In this piece, we will take a look at Wells Fargo’s top technology stocks that can beat the flagship S&P index over the next 12 months.
As 2024 heads to a close, investors are now focused on the state of the economy, its influence on the Federal Reserve’s interest rate reduction cycle, and the potential offered by the technology industry. They beckon 2025 with a rather historic run on the stock market that has seen several high-growth technology stocks flourish despite the fact that until September, interest rates in the US were at a two-decade high level.
Driving the bullishness behind technology stocks is artificial intelligence. The revolutionary new technology that relies on high-end GPUs to run advanced mathematical techniques and infer new conclusions from existing data sets has been the focus of Wall Street and big technology companies. So far, most of the AI-related stock gains have been limited to the shares of Wall Street’s favorite graphics processing unit (GPU) company whose stock is up by more than 700% since OpenAI publicly released ChatGPT.
However, the gains have to broaden out to other stocks for the AI wave to continue. This broadening is dependent on the use of AI increasing among businesses and consumers. On this front, investment bank Wells Fargo has some insights to share. In its report titled ‘Generative AI — Potential pitfalls, challenges, and risks the bank outlines that while AI “has the potential to be broadly transformative,” there are several “outstanding questions and concerns that need to be addressed before it is widely accepted on a larger scale.” Quoting its ‘The AI Index 2024 Annual Report,’ the bank points out that from 2012 to 2023, the number of AI incidents has jumped more than tenfold from sitting at roughly 10 to ~122. These incidents cover the ethical misuse of AI such as the wrong detection of criminals stemming from facial recognition systems.
WF points out that while these incidents are concerning, other factors will also determine AI’s wider acceptability and use. Broadly speaking, these factors are growing energy requirements and capital expenditure costs, global geopolitical tensions, model inaccuracies, and regulatory constraints. The bank adds that these factors are also accompanied by the potentially transformative effect of AI on the labor market. Starting from its beliefs about the labor market, WF believes that generative AI, which is different from other AI systems such as machine learning, will have a more “nuanced” impact on the labor market compared to traditional AI. Commenting on common worries of AI taking jobs away, the bank outlines that the jobs that AI will replace will in turn be replaced by new jobs created by AI. To quote WF, it believes “generative AI’s disruptive effect on the labor market to mirror other forms of automation — as in the past, its impact likely will be mitigated over time by new occupations spawned by the innovations themselves.”
To help bolster its claim, WF shares data from MIT. It points out that MIT’s estimates show that “60% of U.S. workers are now employed in occupations that did not exist 84 years ago.” As for which job functions might give way to AI, these include knowledge-based roles such as those found in financial services and support roles such as those performed by customer support agents.
Two additional key disruptive AI effects that Wall Street in particular is keenly aware of are its rising costs and the effect on the utility industry. The S&P’s utility sector is up by 28.36% year-to-date which leads the broader index’s 26.48% in gains by nearly two percentage points. Commenting on this, the bank believes that “there will be a significant increase in hardware demand, notably within the data-center environment, to accommodate the substantial increase in AI workloads,” adding that “it may take a number of years to increase the operational efficiency of various large language models and decrease costs to a level more in-line with existing search engines.” WF also shares that while existing opportunities to expand data center footprint to accommodate AI are present, as they “diminish, companies may revisit existing data-center locations to retrofit and upgrade hardware and infrastructure in support of the power and data-consumption needs of new AI technologies.”
Given the criticality of the data center space to AI, WF expands on this sector in another report. Titled ‘Generative AI transforming data center landscape” it comments on the capital expenditure required to set up data centers, future trends for data centers, and the stock market sectors that might benefit from growing interest and focus on the data center industry. According to its analysis, investor attention is mostly focused on AI-related investments in semiconductors and cloud computing.
However, other sectors, such as “cabling; steel racks; cooling (liquid and air); electrical equipment (both inside and outside the box); and backup generators” are also important. WF quotes a utility company to explain why these tertiary sectors are critical in the AI wave. It shares that utility company believes that “the server rack power density required to train a generative-AI-based large language model can require up to five to seven times more power than server racks used for traditional IT workloads in a data center.”
While semiconductor companies are natural beneficiaries of the AI boom, some oft-ignored sectors that WF mentions are industrials and materials. It outlines that when it comes to building massive data centers, estimates suggest “that approximately 35% – 45% of the cost is related to land, building shell, and basic building fit-out. These areas are addressable by companies who supply steel, aggregates, cement, and water equipment and, by extension, construction and engineering firms as well as broad non-residential construction suppliers (such as industrial distributors).” Additionally, “40% – 45% and 15% – 20% of the remaining cost can be attributed to electrical and HVAC systems respectively,” according to Wells Fargo. AI is having an effect on materials, as per the bank, in the form of “increased demand for materials that are used in the production of semiconductor chips, water handling and recycling within data centers, and steel and construction materials to build data centers.”
For some materials stocks and a primer on how they are reliant on the broader economic activity, you can check out 10 Best Materials Stocks to Buy According to Hedge Funds.
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Our Methodology
To make our list of Wells Fargo’s top AI & non-AI stocks that can outpace the flagship S&P, we selected technology-focused stocks from the bank’s recent Focus List and ranked them by their consensus next twelve-month EPS estimates.
For these stocks, we also mentioned the number of hedge fund investors. Why are we interested in 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).
14. Amphenol Corporation (NYSE:APH)
Number of Hedge Fund Holders In Q3 2024: 69
NTM EPS Estimate: $2.05
Amphenol Corporation (NYSE:APH) is an American computer hardware company that sells cable assemblies, harnesses, fiber optic cables, and other associated products. Its product portfolio provides the firm with wide exposure to the growing data center industry. Consequently, the fact that Amphenol Corporation (NYSE:APH)’s shares have gained 50% year-to-date is unsurprising despite the fact that non-AI IT spending has been muted in a tight capital and credit environment. The firm has also benefited from the fact that it has outperformed analyst estimates in its quarterly earnings. Amphenol Corporation (NYSE:APH)’s third-quarter earnings saw the firm post $4 billion in revenue and $0.50 in EPS which surpassed analyst estimates of $3.81 billion and $0.45. Crucially, the firm’s fourth-quarter midpoint guidance of $4 billion also beat analyst estimates of $3.94 billion. However, 43% of Amphenol Corporation (NYSE:APH)’s H1 2024 came from outside the US and China, so the global economy and IT infrastructure spending have to remain robust for the firm to generate continuing tailwinds.
During the Q3 2024 earnings call, Amphenol Corporation (NYSE:APH)’s management shed light on the industrial segment which is another driver of its hypothesis:
“The industrial market represented 23% of our sales in the quarter. And sales in the quarter grew by 24% in US dollars from prior year, as we benefited from acquisitions. On an organic basis, our sales were flat, as growth in alternative energy, instrumentation, medical and rail mass transit solutions was offset by reduced demand in factory automation, heavy equipment, transportation and oil and gas. Sequentially, our sales did increase by 9% and from the second quarter and were up by 3% organically, which was somewhat better than our expectations coming into the quarter. While we are encouraged to see stronger growth in North America and Asia, demand in Europe did again slowed this quarter. Accordingly, looking into the fourth quarter, we do expect sales to moderate from these third quarter levels.”
13. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders In Q3 2024: 193
NTM EPS Estimate: $3.42
NVIDIA Corporation (NASDAQ:NVDA) is Wall Street’s favored AI GPU stock whose shares are up by more than 700% since OpenAI publicly released ChatGPT. Consequently, its hypothesis is exclusively dependent on its GPUs. When it comes to these products, not only does NVIDIA Corporation (NASDAQ:NVDA) have to ensure that they offer the best market performance, but it also has to manage its supply and keep costs manageable to manage margins. Therefore, not only does big tech’s GPU spending have to remain robust for NVIDIA Corporation (NASDAQ:NVDA) to maintain its share price tailwinds, but in-house AI processors developed by the likes of Amazon and others have to prove to be inferior to the benefits offered by the firm’s chips. The firm also benefits from its CUDA software which allows users to tightly control the performance of NVIDIA GPUs to suit their individual needs. NVIDIA Corporation (NASDAQ:NVDA) is also trying to capture tertiary AI markets such as those for interconnects, which underscores the criticality of AI and data center spending for its hypothesis.
Polen Capital mentioned NVIDIA Corporation (NASDAQ:NVDA) in its Q3 2024 investor letter. Here is what the fund said:
“In a reversal from the past two quarters, NVIDIA Corporation (NASDAQ:NVDA) represented our top relative contributor this quarter, despite the modest underperformance, declining -1.7%. In many ways, NVIDIA was a microcosm of the broader market’s heightened volatility. Beneath the placid surface, the company experienced a 27% drawdown followed by a +31% rally, only to repeat the cycle with a -21% drawdown followed by a subsequent 20% rally to finish the quarter. In our view, the stock’s volatility goes beyond fundamental business drivers, but the company in turn benefitted from increasing capital spending budgets from cloud service providers and large enterprises for generative AI (“GenAI”) infrastructure spending. Simultaneously, the stock endured weakness related to the delayed next-generation Blackwell chip, and an earnings forecast that exceeded expectations, albeit not as much as some investors hoped. While we continue to believe NVIDIA is a highly advantaged business, with significant demand for their chips and servers ahead of the need for that hardware from real-world businesses, we are cautious about its growth sustainability since it lacks recurring revenue.”
12. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders In Q3 2024: 286
NTM EPS Estimate: $5.85
Amazon.com, Inc. (NASDAQ:AMZN) is the world’s largest eCommerce retailer and one of the dominant players in the cloud computing industry. The dual nature of its operations means that the firm benefits from a high-volume business through eCommerce and high-margin operations via cloud computing. Amazon.com, Inc. (NASDAQ:AMZN)’s eCommerce business depends on the firm’s ability to make fast deliveries, strive towards last-mile deliveries, modernize its warehouse operations, and lead the industry in these metrics. It benefits from its scale which enables Amazon.com, Inc. (NASDAQ:AMZN) to extract favorable deals from sellers. Additionally, the firm’s AWS business provides it with exposure to the enterprise demand for AI services. The firm’s sizable resources have provided it with access to a foundational AI model through Anthropic’s Claude, and looking ahead, Amazon.com, Inc. (NASDAQ:AMZN) depends on the ability to capture business AI spending via AWS and maintaining volumes and margins with its eCommerce business.
Polen Capital mentioned Amazon.com, Inc. (NASDAQ:AMZN) in its Q3 2024 investor letter. Here is what the fund said:
“The largest absolute detractors were Alphabet, Airbnb, and Amazon.com, Inc. (NASDAQ:AMZN). Amazon’s position as a notable detractor speaks more to the size of the position than the magnitude of the underperformance, as the company delivered a solid set of results during the quarter.
We trimmed our positions in Amazon, Alphabet, and Microsoft during the quarter. As we have previously, we trimmed Amazon slightly to bring the weight back to 15% for risk management purposes. We remain very positive on our investment thesis of strong revenue growth and even stronger earnings and free cash flow growth continuing over the next few years.”
11. Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holders In Q3 2024: 128
NTM EPS Estimate: $5.91
Broadcom Inc. (NASDAQ:AVGO) is a semiconductor designer and cybersecurity software provider. Its dual model offers it exposure to broader consumer and enterprise semiconductor demand as well as a source of high-margin recurring revenue via the cybersecurity business. The key AI exposure enjoyed by Broadcom Inc. (NASDAQ:AVGO) is through the chip design business as it has the potential to partner up with firms such as OpenAI to design AI chips that help the industry shift away from NVIDIA’s pricey GPUs that also suffer from supply constraints due to high demand. Conversely, the firm also depends on the consumer electronics industry which in turn is susceptible to cyclical slowdowns. Broadcom Inc. (NASDAQ:AVGO)’s acquisition of VMWare has also enabled the firm to grow its revenue. Consequently, an uptick in industrial and consumer sectors can inject tailwinds into Broadcom Inc. (NASDAQ:AVGO)’s shares and the firm can benefit from a growing push towards custom AI chips.
Columbia Threadneedle Investments mentioned Broadcom Inc. (NASDAQ:AVGO) in its Q3 2024 investor letter. Here is what the fund said:
“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.”
10. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders In Q3 2024: 158
NTM EPS Estimate: $7.38
Apple Inc. (NASDAQ:AAPL) is the most valuable consumer electronics firm in the world. A global beast, it earned a whopping $296 billion in revenue during the nine months ending in June 2024. Out of this, 52% or $155 billion came from the iconic iPhone smartphone. As a result, the iPhone is baked into Apple Inc. (NASDAQ:AAPL)’s hypothesis, and it is the most important determinant of the firm’s hypothesis. Investors rely on the firm’s ability to regularly launch updates to the smartphone and ensure that its 1.46 billion iPhone users regularly update their smartphones. Another key part of Apple Inc. (NASDAQ:AAPL)’s hypothesis is its second-largest business called Services. Through this business, the firm earns revenue from companies like Google which pay it billions of dollars to make their services the default on the iOS platform. Consequently, any regulatory actions against this could deal Apple Inc. (NASDAQ:AAPL) a blow. Over the long term, the firm’s design strength and brand image can prove to be valuable moats that also enable it to push artificial intelligence services to consumers.
Columbia Threadneedle Investments mentioned Apple Inc. (NASDAQ:AAPL) in its Q3 2024 investor letter. Here is what the fund said:
“Shares of Apple Inc. (NASDAQ:AAPL) increased during the quarter after reporting quarterly results in August that met or exceeded expectations. The company also benefited from holding an investor event in September to introduce the newest iteration of products and accessories. Apple introduced the latest iteration of its flagship model, the iPhone 16, which features updated hardware and a refreshed operating system that integrates AI but will be exclusive to newer iPhone models, which could compel a refresh cycle. The gradual introduction of AI into the Apple product ecosystem is consistent with the company’s historical fast follower approach and represents a new tenant of the investment thesis as the market awaits further information related to the company’s AI strategy.”
9. Alphabet Inc. (NASDAQ:GOOGL)
Number of Hedge Fund Holders In Q3 2024: 202
NTM EPS Estimate: $8.61
Alphabet Inc. (NASDAQ:GOOGL) is a technology giant that is one of the largest firms in the world. The firm benefits from its wide moat in the global search engine and digital advertising industries. Alphabet Inc. (NASDAQ:GOOGL)’s search engine Google is the most widely used product worldwide, and despite being in the market for more than two decades, it has managed to stay the undisputed market leader. The billions of search queries that Alphabet Inc. (NASDAQ:GOOGL) processes also enable it to offer advertisement slots on Search and on websites to advertisers. As of H1 2024, 78% of the firm’s revenue came from Search and associated businesses. As a result, not only does Alphabet Inc. (NASDAQ:GOOGL) have to ensure that it keeps its dominant position in the industry, but the firm also has to be on the watch-out for regulatory actions against its business. It is also one of the biggest players in the cloud computing industry and has leveraged its resources to develop a foundational AI model called Gemini and custom AI chips called TPUs. Both of these could unlock additional tailwinds for Alphabet Inc. (NASDAQ:GOOGL) in the AI era.
A mega-cap firm, Alphabet Inc. (NASDAQ:GOOGL) is taking a global approach to AI. Here’s what CEO Sundar Pichai shared during the Q3 2024 earnings call:
“And third, a broad global reach through products and platforms that touch billions of people and customers around the world, creating a virtuous cycle. Let me quickly touch on each of these. We continue to invest in state-of-the-art infrastructure to support our AI efforts from the U.S. to Thailand to Uruguay. We are also making bold clean energy investments, including the world’s first corporate agreement to purchase nuclear energy from multiple small modular reactors, which will enable up to 500 megawatts of new 24/7 carbon-free power. We are also doing important work inside our data centers to drive efficiencies while making significant hardware and model improvements. For example, we shared that since we first began testing AI Overviews, we have lowered machine cost per query significantly.
In 18 months, we reduced cost by more than 90% for these queries through hardware, engineering and technical breakthroughs while doubling the size of our custom Gemini model. And of course, we use and offer our customers a range of AI accelerator options, including multiple classes of NVIDIA GPUs and our own custom-built TPUs. We are now on the sixth generation of TPUs known as Trillium and continue to drive efficiencies and better performance with them. Turning to research. Our team at Google DeepMind continues to drive our leadership. Let me take a moment to congratulate Demis Hassabis and John Jumper on winning the Nobel Prize in chemistry for their work on AlphaFold. This is an extraordinary achievement and underscores the incredible talent we have and how critical our world-leading research is to the modern AI revolution and to our future progress.”
8. T-Mobile US, Inc. (NASDAQ:TMUS)
Number of Hedge Fund Holders In Q3 2024: 66
NTM EPS Estimate: $10.41
T-Mobile US, Inc. (NASDAQ:TMUS) is one of the largest telecommunications carriers in the US. As a result, the firm’s hypothesis is dependent on its ability to retain and grow its users as well as roll out new technologies and grow the revenue that it earns from existing users. These days, T-Mobile US, Inc. (NASDAQ:TMUS) is firing on two fronts. Firstly, the firm is aggressively targeting the 5G market which had been placed on the back burner due to the uncertainty during the coronavirus pandemic and the resulting two-decade high interest rate environment in the US. T-Mobile US, Inc. (NASDAQ:TMUS)’s third quarter saw the firm add 865,000 postpaid customers on the back of its 5G plans to signal the firm’s growing presence in the 5G market. On the second front, it has partnered up with SpaceX to use the Starlink satellite internet constellation to provide coverage in areas that might otherwise be inaccessible. These two strategies can prove to be long-term value creators for T-Mobile US, Inc. (NASDAQ:TMUS).
During the Q3 2024 earnings call, T-Mobile US, Inc. (NASDAQ:TMUS)’s management shed light on its 5G strategies. Here is what they said:
“So let me provide a quick update on our expectations for 2024. Starting with customers, we are once again raising total postpaid customer net additions and now expect between $5.6 million and $5.8 million, up $150,000 at the midpoint relative to our prior guide. We now expect the postpaid phone customer net additions component of that total to be approximately 3 million for the full year. We expect our full year postpaid ARPA to be up around 3% year-over-year with industry-leading service revenue growth continuing to accelerate at a higher rate in 2024 than we delivered in 2023.”
7. Salesforce, Inc. (NYSE:CRM)
Number of Hedge Fund Holders In Q3 2024: 116
NTM EPS Estimate: $10.47
Salesforce, Inc. (NYSE:CRM) is a software-as-a-service company that caters to the needs of the customer relationship management industry. This business model by default means that the firm has to focus on its margins, recurring revenue, and the value of its customer deals. A delivery on these fronts injects tailwinds into Salesforce, Inc. (NYSE:CRM)’s share price and vice-versa. The stock has been lackluster this year as the shares have gained 28.8% year-to-date. This is on the back of investors’ worries about AI disrupting the consumer service industry, as we also alluded to in the introduction to our piece. However, Salesforce, Inc. (NYSE:CRM)’s shares have been doing well in the latter half of the year. They are up by 11% since the start of November on the back of catalysts such as its AI product called AI Agentforce. Consequently, future performance depends on the ability of Salesforce, Inc. (NYSE:CRM) to blend AI into its business model and benefit from its sizable market share.
Polen Capital mentioned Salesforce, Inc. (NYSE:CRM) in its Q3 2024 investor letter. Here is what the fund said:
“In the third quarter, we purchased new positions in Apple and Oracle and eliminated our small positions in Nike and Salesforce, Inc. (NYSE:CRM). We exited our position in Salesforce to fund better opportunities in Shopify and MSCI. Salesforce is seeing slower revenue growth than we would have expected, given the weakening macroeconomic environment. Furthermore, since its core end markets in customer relationship management (“CRM”) and Service are fairly mature, a lower growth level versus our expectations could persist for some time.”
6. Visa Inc. (NYSE:V)
Number of Hedge Fund Holders In Q3 2024: 165
NTM EPS Estimate: $11.21
Visa Inc. (NYSE:V) is the biggest payment processing firm in the US. The firm’s dominant position is clear through the fact that it commands 47% of all US credit card outstanding balances and 52% market share of the US credit card market. Visa Inc. (NYSE:V)’s business model depends on the health of the US consumer since the firm takes a fee out of every transaction that it processes. Consequently, the higher the consumer spending is in America, the better Visa Inc. (NYSE:V)’s business performs. Additionally, the rise of new-age financial technology companies that offer retailers and merchants alternate avenues to accept digital payments is creating fresh challenges for Visa Inc. (NYSE:V). If the firm fails to satiate merchant concerns about its platform fees, then merchants could switch platforms and reduce its market share. It has also been diversifying its business model to reduce dependence on consumer spending by introducing new revenue streams such as value-added services and expanding its presence internationally.
Visa Inc. (NYSE:V) is also facing the heat from the Justice Department for its dominant market position. Here’s what the firm’s management had to say on this front during the fiscal Q4 2024 earnings call:
“Before I close, I wanted to make a few comments on the recent lawsuit by the Department of Justice. We believe the lawsuit is meritless and shows a clear lack of understanding of the payments ecosystem in the United States.
We will defend ourselves vigorously and are confident in our ability to demonstrate that Visa competes for every transaction in a thriving debit space that continues to grow and see new entrants.”
5. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders In Q3 2024: 279
NTM EPS Estimate: $14.20
Microsoft Corporation (NASDAQ:MSFT) is one of the biggest technology companies in the world. The firm dominates the global consumer operating system market through Windows, and it also enjoys a considerable presence in the cloud computing market through its Azure platform. Microsoft Corporation (NASDAQ:MSFT) is one of the earliest movers in the software side of the AI market. This is because its investment in OpenAI has allowed it to access OpenAI’s foundational AI models for its software products. Yet, the billions that Microsoft Corporation (NASDAQ:MSFT) has invested in OpenAI have also baked into AI-associated profitability into its hypothesis. The firm has to convince investors that it is earning profits from AI via Azure or risk losing stock value. This has been the case in H2 2024 as well since Microsoft Corporation (NASDAQ:MSFT)’s shares are down by 9.5% since their July peak as investors adjust AI optimism.
Baron Opportunity Fund mentioned Microsoft Corporation (NASDAQ:MSFT) in its Q3 2024 investor letter. Here is what it said:
“Microsoft was traditionally known for its Windows and Office products, but over the last five years it has built a $147 billion run-rate cloud business, including its Azure cloud infrastructure service and its Office 365 and Dynamics 365 cloud-delivered applications. Shares gave back some gains from strong performance over the first half of this year. For the fourth quarter of fiscal year 2024, Microsoft reported a strong quarter with total revenue growing 16%, in line with the Street; Microsoft Cloud up 22%; Azure up 30%; 43% operating income margins; and 36% free cash flow margins. Core Azure growth came in one point shy of expectations, however, due to a soft European market and continued constraints on AI compute capacity. In the same vein, while Microsoft reiterated its fiscal 2025 targets of double-digit top-line and operating income growth, quarterly guidance called for Azure growth to slow a bit before accelerating in the back half of the fiscal year, as capital expenditures increase, yielding an expansion of AI compute capacity. We believe this investment is a leading indicator for growth, with more than half of the spend related to durable land and data center build outs, which should monetize over the next 15-plus years. We remain confident that Microsoft is one of the best-positioned companies across the overlapping software, cloud computing, and AI landscapes, and we remain investors.”
4. Mastercard Incorporated (NYSE:MA)
Number of Hedge Fund Holders In Q3 2024: 131
NTM EPS Estimate: $15.75
Mastercard Incorporated (NYSE:MA) is the second-largest payment processor firm in the US. After Visa, it holds the largest market share in several markets. The firm’s business model, like its larger rival, is dependent on the state of consumer spending in the US economy. Consequently, despite the fact that Mastercard Incorporated (NYSE:MA) commands a 24% share of the US credit card market, the firm is also vulnerable to competition from new-age financial technology firms that offer consumers and merchants alternative avenues to make and accept digital payments. Mastercard Incorporated (NYSE:MA) and Visa have also irritated merchants through their 60-day fraud protection policies that have also led to fraud. The pair’s multi-billion dollar settlement with merchants to reduce fees is also stuck in the courts, and it will have to diversify its revenue base and be on the watch-out for regulatory headwinds to generate tailwinds for the share price.
L1 Capital mentioned Mastercard Incorporated (NYSE:MA) in its Q2 2024 investor letter. Here is what the firm said:
“The share prices of Mastercard and Visa, both long term Fund investments, have both drifted down over recent months. There have been no dramatic developments, but there has been a general slight softening in the rate of growth of consumer spending in the U.S. and globally, a court decision rejecting Mastercard and Visa’s proposed settlement of a long-lasting dispute with U.S. merchants as well as other modest adverse regulatory developments. We continue to view Mastercard and Visa as two of the highest quality businesses in the world, and both are well placed to continue to deliver attractive, risk adjusted returns to shareholders over time.”
3. Intuit Inc. (NASDAQ:INTU)
Number of Hedge Fund Holders In Q3 2024: 87
NTM EPS Estimate: $19.32
Intuit Inc. (NASDAQ:INTU) is a software-as-a-service company that enables businesses to conduct their daily operations. These include accounting, payroll, credit access, and other operations. Intuit Inc. (NASDAQ:INTU) has been seeing mixed share price performance in 2024 after it disclosed earlier this year that the IRS’ decision to allow direct tax filing of taxes could cost the firm as many as one million users of its Turbotax platform. Since Intuit Inc. (NASDAQ:INTU)’s business and recurring revenue depends on economic activity, the shares soared by 14% after the November 2024 US election. However, they maintained their trend of volatile performance as the shares dropped by 5.7% after Intuit Inc. (NASDAQ:INTU)’s fiscal-second quarter high-end revenue guidance of $3.84 billion missed analyst estimates of $3.87. This was because the firm’s Turbotax promotions and AI offerings are expected to take longer to generate revenue.
Baron Funds mentioned Intuit Inc. (NASDAQ:INTU) in its Q3 2024 investor letter. Here is what the fund said:
“Intuit Inc. (NASDAQ:INTU) is the leading provider of accounting software for small businesses and tax preparation software for individuals and tax professionals. Shares declined due to a slower growth outlook for the Consumer segment (TurboTax) and greater dependence on upselling to drive growth in the Small Business segment (QuickBooks). Nevertheless, the company reported quarterly financial results that exceeded Street expectations and provided fiscal 2025 guidance that called for 12% to 13% revenue growth and 13% to 14% EPS growth. At Intuit’s Investor Day, management expressed confidence in the company’s market positioning and growth potential from selling higher-value services across its two major segments. We continue to own the stock due to Intuit’s strong competitive position and numerous growth opportunities.”
2. Netflix, Inc. (NASDAQ:NFLX)
Number of Hedge Fund Holders In Q3 2024: 121
NTM EPS Estimate: $22.77
Netflix, Inc. (NASDAQ:NFLX) is the world’s biggest video streaming company. It enjoys a wide moat in the industry and is the market leader. Netflix, Inc. (NASDAQ:NFLX)’s market position has enabled it to amass a whopping 282.7 million subscribers under its belt. This subscriber base is the key to the firm’s hypothesis, as its fate now depends on the ability to monetize the user base, retain its customers, and add new users into its fold. Netflix, Inc. (NASDAQ:NFLX) also benefits from the fact that it produces television shows and movies, which sets it apart by offering exclusive content to its subscribers. The ability to take on traditional television channels and bolster its user base is central to creating tailwinds as is evident by Netflix, Inc. (NASDAQ:NFLX)’s 6.5% share price gain since the historic fight between Mike Tyson and Jake Paul which saw 60 million household worldwide tune into its platform.
Ensemble Capital mentioned Netflix, Inc. (NASDAQ:NFLX) in its Q1 2024 investor letter. Here is what the firm said:
“The rapid recovery of Netflix’s subscriber growth has shocked investors who drove the stock down to a price of just $166 in May 2022. While at the time, bearish investors were declaring the company’s growth days were behind it, instead the company added a remarkable 13.1 million new subscribers in the most recent quarter. This was the single largest quarterly subscriber addition other than the large gains experienced during the first quarter of COVID. For all of 2023, the company added nearly 30 million new subscribers, making it the largest annual gain in Netflix history other than the first year of COVID.”
1. Meta Platforms, Inc. (NASDAQ:META)
Number of Hedge Fund Holders In Q3 2024: 235
NTM EPS Estimate: $24.35
Meta Platforms, Inc. (NASDAQ:META) is the world’s largest social media company. The firm operates Facebook, which allows it to have a whopping 3.2 billion users in its network. Additionally, its Instagram image-sharing service and WhatsApp communications platforms are among the most widely used in the world. Meta Platforms, Inc. (NASDAQ:META)’s indisputable moat in the social networking industry has also allowed it to generate considerable financial resources and use them to establish a foothold in the artificial intelligence industry. It is one of the handful of players in the AI industry with access to an in-house foundational AI model. Called Llama, Meta Platforms, Inc. (NASDAQ:META) competes through it with other AI giants like Google and Microsoft. As it has also invested billions into AI like its peers, the firm’s hypothesis is dependent on its ability to monetize its AI services offered to advertisers and users on its platforms. The AI services include AI campaign management and other platforms.
Polen Capital mentioned Meta Platforms, Inc. (NASDAQ:META) in its Q2 2024 investor letter. Here is what the fund said:
“Meta Platforms delivered robust results in the period, with revenue growth accelerating in the first quarter. However, revenue comparisons for Meta will become more difficult from here, and its guidance for 2Q revenue fell below market expectations. After the company’s “year of efficiency,” where it cut costs in its core business, management is now indicating another ramp-up in GenAI and metaverse spending, spurring concerns about future profit margins. Metaverse spending, by our calculations, is now over $20 billion per year with little to no expected return on the foreseeable horizon.”
META is a top cyclical stock Wells Fargo is confident about. While we acknowledge the potential of META as an investment, our conviction lies in the belief that 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 META but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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