In this article, we will take a detailed look at Wall Street Is Focusing on These 10 AI Stocks as New Year Begins.
Dan Niles, Niles Investment Management founder, recently said in a program on CNBC that a slowdown in spending could be a “big problem” for major AI players in 2025. The analyst highlighted that when Satya Nadella was asked whether his company was facing a chip shortage, the head of the Redmond software giant said his company was facing a power shortage, not a chip shortage. Niles said this goes against the claims of Jensen Huang who has been pointing to unprecedented demand for AI chips.
“If you look at the Magnificent 7 (except one) …. they are trading at a low 30 PE. The S&P 500 is trading at a 25 PE, but if you look at the midcap and small-cap stocks, which people have forgotten about because they’re not really AI plays, they’re trading at around 19 to 20 times. They’ve underperformed up until sort of mid-year when the performance picked up. If you look at stocks since June 30th, basically, the S&P is up about 8%, but the NASDAQ 100 is only up 7%. The Russell 2000 is actually up 10% after being only up 1% for the first six months of the year. So you’re already starting to see this broadening out, and I think with the new administration really focused on domestic manufacturing, deregulation, etc., that’s going to benefit the small midcap names more so than names in the S&P 500,” Niles said.
Niles said stocks can face a “rough” time in the first quarter amid the changing posture of the Fed.
“The Fed finally admitted inflation wasn’t transitory. I think that might have been the wakeup call, which is why I think Q1 could be a really rough time for a lot of the, you know, the market as a whole, but a lot of the mega cap stocks as well. As we have to kind of price in the fact that the FED might, you know, they might pause or they might even raise next year, which I think that’s a 50/50 shot of whether they cut, raise, or hold.”
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For this article, we picked 10 AI stocks analysts are talking about heading into 2025. With each company we have mentioned its 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).
10. Palantir Technologies Inc (NASDAQ:PLTR)
Number of Hedge Fund Investors: 43
James E. Demmert from Main Street Research recently said during a program on Schwab Network that Palantir Technologies Inc (NASDAQ:PLTR) surpassed Nvidia in terms of stock performance and it will do the same when it comes to growth in 2025.
“I would say Nvidia for just the massive amount of demand that’s been there for their products. But you know, on a stock performance basis as we know Palantir Technologies Inc (NASDAQ:PLTR) just, you know, got up and just took over and really like a turbocharger passed them in stock performance. And I think that says a lot about that, Nvidia’s growth, you know, a lot of it from the hyperscalers is maybe behind it and Palantir Technologies Inc (NASDAQ:PLTR) growth may be ahead of it in 25.”
What makes Palantir Technologies Inc (NASDAQ:PLTR) one of the top AI stocks? Its technologies are actually solving the problems of businesses. Palantir’s data technology Ontology is solving the famous hallucination problem for AI systems, thanks to the company’s years of experience with military and defense systems. Earlier this year at an event with customers, Palantir Technologies Inc (NASDAQ:PLTR) shared some specifics on how its customers are being able to reduce costs and increase profits due to its artificial intelligence platform (AIP) that was launched about a year ago.
Airbus accelerated A350 production by 33%, BP reduced costs per barrel by 60%, and Jacobs Connect cut power usage by 30%. Panasonic decreased waste by 12%, ESI Group sped up ERP harmonization by 70%, and PG&E reduced transformer ignitions by 65%. Eaton boosted productivity by 25%, while Tyson Foods achieved $200 million in cost savings.
However, the company’s revenue growth is expected to slow over the next two years, with estimates suggesting a 22% YoY growth rate, potentially bringing revenues to around $4 billion by fiscal 2026. If Palantir Technologies Inc (NASDAQ:PLTR) can improve margins by 100 basis points annually, it would be able to generate about $1.5 billion in adjusted operating income by FY26, with a present value of $1.3 billion when discounted at 8%. Applying an S&P 500-like growth multiple of 2.5 to 2.75 times earnings, Palantir Technologies Inc (NASDAQ:PLTR) would have a P/E of 46, translating to a price target of $27, significantly down from its current price of $42.
Fidelity Growth Strategies Fund stated the following regarding Palantir Technologies Inc. (NASDAQ:PLTR) in its Q3 2024 investor letter:
“Untimely ownership of Palantir Technologies Inc. (NASDAQ:PLTR) (+47%) also hurt the fund’s relative result. This software and services firm, which operates in both government and commercial segments, saw strong growth during the quarter, largely driven by its “AIP” – or Artificial Intelligence Platform – offering. In early August, the company reported Q2 financial results that mostly met somewhat lofty expectations. We established a sizable holding in Palantir Technologies during the quarter, and at quarter end it was the second-largest position and a slight overweight.”
9. Tesla Inc (NASDAQ:TSLA)
Number of Hedge Fund Investors: 99
In late December, Ross Gerber, CEO of Gerber Kawasaki Wealth and Investment Management, said in a program on Schwab Network that while he still owns a stake in Tesla Inc (NASDAQ:TSLA), he has concerns about the stock’s valuation and risks.
“I’m an activist investor, and a lot of people perceive that I had like sold all my Tesla Inc (NASDAQ:TSLA) or this or that, which is not true. I sold about half or 40% of my Tesla position, but it was mostly as a rebalance and a valuation thing. And what’s happened in the last, you know, two months with, you know, Elon’s amazing support of Trump and then helping Trump win and now Elon’s president of the United States, it really has put, you know, Tesla Inc (NASDAQ:TSLA) in this new light that it’s almost like a meme stock now.
We’ve moved to all-time highs. The valuation makes no sense, but that’s okay. And, you know, we’ve made back—now Tesla Inc (NASDAQ:TSLA) back to our number two stock position behind Nvidia at my firm. And, you know, again, we’re trimming. We’re going to continue to take profits here because as much as I love the potential of Tesla Inc (NASDAQ:TSLA), I think there’s a lot of risks in the stock,” Gerber said.
Looking beyond the recent spike in Tesla shares amid Donald Trump’s victory, Tesla’s fundamentals are challenged. How? Tesla Inc’s (NASDAQ:TSLA) key robotaxi event was 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’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. 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.
Delaware Ivy Core Equity Fund stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its Q3 2024 investor letter:
“Tesla, Inc. (NASDAQ:TSLA) – Though it isn’t a holding within the portfolio, Tesla continues to be a cult-like stock with weak fundamentals dependent on highly speculative development of autonomous driving technology. The company’s share price moved higher during the quarter after weakness in the year-to-date period.”
8. Netflix Inc (NASDAQ:NFLX)
Number of Hedge Fund Investors: 121
James Cakmak, CIO at Clockwise Capital, said in a program on CNBC that he believes Netflix Inc (NASDAQ:NFLX) has more upside potential heading into 2025.
“They will continue to get better, you know, I never thought I’d be saying on CNBC…Amazon will figure it out, Netflix Inc (NASDAQ:NFLX) will figure it out. These are just technology issues on the back end; they’ll work it out. You know, for Netflix Inc (NASDAQ:NFLX), we continue to see strong upside potential for 2025, and it remains a position, and we capitalize on any pullbacks in the stock.”
Polen Focus Growth Strategy stated the following regarding Netflix, Inc. (NASDAQ:NFLX) in its Q2 2024 investor letter:
“Finally, we trimmed Netflix, Inc. (NASDAQ:NFLX) mostly due to valuation but also as a source of funds to add to the new position in Shopify. As a reminder, we added to our position in August 2022 amid broad concerns about the company’s ability to grow and monetize shared passwords. We expected Netflix to show progress in monetizing shared passwords, leading to robust free cash flow generation. This is now playing out and is appreciated by the market. Hence, given the balance of growth and valuation, we felt it was appropriate to reduce our exposure to a more normal weight.”
7. Broadcom Inc (NASDAQ:AVGO)
Number of Hedge Fund Investors: 128
Paul Meeks, CIO at Harvest Portfolio Management, was asked in a latest program on CNBC about his thoughts on Broadcom Inc. (NASDAQ:AVGO) and whether he likes the stock because of the company’s partnerships with other players to develop custom AI chips. Meeks said he owns the stock because of this theme.
“I have owned, and I even bought more recently, both Broadcom Inc (NASDAQ:AVGO) and Marvell to address that theme, to embrace that theme, because both those companies showed really nice upside. Their AI revenues as a percentage of total revenues have grown considerably. And yes, obviously the hyperscalers are a little bit frustrated at spending tens of billions of dollars per month on Nvidia’s GPUs, so they’re working very hard in conjunction with Marvell and Broadcom to develop their own. So yes, I own Nvidia, Broadcom Inc (NASDAQ:AVGO), and Marvell.”
Broadcom Inc (NASDAQ:AVGO) continues to be a leader in the AI ASCI and networking chips market. Broadcom Inc (NASDAQ:AVGO) has 3nm AI ASIC chip deals with Alphabet and Meta in addition to many other tech giants aiming massive spending for AI hyperscaling.
However, the stock could face the impact of what Nvidia is facing today: too high expectations.
In the latest quarterly results, Broadcom Inc (NASDAQ:AVGO) revenue was largely in line with estimates. The company has narrowly exceeded revenue expectations by less than 5% in most cases. Some analysts suggest Broadcom’s growth rates will moderate to below 20% CAGR starting the first quarter of 2025. In fiscal Q4, it was +50% topline growth. The market won’t be kind to the stock when the revenue growth rate slows. Broadcom has about $58 billion in net debt, which is relatively high.
Columbia Threadneedle Global Technology Growth Strategy stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its Q3 2024 investor letter:
“Similar to the earnings results for Nvidia, shares of Broadcom Inc. (NASDAQ:AVGO) initially sold off after the company reported solid earnings that fell light of elevated market expectations, but the stock did recover from its drawdown in the matter of a few weeks. With an enticing combination of custom chip offerings as well as networking assets, Broadcom remains one of the best positioned companies as part of the AI revolution. Broadcom outlined a path to derive a majority of its revenue from the AI end market within a couple of years, and the non-AI part of the business has stabilized after a deep correction. The company’s dominant market position in its end markets, along with durable growth, strong margins and best-in-class capital allocation, presents an opportunity to compound capital over time.”
6. Uber Technologies Inc (NYSE:UBER)
Number of Hedge Fund Investors: 136
Mark Mahaney from Evercore ISI recently said in a program on CNBC that Uber Technologies Inc (NYSE:UBER) is his top pick heading into 2025. The analyst believes the stock is “dislocated” in terms of valuation over concerns that the upcoming robotaxi revolution would impact the company’s business.
“It’s really triggered by this selloff recently from, call it, the mid-90s down to 60 on the thesis that Uber Technologies Inc (NYSE:UBER) is going to be Robo taxi roadkill. And it may well be—I mean, that’s a possible outcome here. I just think that I’m taking the other side on this, that the stock’s had a 30% plus correction that makes it dislocated in my book. I think it’s still a very high-quality asset, the world leader, global leader in terms of market share in both delivery and mobility, with an ads business that’s building up. You know, it’s part of the lucky lexicon, like ” Uber Technologies Inc (NYSE:UBER)”—everybody sort of globally knows what the brand means and what it does, which allows them to spend less and less on marketing over time. So the real debate is on Robo taxis. But I think it’s the largest demand aggregator out there. I think chances are we’re going to see Robo taxis as part of your Uber Technologies Inc (NYSE:UBER) app in the future, definitely on the mobility side, maybe on the delivery side too. So I can’t guarantee that, but I know that the market is so negative on that thesis that I think it creates the opportunity for asymmetric upside. So that’s why we’re long Uber Technologies Inc (NYSE:UBER).”
5. Apple Inc (NASDAQ:AAPL)
Number of Hedge Fund Investors: 158
Ben Bajarin, CEO and Principal Analyst Creative Strategies, Inc, said while talking to Schwab Network that it would take several months before we get clarity on the impact of Apple Inc. (NASDAQ:AAPL)’s new iPhone and its AI features on the company’s sales and overall business cycle.
“There’s a lot of mixed reports out there. I’ve seen anything from surveys saying that, you know, it’s positive to people not using it as much. And this again just comes back to, for a lot of, you know, normal customers, right, people who aren’t trying the bleeding edge of AI services, this is their first experience with any kind of, call it, generative AI, you know, at length.”
Apple Inc (NASDAQ:AAPL) is desperately in need of new catalysts. The company’s revenue in China fell 8% in fiscal year 2024, following a 2% decline the previous year. The Chinese market accounts for about 15% of Apple’s total revenue, so this downtrend cannot be ignored.
Investors had hopes from the Wearables, Home, and Accessories segment, but so far its performance has been weak. Vision Pro faces tough competition from Meta’s $500 Quest and the more affordable Quest 3S, making it hard to justify its $3,500 price tag. The failure of Apple’s HomePod, unable to compete with Amazon’s and Google’s lower-priced offerings, further highlights the challenges in this market.
Apple’s iPhone 16 has not shown promising growth prospects yet and investors are still in a wait-and-see mode on the AI platform.
While the company is projected to achieve 9.5% EPS growth this fiscal year and 12.3% growth in the next, much of this growth is already priced in, as the stock trades at nearly 30 times the expected EPS for the fiscal year ending September 2026.
Parnassus Growth Equity Fund stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q3 2024 investor letter:
“Apple Inc. (NASDAQ:AAPL) shares rose during the quarter, making our underweight position a relative detractor. Investors reacted positively to the new iPhone 16 lineup and its advanced features, including generative artificial intelligence, greater durability and increased processing power.”
4. Alphabet Inc (NASDAQ:GOOG)
Number of Hedge Fund Investors: 160
Paul Meeks, CIO at Harvest Portfolio Management, was recently asked during a program on CNBC whether investors should have exposure to quantum computing or if it is too early. Here is what Meeks said:
“It’s not just too early, it’s way too early. You know, I’m still hoping for some monetizable artificial intelligence use cases, and of course, that hope has yet to materialize in a lot of cases. We’ll see what happens. But as far as Quantum goes, I did like the announcement from Google of the Willow chip, right? It has had some great benchmarking, technically speaking. But we are talking about a theme that is not just a couple years away but probably a lot longer than that. So I own Google, but I own Google for other reasons. This is just icing on the cake. But these Quantum Computing pure plays, I think that they’re probably setting themselves up for better short candidates than long candidates.”
The market has been ignoring Alphabet Inc (NASDAQ:GOOGL)’s key secondary businesses and the stock remains undervalued despite concerns around AI search and regulatory onslaught.
Alphabet Inc (NASDAQ:GOOGL)’s secondary ventures in AI, autonomous driving, and other areas are making solid progress, especially in the Waymo robotaxi segment. Currently, Alphabet Inc (NASDAQ:GOOGL)’s stock trades below 20 times forward earnings, offering potential upside as EPS and other financial metrics strengthen in coming years. For next year, the consensus EPS estimate sits around $9. However, Alphabet Inc (NASDAQ:GOOGL) has consistently beaten projections, delivering $7.54 in trailing twelve-month EPS compared to the expected $6.79—a roughly 11% outperformance. With the 2025 EPS forecast at around $9, Alphabet (NASDAQ:GOOGL) could realistically achieve earnings closer to $10 if it maintains its historical outperformance rate. At a projected $10 EPS, Google’s forward P/E multiple would be approximately 17, a relatively low valuation for a diversified market leader.
What are the key drivers for Alphabet (NASDAQ:GOOGL)?
Alphabet Inc (NASDAQ:GOOGL) remains on track to reach a $100 billion revenue run rate from YouTube Ads and Google Cloud by the end of 2024. In its autonomous driving division, Waymo has shown notable progress, with paid autonomous rides growing 200% quarter-over-quarter to 150,000 weekly rides as of late October, thanks to a fleet of 700 vehicles in service since August.
This growth is significant: Waymo vehicles now average about 30.6 autonomous rides per day—substantially higher than Uber’s average of 4.18 rides per driver daily, based on Uber’s 31 million daily trips and 7.4 million drivers last quarter. This performance underscores Waymo’s competitive edge in autonomous ride volume compared to traditional ride-hailing.
In the third quarter, Alphabet Inc (NASDAQ:GOOGL)’s Search & Other segment saw a 12.2% year-over-year revenue increase, rising from $44.03 billion to $49.39 billion. YouTube advertising also performed well, with revenue up 12.2% to $8.92 billion from $7.95 billion. Meanwhile, Alphabet Inc (NASDAQ:GOOGL)’s subscriptions, platforms, and devices revenue grew even more sharply, surging 27.8% from $8.34 billion to $10.66 billion.
Google Cloud has been expanding steadily, with revenue climbing from $13.06 billion in 2020 to $33.09 billion in 2023. Notably, Google Cloud turned profitable for the first time in 2023, posting $1.72 billion in operating profit—a significant improvement from a $5.61 billion loss in 2020. This segment’s performance continues to strengthen, with the latest quarterly revenue reaching $11.35 billion, up 35% from $8.41 billion in the same period last year.
RiverPark Large Growth Fund stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q3 2024 investor letter:
“Alphabet Inc. (NASDAQ:GOOG): Google was our top detractor in the third quarter despite reporting second quarter results that were generally in line with expectations. The company reported slightly better revenue growth in Search, which grew 14% and continues to be resilient in the face of AI challengers, and Google Cloud, which grew 29% in the quarter. Service operating income margins of 40% and Cloud operating income margins of 11% were also both ahead of investors’ expectations as management’s cost-efficiency efforts drove operating leverage. YouTube revenue growth was slightly below expectations (+13% v. +16%) driven by tougher year-over-year comparisons and some general weakness in the Brand Advertising vertical. Finally, Cap Ex in the quarter of $13.2 billion was more than expected and likely the driver of the weakness in the stock as investors grapple with how much infrastructure investment will be required to achieve Google’s AI goals.
With its high margin business model (44% EBITDA margins last quarter), continued strength across its core Search and YouTube franchises, and continued growth and expanding profitability in its still relatively small Cloud business, we continue to view Alphabet as among the best-positioned secular growth franchises in the market. Additionally, GOOG shares trade at a compelling 19.5x the Street’s 2025 EPS estimate, a discount to the Russell 1000 Growth Index.”
3. NVIDIA Corp (NASDAQ:NVDA)
Number of Hedge Fund Investors: 193
Paul Meeks, CIO at Harvest Portfolio Management, said in a latest program on CNBC that believes NVIDIA Corp (NASDAQ:NVDA) valuation is still reasonable despite the stock’s massive run. Here is how he explained his thesis:
“The interesting thing about NVIDIA Corp (NASDAQ:NVDA) from my perspective is people assume that the stock is grossly overpriced because it tripled in 23, working on a triple this year. But their earnings have grown even faster than that, so you have a stock that’s trading around 30 times earnings, probably grow earnings this year another 50%. I don’t know what they’ll do in the out years, but I still think it’s going to be pretty strong growth. And so NVIDIA Corp (NASDAQ:NVDA), not today, not tomorrow, but any dip—and it always comes—is probably a better buy. I would say on a PEG ratio basis, PE to growth, it’s reasonable. It’s not expensive at all.”
Simply beating earnings estimates is not enough for NVIDIA Corporation (NASDAQ:NVDA) anymore, and the impact of high expectations will continue to weigh on the stock as growth cools.
Nvidia’s forward P/E ratio for the fiscal year ending January 2026 is around 31. An EPS surprise of 8.5% was not able to help the stock. A similar trend occurred following the second-quarter earnings after a 5.6% EPS surprise. It’s difficult to see Nvidia maintaining a mid-70s gross margin by the end of 2026. Over the last two quarters, Nvidia has already reported a drop in its gross margin from 78% to 74.5%.
Then there’s competition. Amazon (AMZN) recently disclosed its Trainium 3 chip, which is set to be released by the end of 2025. The chip is expected to be twice as fast with 40% more power efficiency than the previous generation, manufactured on TSMC’s (TSM) cutting-edge N3 technology. Reportedly, technology giant Apple (AAPL) will be a consumer of Amazon’s new silicon.
Manole Capital Management stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q3 2024 investor letter:
“As of this publication, Nvidia is up roughly 150% year-to-date. NVIDIA Corporation (NASDAQ:NVDA) was the largest gainer in the S&P 500 last year and has more than tripled in value over the last year. It hit an eye-opening market capitalization of $3 trillion in June, less than four months after it eclipsed the $2 trillion mark. Enthusiasm for everything AI-related, especially for the primary chip maker whose products are essential to powering AI technology, continues to fuel the market. Last quarter, and for the fifth consecutive quarter, Nvidia reported sales and profits that blew past Wall Street expectations. The stock rose +37% in the second quarter alone.”
2. Meta Platforms Inc (NASDAQ:META)
Number of Hedge Fund Investors: 235
During a program on Schwab Network, Tony Zhang from OptionsPlay in December explained why he believes Meta Platforms Inc (NASDAQ:META) is a better stock than Apple for investors looking to play the AI and Augmented Reality themes.
“If you actually think about who’s the leader in AI, who’s the leader in what Apple’s really working on for the next phase, which is augmented reality, it’s Meta. Meta Platforms Inc (NASDAQ:META) has a much more compelling story with regards to AI. They have their own AI models. If you look at most of the open-source AI models, they’re based on Meta’s Llama models. If you look at Meta’s name, the whole branding behind it is for augmented reality. Recently, in terms of both hardware and software, Meta Platforms Inc (NASDAQ:META) seems to be leading the space here with regards to Apple. So, I actually think that we have a much more compelling story. If you’re thinking about investing from an AI perspective and augmented reality, Meta Platforms Inc (NASDAQ:META) makes a lot more sense to me than Apple.”
Meta Platforms (NASDAQ:META) is driving usage and ads revenue by improving its algorithms and user experience thanks to AI. Meta also reported strong adoption of its Llama AI model, attracting over 500 million monthly active users across its platforms. This progress positions Meta well for robust profitability in the next two years as it scales its AI infrastructure.
Meta Platforms (NASDAQ:META)’s advancements in Reels and WhatsApp are helping manage CapEx growth as the company strives to stay competitive in AI.
Meta Platforms (NASDAQ:META)’s clear monetization strategy for its generative AI, especially with Llama3, makes it a strong contender against rivals like OpenAI’s ChatGPT. Meta Platforms (NASDAQ:META)’s substantial user base of 3.3 billion provides a data and distribution edge that could capture a significant share of the GenAI market. Although short-term investors may be concerned about Meta Platforms (NASDAQ:META)’s increased AI spending, its forward P/E ratio of 24x, based on FY 2025 EPS estimates of $24.62, makes it the second-most affordable big tech stock, after Google, within its peer group (Apple, Amazon, Microsoft, and Google).
Hardman Johnston Global Equity stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q3 2024 investor letter:
“During the quarter, we initiated one new position in Meta Platforms, Inc. (NASDAQ:META) and had no liquidations. Management at Meta has effectively addressed concerns about investment efficiency by shifting resources from Reality Labs towards broader AI initiatives with a clearer path to profitability. We believe management has successfully articulated the benefits of this strategy, highlighting how AI is driving user engagement and advertiser productivity. This, in turn, fuels continued revenue momentum and increases the likelihood of positive earnings surprises in the future. Additionally, the parent company of the social media platform, Facebook, has recently taken positive steps to enhance safety, which suggests to us a shift towards a more proactive and responsive approach to addressing important potential challenges and concerns. Weak oversight over data privacy protection was a key reason why we sold the position in the portfolio back in 2021. Removing this governance overhang allows us to feel comfortable to enter back into the stock at a time when we believe it is poised for strong earnings growth going forward.”
1. Amazon.com Inc (NASDAQ:AMZN)
Number of Hedge Fund Investors: 286
Jason Brown from The Brown Report in November explained his bullish thesis for Amazon.com Inc (NASDAQ:AMZN) during a program on Schwab Network. The analyst believes AWS and ecommerce growth are the two key engines for the stock that can drive its price further.
Here is what he said about the stock:
“According to analysts, eCommerce is growing 88.5% this year, while retail is growing at about 3.6%. That means people going online are growing at double the pace of those going to a physical location. That’s good news for Amazon.com Inc (NASDAQ:AMZN). They have the branding and trust where people are willing to put their credit cards in.
Here’s another interesting statistic: North American sales increased by 9% to $95.5 billion, and international sales grew by 12% to $35.9 billion. So, you’ve got a company doing over $100 billion in sales in a quarter.
But here’s where the growth is coming from—AWS revenue grew 19% to $27.5 billion, and their advertising generated about $14.3 billion, a 19% increase. If you take AWS and their advertising services together, they’re just shy of $50 billion, which is nearly 50% of North American sales in total.
They have another growth engine outside of the eCommerce platform. While dominating eCommerce, this additional growth engine bodes well for the stock.”
Montaka Global Investments stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q3 2024 investor letter:
“Secondly, in August, we sold some of our holdings in two tactical positions in the tail of Montaka’s portfolio – Advanced Micro Devices (AMD) and Kyndryl Holdings (KD) – to take advantage of a near-20% drawdown in the stock price of Amazon.com, Inc. (NASDAQ:AMZN).
We still see plenty of upside in AMD and KD, but Amazon has more substantial and higher-probability upside that demanded we allocate even more of Montaka’s capital to the online retailer.
Investment opportunities always compete for capital. Through this lens, Montaka’s largest investments act as a kind of ‘benchmark’: Any new investment must be more attractive than these holdings to get included in our portfolio.
Because we believe Montaka’s largest investments remain so attractive, our annualized portfolio turnover has been low for many years now – typically around 25%.
We continually identify quality global businesses with upside potential – but few new investment opportunities have greater upside than Montaka’s existing portfolio investments.
While Montaka is focused on investing over the long term, and most days don’t require any action on our part, paradoxically we need to be agile on a daily basis. That is, we must be ready to act if stock price changes throw up attractive investment opportunities.”
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.
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