In this article, we will take a detailed look at Top 10 Trending AI Stocks to Watch.
Wall Street continues to gain momentum amid the latest earnings season and analysts are wondering whether we are still up for soft landing. Mohamed El-Erian, Allianz chief economic advisor, talked about the possibility of a soft landing vs no landing during a program on CNBC. When asked what would it take for the market to have a no-landing scenario, the analyst said:
“I think we need the productivity enhancers from A.I., from life sciences to come earlier, we need to continue to have positive shocks to our labor force. And if we get those two things, you can get the bigger but not hotter economy which actually would be perfect for almost everything you can think of, from households to companies to financial markets.”
The analyst does not rule out the possibility of a recession, however.
“My probability of a soft landing is 55%, and a recession is 30%. A soft landing is the most likely scenario, but it’s not dominant. Why isn’t it dominant? Because we have weakness in the household sector, particularly on the lower-income side, and the Fed has been unpredictable. Just think, Morgan—at the end of July, the Fed didn’t cut rates because everything seemed fine. By the next meeting in mid-September, it cut 50 basis points. And now it’s talking about cautious cuts. So, the Fed needs to be careful.”
For this article we picked 10 trending AI stocks 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. Qorvo Inc (NASDAQ:QRVO)
Number of Hedge Fund Investors: 37
Qorvo (NASDAQ:QRVO) was recently downgraded by Morgan Stanley. The firm cited “limited upside” and a lack of near-term catalysts for the move. Analyst Joseph Moore explained that weak conditions in the Android supply chain and broader market challenges are limiting the Qorvo Inc (NASDAQ:QRVO)’s expected gross margin recovery. While maintaining a positive long-term view, Moore sees a balanced risk-reward scenario for the next few quarters.
“We see limited upside near term around a weaker Android supply chain and weak broad market conditions, which is limiting the gross margin recovery that we have been looking for,” Moore wrote in a note to clients. “We remain constructive longer term, but see a balanced risk reward over the next couple of quarters.”
As a result, Moore downgraded Qorvo Inc (NASDAQ:QRVO)’s rating from Overweight to Equal-Weight and reduced the price target from $130 to $120. He noted that although artificial intelligence (AI) at the edge could boost the smartphone cycle, Qorvo Inc (NASDAQ:QRVO) is unlikely to be a significant beneficiary at the outset.
“Apple Intelligence looks to be the initial Edge AI winner, and our US hardware team has high conviction this will [lead] to a multi-year upgrade cycle,” Moore continued. “While Qorvo is committed to increasing exposure to Apple (AAPL), they are underrepresented in the iOS ecosystem and are still primarily seen as an Android play. Since Edge AI is expected to initially be in the premium tier, where we expect Android to lose share next year, we are less excited about Edge AI as a catalyst for Qorvo.”
Qorvo Inc (NASDAQ:QRVO) is a semiconductor and wireless products company. Apple is its biggest customer. Qorvo has made progress on several fronts, such as reducing operational inefficiencies linked to manufacturing smaller wafer diameters and transitioning to larger formats, culminating in the migration to 8-inch BAW (Bulk Acoustic Wave) technology in FQ1.
However, there are many risks to Qorvo Inc (NASDAQ:QRVO), including its dependence on China.China accounts for about 19% of its revenues. This dependence could become detrimental if 60% tariffs are imposed on Chinese goods after the November U.S. elections, potentially triggering a tit-for-tat response from Beijing that would make Qorvo Inc (NASDAQ:QRVO)’s products more expensive.
Qorvo Inc (NASDAQ:QRVO) is also competing with giants like Broadcom (AVGO) and Qualcomm (QCOM), which are also integrated device manufacturers (IDMs) that produce some of their connectivity chips. This sector has become increasingly commoditized, leading to more price-based competition.
Vulcan Value Partners stated the following regarding Qorvo, Inc. (NASDAQ:QRVO) in its Q2 2024 investor letter:
“Qorvo, Inc. (NASDAQ:QRVO) is a leader in radio frequency (RF) systems and power management solutions for mobile devices, wireless infrastructure, aerospace and defense, the Internet of Things, and various other applications. Qorvo’s chipsets are a small cost but are critical components in modern mobile devices. As data needs increase and telecommunications technology continues to evolve and become more complex, more RF content is needed in each device. The complexity and barriers to entry intensify as content requirements increase and space constraints become more pronounced. Qorvo operates in an oligopoly with only a small number of companies capable of producing these increasingly complex chipsets at scale. Qorvo should also benefit as growth accelerates in adjacent markets and these markets eventually become a larger piece of the business through the adoption of the Internet of Things, satellite, Wi-Fi, and other markets. The company has faced headwinds over the past few years including lower demand in China, excess inventory in the channel, and factory underutilization; but secular tailwinds should drive growth and, in turn, margin expansion.”
9. Coherent Corp (NYSE:COHR)
Number of Hedge Fund Investors: 47
Citi Research predicts that capital expenditures for data centers among the leading four cloud companies will surge by 40% year over year, offering a boost to data center interconnect (DCI) providers. Citi anticipates that top tech companies will ramp up their data center investments by 40% to 50% in 2025.
Citi analysts, led by Atif Malik, noted in an investor report that “we estimate that the AI networking opportunity is expanding beyond the server connection within a data center to AI platforms connecting multiple data centers through DCI.”
Citi named Coherent Corp (NYSE:COHR) as one of the beneficiaries of this spending.
Coherent Corp (NYSE:COHR) makes optical materials and semiconductors. Its laser tech is used for laser welding for EV batteries and for UV lasers in mobile and high-end TV display industries. However, the spotlight is currently on its Communications segment, which is set to benefit from the expansion of cloud computing, AI, and machine learning. This segment, driven by the demand for datacom transceivers that handle higher data throughput, accounted for 52% of Coherent Corp (NYSE:COHR) recent market and grew by double digits year-over-year, particularly in North America and China.
NCG Small Cap Strategy stated the following regarding Coherent Corp. (NYSE:COHR) in its Q2 2024 investor letter:
“Coherent Corp. (NYSE:COHR) is a market leader in engineered materials, optoelectronic components, and lasers for use across various end markets, with attractive growth opportunities in areas such as the data center and electric vehicles. COHR recently hired a new CEO with a track record of enhancing business strategy to deliver consistent revenue growth and margin expansion, and we believe he has the opportunity to do the same at COHR.”
8. Super Micro Computer Inc (NASDAQ:SMCI)
Number of Hedge Fund Investors: 47
Super Micro Computer Inc (NASDAQ:SMCI) recently launched a new 3U Edge AI server, designed to accommodate up to 18 GPUs and equipped with Dual Intel (NASDAQ) Xeon 6900 series processors featuring P-cores.
“As the AI market is growing exponentially, customers need a powerful, versatile solution to inference data to run LLM-based applications on-premises, close to where the data is generated,” stated Supermicro CEO Charles Liang. “Our new 3U Edge AI system enables them to run innovative solutions with minimal latency.”
The new SYS-322GB-NR model incorporates two Intel Xeon 6900 processors with P-cores, 8800 MT/s MRDIMM, and offers up to 20 PCIe 5.0 expansion slots. It supports both single and double-width GPUs or allows for the use of some expansion slots for high-performance I/O or other add-on cards. Additionally, the server can accommodate up to 6TB of RDIMM memory and up to 14 E1.S or 6 U.2 NVMe drives.
This launch follows news that Super Micro Computer Inc (NASDAQ:SMCI) had recently deployed over 100,000 GPUs using its liquid cooling solution system for major AI factories and other cloud service providers.
Carillon Scout Mid Cap Fund stated the following regarding Super Micro Computer, Inc. (NASDAQ:SMCI) in its Q2 2024 investor letter:
“Super Micro Computer, Inc. (NASDAQ:SMCI) was the top detractor to returns in the second quarter. Super Micro designs and manufacturers server solutions based on modular and open-standard architecture. This modular approach combined with a strong engineering culture helps the company to supply the market with advanced servers and rack-scale compute solutions quickly. After an impressive return in the first quarter, the company offered disappointing near-term earnings guidance, though we do not believe its long-term opportunity has diminished. We expect continued strong growth for several years, although the range of outcomes is quite wide; it is difficult to forecast AI server market growth with precision.”
7. Arista Networks Inc (NYSE:ANET)
Number of Hedge Fund Investors: 65
Citi Research predicts that capital expenditures for data centers among the leading four cloud companies will surge by 40% year over year, offering a boost to data center interconnect (DCI) providers. Citi anticipates top tech companies will ramp up their data center investments by 40% to 50% in 2025.
Citi analysts, led by Atif Malik, noted in an investor report that “we estimate that the AI networking opportunity is expanding beyond the server connection within a data center to AI platforms connecting multiple data centers through DCI.”
The main beneficiaries of this growth are expected to be DCI providers like Arista Networks (NYSE:ANET).
Malik emphasized the challenges of containing AI model clusters within a single data center as their size approaches 300,000 GPUs by 2025, stating that “containing models in one data center unit will not be sustainable in the long term amid constraints related to power, regulations, among others.” Consequently, hyperscalers are increasingly adopting and planning to expand the use of a multi-data center training approach.
Citi highlighted that Google has utilized this multi-data center strategy for training its Gemini 1 Ultra, and that OpenAI, Microsoft, and Anthropic are also embracing this model. As a result of increased DCI spending, Citi projects that Arista Networks Inc (NYSE:ANET)’s revenue could grow by up to 25% year over year in 2025, primarily driven by Ethernet switching in AI networks.
Citi has raised its price target for Arista Networks Inc (NYSE:ANET) to $460 from $385 while maintaining a Buy rating on the stock.
The Information recently reported that Meta Platforms is preparing a cluster of over 100,000 NVIDIA H-100 GPUs to train the latest version of its Llama language model. Evercore ISI believes Arista Networks Inc (NYSE:ANET) is likely to be the networking partner for Meta Platforms’ cluster. Ethernet will handle the networking for the project, as InfiniBand isn’t capable of supporting a cluster of this scale, leading Evercore to believe Arista Networks Inc (NYSE:ANET) will supply some of the infrastructure.
“Assuming GPU’s represent 80% of total spend on this AI cluster, this would imply total cost of around $2.5B, of which 10% is likely spent on infrastructure,” said Evercore analyst Amit Daryanani, in a note. “This could represent a $250M revenue opportunity for Arista, if they won the business.”
Arista Networks Inc (NYSE:ANET) has previously worked with Meta, providing switches for a cluster with 24,000 GPUs. Daryanani noted that their strong relationship makes it likely Arista Networks Inc (NYSE:ANET) will supply the switches for this new cluster. If successful, this could boost Arista’s $750 million AI revenue target for 2025. Evercore maintains an Outperform rating on Arista with a $400 price target.
What makes Arista Networks Inc (NYSE:ANET) a promising AI stock?
Arista Networks Inc (NYSE:ANET) is set to gain amid the AI-driven shift to high-speed networks due to its open Ethernet design and unified Arista EOS. The company’s partnership with Broadcom also created an opportunity for Arista Networks Inc (NYSE:ANET) to expand its integrated software and hardware solutions.
Arista Networks Inc (NYSE:ANET) claims its Ethernet architecture based on merchant silicon allows fast deployment for major hyperscalers and Tier-2 cloud providers.
Madison Mid Cap Fund stated the following regarding Arista Networks, Inc. (NYSE:ANET) in its Q2 2024 investor letter:
“We trimmed our positions in Arista Networks, Inc. (NYSE:ANET) and Carlisle Companies. Both of these companies have witnessed strong multi-year growth in their stock prices, which have resulted in elevated valuations. While we remain confident in the long-term prospects of both of these businesses, we trimmed our holdings to more appropriate position sizes given the risk/reward offered.”
6. Cisco Systems Inc (NASDAQ:CSCO)
Number of Hedge Fund Investors: 61
Citi Research predicts that capital expenditures for data centers among the leading four cloud companies will surge by 40% year over year, offering a boost to data center interconnect (DCI) providers. The major players in this segment include Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOG) (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), and Meta Platforms (NASDAQ:META). Citi anticipates that these firms will ramp up their data center investments by 40% to 50% in 2025.
Citi analysts, led by Atif Malik, noted in an investor report that “we estimate that the AI networking opportunity is expanding beyond the server connection within a data center to AI platforms connecting multiple data centers through DCI.”
Citi named Cisco Systems Inc (NASDAQ:CSCO) as one of the beneficiaries of this spending.
Malik emphasized the challenges of containing AI model clusters within a single data center as their size approaches 300,000 GPUs by 2025, stating that “containing models in one data center unit will not be sustainable in the long term amid constraints related to power, regulations, among others.” Consequently, hyperscalers are increasingly adopting and planning to expand the use of a multi-data center training approach.
Citi highlighted that Google has utilized this multi-data center strategy for training its Gemini 1 Ultra, and that OpenAI, Microsoft, and Anthropic are also embracing this model. As a result of increased DCI spending, Citi projects that Arista’s revenue could grow by up to 25% year over year in 2025, primarily driven by Ethernet switching in AI networks.
Cisco Systems Inc (NASDAQ:CSCO) earlier this year announced a major restructuring plan that includes a 7% reduction in workforce and an estimated $1 billion in pre-tax cost savings. Cisco Systems Inc (NASDAQ:CSCO)’s legacy hardware businesses have been stagnating, with average revenue growth lingering at just 1.6%. Job cuts and cost savings will allow Cisco Systems Inc (NASDAQ:CSCO) to allocate capital to high-growth areas like AI and Cloud networking.
The expected cost savings, which will cut about 2.4% of total operating expenses, could boost Cisco Systems Inc (NASDAQ:CSCO) operating margins by more than 220 basis points in FY25. Although the company is ramping up its AI efforts, it only expects AI to bring in around $1 billion in revenue next year, less than 2% of the total. So, while AI isn’t likely to be a game-changer for Cisco Systems Inc (NASDAQ:CSCO) just yet, the focus on growth markets might accelerate overall revenue in the future.
Parnassus Value Equity Fund stated the following regarding Cisco Systems, Inc. (NASDAQ:CSCO) in its Q2 2024 investor letter:
“During the second quarter, the Fund’s overweight position in the Information Technology sector decreased slightly as we sold our position in Cisco Systems, Inc. (NASDAQ:CSCO) and used most of the proceeds to buy Broadcom, a leading semiconductor company and provider of custom silicon products. Both stocks provide similar exposure to networking technology, but we believe Broadcom offers more upside from AI infrastructure spend and defensiveness due to its software assets.”
5. Tesla Inc (NASDAQ:TSLA)
Number of Hedge Fund Investors: 85
Tim Higgins, Wall Street Journal business columnist, while talking to CNBC about the latest Tesla Inc (NASDAQ:TSLA) robotaxi, said that given the history of Elon Musk, if someone were to ask whether he would deliver on time, the answer would be “probably not.”
“The details were thin here. There were a lot of promises. I think some investors were going in hopeful we would see a lot more nuance and a lot more meat on the bone. Elon said at one point on stage, as people were peppering him with questions, “this wasn’t the time for nuance. This was the time for dream building,” is what he was signaling. That is important for Tesla and Elon.”
Asked about the under $30,000 price tag claim for robotaxis, the analyst said:
“He has a long history of saying these products are X and twice as much when they actually come out. In a lot of ways, these numbers are bogies, and he will work towards trying to get them in the not ballpark or city of the idea.”
The Tesla Inc (NASDAQ:TSLA) event was indeed short on details. Notably absent was the discussion of a “more affordable” model that Musk had previously mentioned to boost confidence in Tesla’s vehicle sales growth outlook.
What about the $30,000 price tag claim?
Musk has indicated that the Cybercab will have a production cost of approximately $30,000. Operating within the robotaxi fleet is projected to cost around $0.20 per mile. With a production cost of $30,000, the retail price of the Cybercab is likely to exceed this figure. For instance, if the Cybercab is priced at $30,000 per unit, that translates to $15,000 per seat. In contrast, the average price per passenger seat in Tesla Inc (NASDAQ:TSLA)’s most affordable long-range RWD Model 3—factoring in full self-driving (FSD) licensing—is under $10,000 ($29,990 post-incentive vehicle price plus $8,000 for the FSD license, divided by four passenger seats). Regarding operational costs, while the Cybercab is expected to cost $0.20 per mile, charging the Model 3 is estimated at under $0.10 per mile, leaving a significant margin to cover maintenance and downtime.
There is a lot of hype around Tesla Inc (NASDAQ:TSLA) robo taxis but many believe they will not be enough to fix the company’s long-term challenges.
What are these challenges?
Tesla Inc (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. Even Rivian’s CEO suggested Tesla Inc (NASDAQ:TSLA) could be nearing market saturation for these 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.
For Q2 2024, Tesla Inc (NASDAQ:TSLA) saw a 20% year-over-year decline in revenue from China, while BYD reported over 20% growth in the same period. This trend may continue as Chinese automakers release new models, and Tesla could be forced to cut prices to maintain delivery volumes—further pressuring its operating margins in the coming quarters.
Tesla Inc (NASDAQ:TSLA) is overvalued. The company’s consensus earnings-per-share (EPS) estimate for fiscal year ending December 2026 is $4.27, putting its forward price-to-earnings (PE) ratio at 60.2. With Tesla Inc (NASDAQ:TSLA) offering price cuts, future EPS growth may fall short of expectations. Investors might consider selling now and waiting for a better re-entry point, or exploring other electric vehicle (EV) options.
ClearBridge Small Cap Value Strategy stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its Q2 2024 investor letter:
“The strength in the stock market adds significantly to that enormous transfer of wealth, which one could argue is good for shareholders. But is it causal? That is, did the stock market do well because CEOs got large stock grants? Are the CEOs just the lucky recipients of a windfall when the market goes up and their employees perform well? Or do they require huge grants to do their jobs that no one else could possibly do as effectively?
Tesla, Inc. (NASDAQ:TSLA), and most of its shareholders, certainly think the latter is true. In 2018, Tesla’s board of directors crafted a pay package for CEO Elon Musk that would award him 12 tranches of 10-year, fixed-price options on 1% of company stock for every $50 billion in market cap the stock added. In total, the options would be for 304 million shares of the company at $23.34 a share. He would receive no other compensation, until or unless the board decided otherwise. Shareholders approved that pay package, and the stock added all that market cap and more, giving Musk the right to buy 10% of the company for $50 billion less than it was worth, adding to his existing 13% stake. Minority shareholders sued, and a court sided with them and expunged the package in January 2024. “The process leading to the approval of Musk’s compensation plan was deeply flawed,” ruled Judge Kathaleen McCormik of the Delaware Court of Chancery as part of a 200-page decision. It seemed like a long-awaited check on excessive compensation to one individual for the achievements of an entire company….” (Click here to read the full article)
