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)
4. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Number of Hedge Fund Investors: 108
Advanced Micro Devices, Inc. (NASDAQ:AMD) shares recently fell after its latest event.
One of the reasons why the stock fell was that the company did not update its $4.5 billion AI revenue forecast or its outlook through 2025, leaving investors disappointed. Analysts are now looking to Advanced Micro Devices, Inc. (NASDAQ:AMD)’s Q3 earnings release, where they expect clearer guidance and more confidence in the company’s projections.
At the event, Advanced Micro Devices, Inc. (NASDAQ:AMD) showcased several new products, including the Turin EPYC data center CPUs and the Instinct MI325x AI accelerator. The company also introduced the Ryzen AI PRO 300 Series, the first enterprise laptops integrated with Microsoft’s Copilot.
Additionally, Advanced Micro Devices, Inc. (NASDAQ:AMD) reaffirmed its two-year AI chip development roadmap, with the MI325x slated for 2024, the MI350 expected in late 2025, and the MI400 set for 2026. Dr. Su highlighted that the data center AI accelerator market is forecasted to grow from $45 billion in 2023 to $500 billion by 2028.
While Advanced Micro Devices, Inc. (NASDAQ:AMD) increased its total addressable market projection through 2028, investors are eager to see what this means for the company’s near-term performance. Advanced Micro Devices, Inc. (NASDAQ:AMD) claimed the MI325x outperforms Nvidia’s H200 HGX in several areas. However, with Nvidia’s upcoming Blackwell GPUs on the horizon, it remains to be seen how AMD’s products will stack up. Both companies plan to offer annual performance and memory upgrades for generative AI, with Nvidia also shortening its product release cycle.
However, Citi analysts reaffirmed their Buy rating and $210 price target for AMD following the event, noting Advanced Micro Devices, Inc. (NASDAQ:AMD)’s expanded total addressable market. However, they cautioned that margins could take a hit in the short term due to the MI300. Still, they highlighted AMD’s advantages over Nvidia, such as increased memory, lower prices, and an open ecosystem.
Jefferies analyst Blayne Curtis also maintained his Buy rating, though he pointed out the event focused more on product launches than providing detailed roadmaps. The key question remains how much of the $500 billion opportunity Advanced Micro Devices, Inc. (NASDAQ:AMD) will capture.
Oppenheimer analysts were less enthusiastic, describing the event as “largely uneventful” and said Advanced Micro Devices, Inc. (NASDAQ:AMD)’s management reiterated familiar CPU and GPU roadmaps. While AMD has generated $4 billion in AI revenue over the last year through its MI Instinct products, the firm’s performance continues to fall short of expectations, leading them to retain their Perform rating.
Columbia Threadneedle Global Technology Growth Strategy stated the following regarding Advanced Micro Devices, Inc. (NASDAQ:AMD) in its Q2 2024 investor letter:
“Shares of Advanced Micro Devices, Inc. (NASDAQ:AMD) lagged the market after the company reported earnings results that, while generally strong, left the market wanting more. The company reported AI revenue of ~$600 million and increased its forward-looking outlook for AI revenue growth, but shares took a breather, as results missed elevated expectations after the stock’s strong performance. Despite the stock’s underperformance during the quarter, the company’s AI story remains very much intact. The growth outlook for the company is supported by better cloud demand, enterprise recovery and continued share gains ahead of the company’s new AI product launch.”
3. Alphabet Inc (NASDAQ:GOOG)
Number of Hedge Fund Investors: 165
In April 2023, Malcolm Ethridge, CIC Wealth executive vice president, on CNBC talked about the threats to Alphabet Inc (NASDAQ:GOOG) search business and the defensive posture of Sundar Pichai when it comes to AI.
“I feel like Google (Alphabet) will be continuously distracted and continuously trying to catch up in this AI arms race. If Google were to lean too far into the generative AI search trend, it would cannibalize too much of their business, as search is their only real revenue source. Even the products they have developed are built around getting users to the search bar quicker than on their competitors’ devices.
That is worrisome because if they were to make a real pivot toward incorporating a chat box feature with a singular answer to your search query, it would be the equivalent of Facebook going fully mobile back in 2014 when many were criticizing Mark Zuckerberg, saying he was crazy. I don’t think Google and Alphabet have the time to pull that off and be able to say, “We told you so, and we told you we had something in the works.”
So far the analyst’s concerns have proved wrong. Why?
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.
Oakmark Select Fund stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q3 2024 investor letter:
“Alphabet Inc. (NASDAQ:GOOG) was the top detractor during the quarter. The U.S.-based communication services company’s stock price fell after a U.S. District Court ruled that Google violated Section 2 of the Sherman Act by maintaining a monopoly in general search engine services via exclusive distribution agreements. We think this case is unlikely to hurt Alphabet’s valuation over the long term as regulations previously en[1]acted in the European Union to address similar issues did not materially erode the company’s market share. We continue to believe that Alphabet is an attractive investment.”
2. Nvidia Corp (NASDAQ:NVDA)
Number of Hedge Fund Investors: 179
Stacy Rasgon, Bernstein senior analyst, while talking about Nvidia in a latest program on CNBC, said:
“People are getting excited about the story again as we approach earnings, year-end, and next year when the new platform with Blackwell starts to ramp up. By all indications—based on supply chain checks and everything else—demand for this product looks off the charts.”
The analyst said Nvidia Corp (NASDAQ:NVDA) was able to work through the Blackwell delays and it did not impact its business. He thinks the stock is “not expensive.”
“It’s much cheaper today than it was before the run started a year and a half ago. The stock has risen significantly, but earnings have increased even more than the stock.”
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.
Vltava Fund stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q3 2024 investor letter:
“Over the summer, we devoted a lot of time to studying the AI-related investment wave. This spans a wide range of sectors and our view could be very briefly summarised as follows: The first-tier beneficiaries are primarily companies in the semiconductor sector, NVIDIA Corporation (NASDAQ:NVDA) perhaps the most. That company is benefiting from the huge increase in investment by large technology companies to build enormous data centres. We know who NVIDIA’s customers are. They are companies like Meta, Alphabet, Amazon, and Microsoft. They are investing hundreds of billions of dollars into their AI capabilities. What is not entirely clear, however, is who are and will be the customers of NVIDIA’s customers, and, more importantly, when, and if, they will be able to come up with such huge demand for AI services that the profits from AI will justify and pay for the enormous investments all these companies have been making. The further we move away from the starting point that NVIDIA represents in our more broadly-reaching estimates, the lessreliable those estimates are.So far, we know just one thing for sure, and that is that investments in AI capabilities are ongoing and they are huge. They are not only bringing large demand to chipmakers and the semiconductor sector but to some other sectors as well. Indeed, building AI clusters also requires the construction of new semiconductor factories, new energy sources, and all the associated infrastructure. The numbers under consideration are incredibly high. It is possible that over the next decade the construction of AI centres will necessitate a 20% increase in US energy consumption. The investment required will be measured not in the hundreds of billions of dollars, but in an order of magnitude higher. Maybe two orders of magnitude.”
1. Apple Inc (NASDAQ:AAPL)
Number of Hedge Fund Investors: 184
The demand for Apple Inc (NASDAQ:AAPL)’s iPhone 16 Pro models has largely met expectations so far. In contrast, interest in the base model and 16 Plus has not matched last year’s figures, according to analyst Ming-Chi Kuo from TF International Securities.
In a recent post on X, Kuo indicated that assembly orders have remained mostly steady. Suppliers were instructed to keep producing the two Pro models during China’s National Day holiday, signaling that demand for these models is consistent with forecasts. He noted a minor reduction in component orders for the 16 base model and 16 Plus for mid-November onward, with cuts amounting to less than 3% to 5%, which Kuo considers negligible.
Shipments for the iPhone 16 Pro are on par with those of last year’s 15 Pro, but current shipping times for the 16 Pro are shorter. While the base model and 16 Plus are experiencing weaker demand compared to last year, Kuo highlighted that the focus will soon shift to the possible effects on demand and shipments in the U.S. market once the AI tool, Apple Intelligence, is rolled out later in October.
Kuo reiterated his production forecast for the iPhone 16 at 88 million to 89 million units for Q4 2024, a slight decrease from the previous year’s estimate of 90 million to 91 million units.
Almost every bullish case on Apple Inc (NASDAQ:AAPL) was built around this assumption: millions of people would rush to upgrade their iPhone because of AI features. But the latest numbers for iPhone 16 do not show much enthusiasm for the new device.
Apple Inc (NASDAQ:AAPL) has been seeing a long-term decline in mobile carrier upgrade rates, especially postpaid, for several years. This suggests that people are holding onto their devices longer, likely due to economic factors, satisfaction with current technology, or a lack of exciting new features in recent models. This trend isn’t great for Apple Inc (NASDAQ:AAPL). Can Apple Intelligence break this trend? We’ll find out soon.
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.
Vltava Fund stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q3 2024 investor letter:
“You probably have not missed the news that Warren Buffett has already sold half the stock from his largest public markets investment, Apple Inc. (NASDAQ:AAPL). It was a phenomenal investment for Berkshire. Over the course of seven years or so, it brought a profit of well over USD 100 billion. Apple comprised a very large position within Berkshire’s public portfolio, and this was the reason we avoided Apple stock outright during that time. We considered our exposure to Apple through our holdings of Berkshire stock to be sufficient, and we ended up making a lot of money on it. There has been a great deal of speculation in the market about what Buffett’s sale of Apple signals regarding his view of the stock market. I think the reason for the sale is much simpler. Buffett probably considers Apple stock so expensive that he prefers to cash in at 20% less (after all, Berkshire must pay tax on its profits). He started selling in the first quarter of the year. When I was in Omaha for the general meeting in May, Buffett said he was still selling, and I expect he continued to do so in the third quarter. I have to say that, as a Berkshire shareholder, I am happy about the Apple sale. I think Berkshire’s management will find a better use for this money, as they always have in the past. It is quite likely that they already have a very specific idea about this. If that takes two or three years, it does not matter at all. This is not a race and, in the meantime, the risk of holding Berkshire Hathaway stock itself has been greatly reduced.”
While we acknowledge the potential of Apple Inc. (NASDAQ:AAPL), 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 AAPL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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