We recently compiled a list of the Goldman Sachs’ 35 AI Superstars.In this article, we are going to take a look at where Meta Platforms, Inc. (NASDAQ:META) stands against the other AI stocks.
In September 2024, Peter Oppenheimer, the chief of global equity strategy and the head of macro research for Goldman Sachs in Europe, opined that the rise of tech stocks due to the AI boom was not indicative of a financial bubble. Instead, per the Goldman bigwig, the performance of these companies was expected to continue delivering solid returns to investors, fueled by the rise of AI superstars outside of the magnificent seven, among smaller tech firms and in non-tech sectors. In the months since, the AI hype has only grown stronger, leading to a massive surge in the value of tech offerings, only offset by the recent emergence of Chinese AI startup DeepSeek which is positioning itself as a budget ChatGPT. The success of this Chinese startup, popularized by the downloads that the DeepSeek application has achieved on the mobile operating system markets, has led to a downward spiral in American tech futures.
Although the tech sector selloff has caught many investors by surprise, a new investor note by Goldman Sachs, as seen by news agency Reuters, contends that hedge funds were already anticipating this slump. Per the Goldman report, in the last two weeks, hedge funds have significantly reduced their positions in technology stocks. This retreat is part of a broader trend, as hedge funds have remained hesitant to reinvest in tech-related sectors following the sell-off from June to August last year. Alongside selling major technology stocks, hedge funds have also been offloading shares in adjacent industries, such as power and energy companies that would benefit from AI advancements—especially those supporting data centers and electric vehicle infrastructure.
However, Goldman remains bullish on AI futures. Per Oppenheimer, tech stocks have dominated global and US equity returns since 2010, contributing 32% and 40%, respectively. The Goldman executive further claims that unlike speculative bubbles, these gains are backed by strong financials, with tech sector earnings per share surging 400% since the 2008 financial crisis, compared to a modest 25% increase across other sectors. Hyperscale companies in software and cloud computing have been key drivers of this growth, leveraging their vast resources and high profitability, he notes. Recent AI advancements have further boosted their valuations, concentrating gains among a few market leaders. Oppenheimer highlights that this pattern is consistent with past technological innovations, where capital inflows and competition drive rapid growth before eventual consolidation.
While dominant AI companies today were also leaders in the previous tech wave, new competitors are emerging, he predicts. The report further notes that the number of AI patents jumped from 8,000 in 2018 to over 60,000 in 2022, signaling growing competition. History suggests that the companies pioneering a technology may not be the ones to benefit most in the long run, Oppenheimer claims. Just as internet infrastructure investments paved the way for social media and ride-sharing dominance, the greatest value in AI may emerge from new players that leverage current advancements in unexpected ways, per the Goldman strategist. The Oppenheimer point of view is echoed in the latest Goldman report. This report highlights that over the past year, hedge funds have been more inclined to sell rather than buy stocks that would typically gain value from a US-driven AI boom.
However, a smaller group of hedge funds has maintained long positions, meaning they are betting that stock values will rise. In fact, these hedge funds currently hold the highest number of long positions in two years, indicating some confidence in future AI-driven growth, the report adds. Goldman underlines that the investment climate in AI has been heavily influenced by substantial spending from major US technology firms. Following the success of ChatGPT, companies have invested tens of billions of dollars in AI infrastructure. Notably, OpenAI and SoftBank recently committed $19 billion to fund Stargate, a joint venture aimed at developing AI data centers in the United States. Despite these large-scale investments, competition from international players such as Chinese AI startup DeepSeek has raised concerns about the long-term sustainability of US leadership in the AI sector.
Bruno Schneller, managing director at Erlen Capital Management, noted that hedge funds are adopting a cautious wait-and-see approach toward US AI-related stocks. Schneller further highlighted that large projects like Stargate come with significant regulatory complexities. The ongoing uncertainty regarding regulatory execution and enforcement has left many investors wary, contributing to the market’s volatility. While the US AI sector continues to receive significant investments, hedge funds remain uncertain about its profitability in the face of growing international competition and regulatory uncertainties. This cautious stance has led to stock market fluctuations, with many hedge funds opting to sell their tech-related holdings while a select few continue to maintain long positions, betting on future growth.
Our Methodology
For this article, we selected AI stocks by combing through a note on the AI industry by investment bank Goldman Sachs. These stocks are also popular among hedge funds. 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).
Is Meta Platforms Inc. (META) Set To Address DeepSeek AI Concerns In Earnings Calls Today?
A team of developers working in unison to create the company's messaging application.
Meta Platforms, Inc. (NASDAQ:META) engages in the development of products that enable people to connect and share with friends and family. In the third quarter of 2024, Meta reported total revenue of $40.6 billion, marking a 19% year-over-year increase. Operating income reached $17.4 billion, resulting in a 43% operating margin, while net income was $15.7 billion, or $6.03 per share. Analysts anticipate continued growth, with projections for the fourth quarter of 2024 estimating earnings per share of $6.74 on revenue of $46.99 billion, reflecting a 15% increase from the previous quarter. Meta has significantly increased its investment in AI, with capital expenditures projected between $60 billion and $65 billion for 2025, surpassing analysts' expectations of $51.4 billion. CEO Mark Zuckerberg has declared 2025 as the defining year of AI, emphasizing the company's commitment to advancing its AI capabilities.
Overall META ranks 3rd on our list of Goldman Sachs' AI superstars. While we acknowledge the potential of META as an investment, our conviction lies in the belief that some stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a 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.
