In this article, we will take a detailed look at the Top 10 Trending AI Stocks in Q4.
As LLMs continue to hog data from the open internet for training, publishers are growing concerned about their intellectual property and compensation. In a latest development, The New York Times issued a cease and desist letter to Perplexity to stop using its data for training without permission.
Gene Munster of Deepwater Asset Management, while talking about this news on CNBC, said that these developments could prove “horrendous” for LLMs in the short term.
“The short-term economics for these large language models is horrendous, and so, I think it changes from bad to worse in the short term. I just want to put some quick context around those numbers. Right now, OpenAI pays NewsCorp about $50 million. They’re going to do about $4 billion in revenue this year and $11 billion next year, so, I mean, it’s measurable.”
However, Munster thinks in the long term, these licensing deals would not impact major LLM companies negatively given the ROI they’d be enjoying.
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The analyst also made a prediction about Perplexity. He believes the company would be acquired because it’s competing with a lot of “big guns.” He quoted Oracle’s Larry Ellison who said that it takes about $100 billion to be a “proprietary” large language model.
“So, you look at the $6 billion at OpenAI, and you need to be raising in chunks of billions, not millions. Understand that it’s a big raise for a private company that’s moving quickly, but they’re going to get acquired. They’re just up against too many other big guns here to try to get to those coveted four or five spots of the LLM landscape.”
For this article we picked 10 AI stocks trending based on latest news. With each company we have mentioned its hedge fund sentiment. 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. Palo Alto Networks Inc (NASDAQ:PANW)
Number of Hedge Fund Investors: 66
KeyBanc’s third-quarter 2024 survey of value-added resellers (VARs) has noted a rise in IT budget expectations.
“For 2024, IT budgets saw a slight growth in expectations, but the bigger shift was in 2025, where budgets are now expected to grow by 4.4%, up from 3.2% just 90 days ago,” said KeyBanc analysts, led by Jackson Ader, in a detailed report to investors.
“Today, 37% of VARs expect IT budgets to bounce back in early 2025,” Ader said. “That’s a rise from last quarter, and the fact that it starts soon gives more clarity than before.”
The upcoming U.S. presidential election caused 26% of those surveyed to hold off on finalizing their 2025 IT budgets until the election results are in.
Another 46% mentioned that spending on artificial intelligence is impacting other areas of IT budgets, with AI and generative AI likely pulling funds away from front office, back office, and security.
Despite this, security budgets are still expected to grow by 14.4% in 2025, which is good news for companies like Palo Alto Networks Inc (NASDAQ:PANW), CyberArk, and SentinelOne (NYSE: S).
The VAR survey came after KeyBanc’s small to medium business IT survey from Q3, published on October 1. SMB respondents also expect IT spending to rise by 4.4% in 2025, compared to 1.9% growth in 2024.
Based on this survey, the firm raised its price target on Palo Alto Networks Inc (NASDAQ:PANW) to $435 from $400.
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.”
9. ServiceNow Inc (NYSE:NOW)
Number of Hedge Fund Investors: 97
UBS recently published a list of stocks it believes will be industry leaders by 2030. UBS believes the next decade will favor companies that use technology to disrupt industries.
“We see these as leading disruptors in industries undergoing technological change, which should have a lasting impact,” said UBS analyst Hartmut Issel in a note.
The firm identified 29 companies it expects to deliver stronger earnings growth than the broader market (S&P 500, NASDAQ), supported by “positive, long-term trends,” according to Issel.
ServiceNow Inc (NYSE:NOW) was among these stocks in the Enabling Tech category.
According to UBS, revenue for enabling tech could rise to $1.2T by 2025, or ~15% CAGR from FY20–25.
Lakehouse Global Growth Fund stated the following regarding ServiceNow, Inc. (NYSE:NOW) in its April 2024 investor letter:
“US-based software company,ServiceNow, Inc. (NYSE:NOW), provided another strong result, continuing its long and consistent track record of 20%-plus revenue growth combined with healthy profitability. Subscription revenues grew 25% year-on-year to $2.5 billion and free cash flow grew 47% year-on-year to $1.2 billion. The company’s core operating metrics were also impressive with remaining performance obligations growing 26% year-on-year to $17.7 billion (i.e. roughly 2x 2023 revenue) and renewal rates holding steady at 98%. Performance was evenly spread across segments, products, and geographies, with notable strength in the US federal government. The company now boasts 1,933 customers generating in excess of $1 million in Annual Contract Value (ACV), which is pleasing to see as it implies multiple solutions are involved and that the company’s platform model is increasingly resonating with customers. In our view, ServiceNow is one the highest quality software businesses globally as the combination of consistent growth at scale, robust free cash flow generation and a large addressable market make it a compelling opportunity.”
