The latest inflation report has yet again made investors uneasy about the Fed's possible path forward. The persistent shadow of inflation is perhaps here to stay for some time and investors will adapt to this new environment. Stifel said in its 2024 outlook report themed "Embracing Change" that higher rates are "here to stay" as the firm expects muted but positive returns for stocks this year. However, Stifel said that inflation is clearly showing signs of deceleration and risks are now "balanced."
Stifel recommended long-term investors to maintain their "composure" in 2024 and embrace the fact that change is the only constant in life. While sooner or later inflation will recede and rates will come down, what is here to stay and change the course of human progress is AI, which, according to Stifel, "stands on the cusp of reshaping industries and the economy."
The AI revolution is that once-in-a-century kind of phenomenon that will shape and impact our society at every level. PwC said in a report said that its 2023 Emerging Technology Survey showed that just one year after the launch of ChatGPT, 54% of the surveyed companies had already implemented generative AI in some areas of their business. Companies like Amazon.com Inc (NASDAQ:AMZN), NVIDIA Corp (NASDAQ:NVDA) and Meta Platforms Inc (NASDAQ:META) are already launching AI products and services affecting billions of users around the globe.
In this context, we decided to take look at some of the top AI stocks that hedge funds are piling into. For this article we first listed all popular companies that are set to gain and profit from the latest AI trends. These companies are receiving bullish comments, ratings upgrades and price target hikes from analysts because of their products and services related to AI. From this long list of stocks we picked 10 stocks with the highest number of hedge fund investors. The idea was to see which AI-related stocks are the favorites of smart money investors.
Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
Crowdstrike Holdings Inc (NASDAQ:CRWD) is one of the most notable stocks that is gaining attention on the back of AI-related catalysts. Dan Ives of Wedbush in December listed the stock among his favorite AI and tech plays of 2024.
"While IT budgets are expected to be up modestly in 2024, we believe cloud and AI driven spending will be up 20%-25% over the next year with use cases now exploding across the enterprise and consumer landscape,” Ives said in his note.
Charlotte AI is one of the generative AI products offered by Crowdstrike Holdings Inc (NASDAQ:CRWD) that have been making waves. Charlotte AI is a chatbot which can be probed by end users and security analysts regarding their system’s deficiencies and best security practices.
Artisan Developing World Fund stated the following regarding CrowdStrike Holdings, Inc. (NASDAQ:CRWD) in its fourth quarter 2023 investor letter:
“Top contributors to performance for the quarter included cybersecurity leader CrowdStrike Holdings, Inc. (NASDAQ:CRWD). CrowdStrike gained amid resilient cybersecurity spend, continued revenue growth against well-managed expenses, and traction in endpoint adjacencies.
Number of Hedge Fund Investors: 112
Adobe Inc (NASDAQ:ADBE) is one of the companies best positioned to take advantage of the AI revolution. Adobe Inc (NASDAQ:ADBE) has integrated AI features in its product suite that allows end users to simply give text-based commands to design graphics and edit photos. These features are expected to increase Adobe Inc's (NASDAQ:ADBE) product demand.
Jim Cramer said in a program a few months back that Adobe Inc (NASDAQ:ADBE) made the “best use of AI.”
A total of 112 hedge funds out of the 109 hedge funds tracked by Insider Monkey had stakes in Adobe Inc (NASDAQ:ADBE) as of the end of the third quarter. The most significant stakeholder of Adobe Inc (NASDAQ:ADBE) was Ken Fisher’s Fisher Asset Management which owns a $2.3 billion stake in Adobe Inc (NASDAQ:ADBE).
In addition to Adobe, hedge funds are also piling into Amazon.com Inc (NASDAQ:AMZN), NVIDIA Corp (NASDAQ:NVDA) and Meta Platforms Inc (NASDAQ:META).
Here is what Polen Global Growth has to say about Adobe Inc. (NASDAQ:ADBE) in its Q3 2023 investor letter:
“Both Alphabet and Adobe’s businesses continue to perform well. With respect to Adobe, the most recent quarter delivered more of the same with constant currency revenue growing 13%, margin expansion, and over 2% of shares outstanding repurchased for non-GAAP earnings growth of over 20%. We believe its approach to GenAI through Firefly, which guarantees safe content because it trains on Adobe Stock, will continue to be attractive to enterprises. The counter to GenAI, and something we are keeping an eye on with Alphabet and Adobe, is that it requires heavy investment. While both businesses can leverage their scale and manage costs in other areas, we expect the investment in future growth through GenAI will weigh on company-wide margins over the near term.”
Number of Hedge Fund Investors: 110
Many analysts are betting that Advanced Micro Devices, Inc. (NASDAQ:AMD) will be one of the top semiconductor stocks to play the AI boom. After all, Nvidia won’t be the only company making chips for generative AI systems. Advanced Micro Devices, Inc. (NASDAQ:AMD) has a history of catching up to its competition and Advanced Micro Devices, Inc. (NASDAQ:AMD) is already out with its new AI-focused chips.
In December, UBS called Advanced Micro Devices, Inc. (NASDAQ:AMD) one of its top semiconductor picks. UBS analyst Timothy Arcuri said in his note that the semiconductor industry was entering a “sweet spot” and 2024 will see inventory converting to revenue.
As of the end of the third quarter of 2023, 110 hedge funds tracked by Insider Monkey had stakes in Advanced Micro Devices, Inc. (NASDAQ:AMD).
Artisan Global Opportunities Fund made the following comment about Advanced Micro Devices, Inc. (NASDAQ:AMD) in its Q2 2023 investor letter:
“Among our top contributors were Advanced Micro Devices, Inc. (NASDAQ:AMD), NU Holdings and Netflix. AMD’s data center CPUs are used in the cloud service provider (CSP) servers. In addition to the broader secular tailwind from cloud adoption, the company has a performance and pricing advantage over Intel, which we believe will enable it to continue capturing market share. However, the recent stock price rally was due to growing excitement around the company’s AI exposure. It will launch its new MI300 graphics processing unit (GPU) chip later this year to compete against the dominant market leader NVIDIA. Similar to its approach that won market share from Intel within the CPU market, AMD’s product will aim to provide similar performance at a more attractive price. AMD is already working with Microsoft and Meta, while Amazon publicly stated that it is evaluating AMD’s inferencing chips. Using assumptions around the total GPU market size, potential market share gains and price points, our research indicates this could be a $20 billion opportunity for AMD. That would nearly double its revenue. While the company has not historically missed many deadlines, there is execution risk as it works to manufacture and distribute these complex chips at scale, which, combined with an elevated valuation after the stock’s strong performance run, led us to trim the position.”
Number of Hedge Fund Investors: 122
Earlier this month, Bank of America added Salesforce Inc (NYSE:CRM) in its top software stock picks for 2024.
"We expect mid-teen revenue growth, improving margins, multiple reversion and positive revisions to offset cyclical headwinds in [first-half of 2024] before driving a stronger [second half of 2024],” BofA’s Alkesh Shah said.
About Salesforce Inc (NYSE:CRM), Shah said he sees "enduring" revenue growth in the mid-teens and increasing margins.
Harding Loevner Global Equity Strategy made the following comment about Salesforce, Inc. (NYSE:CRM) in its Q2 2023 investor letter:
“Salesforce, Inc. (NYSE:CRM), a company we’ve owned since 2019, recently added ChatGPT-like capabilities onto its existing Al module, Einstein, to support its internal sales efforts and customer-facing software. For example, Einstein GPT can help generate marketing emails tailored to specific clients by using Salesforce’s customer database and past email correspondence to learn the most effective approach for each client. Einstein GPT is also different from off-the-shelf LLMS in three important ways: It keeps personal identifiable information private and secure, compared with external tools that retain anything a user enters. It employs the latest data in Salesforce’s system, as opposed to the sometimes-stale public data that train generic models. And generative Al capabilities can be integrated with other Salesforce offerings; the company has already introduced Slack GPT and Tableau GPT, Al-equipped versions of its workplace collaboration and analytics tools.”
Number of Hedge Fund Investors: 221
Alphabet Inc Class C (NASDAQ:GOOG) is one of frontrunners in the AI race since Alphabet Inc Class C (NASDAQ:GOOG) has the vantage point that allows it to integrate AI technologies into various services and products. Recently, BMO Capital Markets Brian Pitz said in a note that the blend of AI and content creation would help Alphabet Inc Class C (NASDAQ:GOOG) along with several other tech companies. He started covering the stock with an Outperform rating.
A total of 221 hedge funds in Insider Monkey’s database of 910 hedge funds had stakes in Alphabet Inc Class C (NASDAQ:GOOG) as of the end of the third quarter of 2023. The biggest stakeholder of Alphabet Inc Class C (NASDAQ:GOOG) during this period was Ken Fisher’ s Fisher Asset Management which owns a $5.7 billion stake in Alphabet Inc Class C (NASDAQ:GOOG).
Diamond Hill Long-Short Fund made the following comment about Alphabet Inc. (NASDAQ:GOOG) in its Q3 2023 investor letter:
“On an individual holdings’ basis, top contributors to return in Q3 included long positions in KKR, Ciena Corporation and Alphabet. Shares of media and technology company Alphabet Inc. (NASDAQ:GOOG) rose in the quarter as its advertising and cloud businesses remain robust and the company delivered results ahead of market expectations. From a sector perspective, communication services also managed a positive Q3 (2%), riding the ongoing wave of positive mega-cap stocks’ performance, like Alphabet.”
Like Amazon.com Inc (NASDAQ:AMZN), NVIDIA Corp (NASDAQ:NVDA) and Meta Platforms Inc (NASDAQ:META), Alphabet is also a hedge fund favorite when it comes to AI investing.
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Disclosure. None. 10 Best AI Stocks for 2024 was initially published on Insider Monkey.
