalwart companies, I’d be okay.”
8. Palo Alto Networks Inc (NASDAQ:PANW)
Number of Hedge Funds Investors: 64
Stephanie Link, CIO at Hightower, said in a latest program on CNBC that she’s buying Palo Alto Networks Inc (NASDAQ:PANW) shares.
“I like cybersecurity very much. I think it’s bigger than AI in terms of the total addressable market. I like their platform strategy—I think they’ve done a really good job there. Free cash flow is expanding, so this one too has kind of lagged. It’s hung around in this downdraft, but it hasn’t been a good stock over the last year or so. I think it’s a laggard that will win,” Link said about PANW.
Parnassus Growth Equity Fund stated the following regarding Palo Alto Networks, Inc. (NASDAQ:PANW) in its Q2 2024 investor letter:
“Palo Alto Networks, Inc. (NASDAQ:PANW) has been a profitable position for the portfolio. Given its elevated valuation, we decided to sell it to fund the purchase of Workday, where we see greater opportunity and a clearer story of margin expansion potential.”
7. Arista Networks Inc (NYSE:ANET)
Number of Hedge Funds Investors: 70
Rob Sechan, CEO of NewEdge Wealth, said in a latest program on CNBC that he’s buying Arista Networks Inc (NYSE:ANET) shares. Here is how he explained the reasons for his bullish outlook on the stock:
“They make essential networking hardware and software that connects GPUs and servers, allowing for more efficient compute. They’re highly regarded for their AI networking in particular. Their main customer base is the hyperscalers, for which we continue to get good news. There’s no indication that they’re reducing capex. It now trades at a 37 times forward PE, rich for us, but it’s down from 50 earlier this year.”
Madison Mid Cap Fund stated the following regarding Arista Networks Inc (NYSE:ANET) in its Q4 2024 investor letter:
“The top five contributors for the quarter were Liberty Formula One, Arista Networks Inc (NYSE:ANET), Copart, Brookfield Asset Management, and Lithia Motors. Arista Networks posted another quarter of better-than-expected revenue and earnings growth. More importantly, the outlook remains robust, with promising results from its AI trials with customers on top of anticipated solid growth in the core business.”
6. Crowdstrike Holdings Inc (NASDAQ:CRWD)
Number of Hedge Funds Investors: 74
Jamie Meyers, Senior Securities Analyst at Laffer Tengler, said in a latest program on Schwab Network that Crowdstrike Holdings Inc (NASDAQ:CRWD) could face volatility in the near term but he’s bullish on the stock in the long term:
“Visibility is rather limited right now—that incident was all over the news. It delayed their outbound sales activities, extended sales cycles, and the company is having to offer customer commitment packages—which is essentially a discount or forgoing upfront payment from their customers. But we remain positive on the stock—we think that new ARR is going to be in focus this quarter. We think there’s still a path to 10 billion in ARR (Annual Recurring Revenue) by 2031—and we believe that the company will continue putting up free cash flow margins to 30% plus. But it’s going to be a little rocky in the near term.”
Aristotle Atlantic Core Equity Strategy stated the following regarding CrowdStrike Holdings, Inc. (NASDAQ:CRWD) in its Q4 2024 investor letter:
“CrowdStrike Holdings, Inc. (NASDAQ:CRWD) provides cybersecurity products and services that offer endpoint protection and threat intelligence solutions, enabling customers to prevent damage from targeted attacks, detect advanced malware and search all endpoints. The company’s open cloud architecture enables it and third-party partners to rapidly innovate, build and deploy new cloud modules that can provide customers with enhanced functionality across a myriad of use cases.
We see the cloud cybersecurity market as positioned to experience strong growth over the next few years, driven by continued migration from on-premises to cloud-based architecture. We believe CrowdStrike can benefit from this trend due to its early-mover advantage, multiple product offerings and native integrations with leading cloud platforms. The increasing threats from state-sanctioned cybercriminals using high-performance computing and AI necessitate higher spending on advanced cybersecurity products. The total addressable market (TAM) is projected to grow significantly over the next four calendar years. Additionally, CrowdStrike’s cloud-native architecture and unified platform approach provide competitive advantages, resulting in high customer retention and widespread adoption of multiple modules.”
5. Tesla Inc (NASDAQ:TSLA)
Number of Hedge Funds Investors: 99
Steve Sosnick, Interactive Brokers chief strategist, said in a latest program on CNBC that retail traders have been net buyers of major Mag. 7 stocks including Tesla Inc (NASDAQ:TSLA). He believes retail traders do not want to miss any new buying opportunities amid selloffs.
“Nvidia remains the most actively traded and the most actively bought stock on our platform, Tesla being number two. These stocks brought them to the dance, and they’re not abandoning them.”
Analysts are still trying to look beyond Elon Musk’s claims and find out the specifics on the company’s EV and robo-taxi plans.
Tesla Inc’s (NASDAQ:TSLA) product lineup is showing signs of stagnation, with over 95% of sales still coming from the Model 3 and Model Y. Meanwhile, competitors are rolling out more advanced models. According to Reuters, Tesla’s market share in Europe is slipping as legacy automakers like BMW post stronger sales. Chinese competitor BYD is also gaining ground in Europe, despite talk of tariffs.
Baron Partners Fund stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its Q4 2024 investor letter:
“Tesla, Inc. (NASDAQ:TSLA) designs, manufactures, and sells electric vehicles, related software and components, and solar and energy storage products. Shares rose on growth in the energy segment, the promise of new model launches in 2025, and increasing investor confidence in Tesla’s AI initiatives. Despite macroeconomic challenges, delivery data in major markets like China have shown considerable improvement. The energy and automotive segments demonstrated stronger-than-expected profitability. Tesla also expanded its advanced computing center in Texas, released improved version of its software-enhanced driving solution, and is set to launch new mass market vehicles years after the initial rollouts of Models 3 and Y. Expectations of deregulation under the incoming administration point to the potential acceleration of new technology rollouts, which could enhance Tesla’s leadership position in real world AI and bolster investor confidence that Tesla will benefit from these large and attractive growth opportunities.”
4. Broadcom Inc (NASDAQ:AVGO)
Number of Hedge Funds Investors: 128
Stephanie Link, CIO at Hightower, said in a latest program on CNBC that she likes Broadcom Inc (NASDAQ:AVGO) for the long term and started piling into the stock.
“I do believe in the long-term story very much. It went from 34 times forward estimates, which got rich, to now 28 times. I was buying it a couple of years ago at 14 times, and we’ve talked about the multiple expansion—but it deserves a higher multiple because they are going to see something like a $60 to $90 billion total addressable market in their AI business, with two new ASIC customers coming in the next couple of years. I think that’s going to be very positive. I love the VMware acquisition, what it’s doing for their recurring revenue and margin. Their non-AI business has actually been horrible, and I expect it to be down 15% in the quarter, but I do think you’re in the process of troughing. So, I like the valuation, the pullback in the stock, and I just saw it as an opportunity.”
Broadcom threw it out of the park with its latest quarterly results. The most important part of the report? The company expects strong AI semiconductor sales growth to continue. It sees AI semiconductor revenue of about $4.4 billion in fiscal Q2, which would be a 42% year-over-year growth. Broadcom reported $6 billion in free cash flow for the quarter. Its software business gross margin came in at about 90%. But what’s Broadcom’s moat? It makes ASIC, chips designed for specific applications and tasks. As major companies look for custom chips to break Nvidia’s monopoly and lower costs, Broadcom is positioned well to thrive. Many top AI spenders are teaming up with Broadcom to develop these chips, which are expected to be high-margin, high-volume products, potentially driving substantial growth in both revenue and profits.
Bell Global Equities Fund stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its Q4 2024 investor letter:
“During December we introduced two new holdings to the portfolio and exited two names. The first addition was Broadcom Inc. (NASDAQ:AVGO), a leading global player in the semiconductor and software industry. We established the position early in December as we saw good potential for earnings upgrades going into 2025. Broadcom’s fundamentals continue to improve and there are many opportunities for them to continue growing double-digit revenue growth and faster profit acceleration. Broadcom has built their industry leading positions through both organic investment and strategic acquisitions. They are also a key player in the booming AI market where they develop custom chips used in data centres which are tailored to specific customer needs and networking infrastructure. Their recent acquisition of VMWare is another good example of how Broadcom can expand their opportunity set into enterprise software and garner strong pricing power from their existing customer base. This adds to their software footprint in mainframe, through CA Technologies, and in cybersecurity following their Symantec acquisition. The strength of their franchise is reflected in the high margins that they earn, which helps them generate a free cashflow margin near 40%. The strong results in mid-December reinforced the strength of the business and we see continued upside for this holding.”
3. Apple Inc (NASDAQ:AAPL)
Number of Hedge Funds Investors: 158
Lo Toney, Plexo Capital founding managing partner, said in a latest program on CNBC that Apple Inc (NASDAQ:AAPL) CEO Tim Cook’s efforts to persuade President Donald Trump for exemptions from tariffs apparently did not work and the company may need to pass on the impact of the levy to consumers or suppliers.
“I think the thought was that the ability for Cook to pilgrimage down to Mar-a-Lago and achieve what he did last time clearly isn’t going to be the case. It’s well laid out—either Apple can squeeze the suppliers a little bit, but I think that’s probably already happened as a natural course of business, or it can be subsidized by the telcos, passed on to the consumer, or absorbed by Apple itself. It’s going to impact someone somehow.”
Apple’s 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 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’s 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.
2. NVIDIA Corp (NASDAQ:NVDA)
Number of Hedge Funds Investors: 193
Steve Weiss, founder and managing partner at Short Hills Capital Partners, explained in a latest program on CNBC why he sold NVIDIA Corp (NASDAQ:NVDA) shares.
“I didn’t get it on the upswing of the earnings because it went into the green. I saw the wind started to go into the red. Look, there are a few issues with it with NVIDIA Corp (NASDAQ:NVDA) in my view, one of them being that with Apple, for example, you’re starting to see them make their own chip, and others all have plans to, so there’s competition. Also, it’s been reported that Nvidia is that China is buying the Nvidia chip through other countries, so I think that’s an issue for them. And then finally, when you take a look at what tariffs could do, and Taiwan Semi has been called out for tariffs, that stock’s really gotten hit. It’s not reflected here, but they’ll pick up the excess capacity.”
The market will keep punishing Nvidia for not meeting its gigantic (and sometimes unrealistic) growth expectations. About 50% of the company’s revenue comes from large cloud providers, which are rethinking their plans amid the DeepSeek launch and looking for low-cost chips. Nvidia’s Q1 guidance shows a 9.4% QoQ revenue growth, down from the previous 12% QoQ growth. Its adjusted margin is expected to be down substantially as well to 71%. The market does not like it when Nvidia fails to post a strong quarterly beat. The stock will remain under pressure in the coming quarters when the company will report unimpressive growth.
Nvidia is facing challenges at several levels. Competition is one of them. Major competitors like Apple, Qualcomm, and AMD are vying for TSMC’s 3nm capacity, which could limit Nvidia’s access to these chips. Why? Because Nvidia also uses TSMC’s 3nm process nodes. Nvidia is also facing direct competition from other giants that are deciding to make their own chips. Amazon, with its Trainium2 AI chips, offers alternatives. Trainium2 chips could provide cost savings and superior computational power, which could shift AI workloads away from Nvidia’s offerings. Apple is reportedly working with Broadcom to develop an AI server processor. Intel is also trying hard to get back into the game with Jaguar Shores GPU process, set to be produced on its 18A or 14A node.
Brown Advisors Global Leaders Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q4 2024 investor letter:
“The main driver of our 2024 relative underperformance was not being invested in NVIDIA Corporation (NASDAQ:NVDA). Since ChatGPT introduced the power of generative artificial intelligence to the world on 30 November 2022, the Global Leaders Strategy has outperformed its benchmark despite being underweight the USA and specifically underweight the “Magnificent Seven”.7 2024 underperformance of -2.81% versus our benchmark was almost precisely matched by the individual outperformance of NVIDIA, which we did not own. On balance the rest of the portfolio is doing just fine albeit with areas of strength (AI) and weakness (EM financials) discussed below.
We wrote about the concentration within global indexes last year and this continued with only 29% of companies within the ACWI Index at the start of 2024 outperforming this benchmark over the year. Our capital allocation added value in 2024 as five of our top ten largest weights over the year were also in our top ten percentage winners. Conversely, within our ten worst performers, seven were also amongst our smallest ten weights. Capital allocation is critical when index hit rates are below 50%…” (Click here to read the full text)
1. Amazon.com Inc (NASDAQ:AMZN)
Number of Hedge Funds Investors: 286
Stephanie Link, CIO at Hightower, explained in a latest program on CNBC why she recently started selling her stake in Amazon.com Inc (NASDAQ:AMZN).
“I started trimming it a couple of weeks ago. I went from really very much overweight to market weight—now I’m slightly underweight. It’s still about a 32% position for me, but you have 95% of the sell side with buys on this thing—just about everybody owns it on the buy side too. I think that it’s had a nice run, it’s up 23% from its August lows, and I just thought I could take that cash and put it elsewhere into names that have just gotten hammered.”
Mar Vista Global Quality Strategy stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q4 2024 investor letter:
“Amazon.com, Inc.’s (NASDAQ:AMZN) profitability was the key highlight of the third quarter financial results, with AWS and International Retail achieving record operating margins, and North America Retail posting its second-best margin in five years. Even more impressive was the fourth quarter operating income forecast, projecting up to $20 billion, significantly exceeding the expected $16 billion and suggesting a record 11% margin. This exceptional performance was driven by economies of scale, logistics efficiencies, successful AI implementations, increasing ad revenue, and accelerated AWS growth.
We keep our investment in Amazon due to several factors: AWS growth has further potential, Amazon Prime Video monetization is in its initial stages, and the company is expanding into promising sectors like Pharmacy and Logistics. Furthermore, with strengthening profitability and cash reserves exceeding $100 billion, the possibility of substantial capital returns increases. By continuing to innovate and invest in technologies like AI and cloud computing, Amazon is well-positioned to keep its competitive edge.”
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: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily e-newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below. You can also look at the Top 10 AI Stocks News: Latest Analyst Ratings And Upgrades and the 9 AI News Updates Investors Should Not Miss.