10 Stocks Jumping On The Generative AI Wagon

In this article, we will be taking a look at 10 stocks jumping on the generative AI wagon.

The markets have been overwhelmingly influenced by artificial intelligence (AI) and, within it, generative AI this year. Every company is entering the AI race in fear of being left behind in the face of rapid technological changes and advancements, while those companies who were already part of the AI sector have been enjoying quite a boost in light of their head start on others. With AI becoming such an integral part of the economy today, it is unsurprising to see how companies are trying to jump on the AI bandwagon.

Recent AI Deals and Programs

As noted on CNBC’s TechCheck on June 27 recent partnership between Snowflake Inc. (NYSE:SNOW) and NVIDIA Corporation (NASDAQ:NVDA) was announced this June, which highlighted the former’s intentions to try and benefit from the latter’s growing influence within the AI space. The partnership aims to make advanced AI capabilities available to enterprises. By combining Snowflake Inc.’s (NYSE:SNOW) ability to manage massive amounts of data with NVIDIA Corporation’s (NASDAQ:NVDA) GPU-accelerated computing and NeMo platform, which develops large language models (LLMs), the partnership will help businesses use their data to make custom LLMs for generative AI services. These include AI chatbots like ChatGPT and search and summarization services as well.

Another AI deal in the spotlight today is Thomson Reuters Corporation’s (NYSE:TRI) $650 million acquisition of Castext, a company that develops AI-powered legal workflows. Thomson Reuters Corporation (NYSE:TRI) is aiming to make generative AI solutions available to its customers through this deal. Another AI deal that has become the talk of the markets is the Databricks acquisition of MosaicML for $1.3 billion. Through MosaicML, you can train and deploy LLMs and other generative AI models in your data in a secure environment. MosaicML has been considered a rival to OpenAI, meaning that with this acquisition, Databricks has also joined the generative AI race.

“Pioneers Need To Be Willing To Be Misunderstood For Long Periods Of Time”

CNBC showed on June 22 that Amazon.com, Inc. (NASDAQ:AMZN) also announced a $100 million program through which it hopes to help its customers use generative AI. The markets have been viewing Amazon.com, Inc. (NASDAQ:AMZN) as a lagger in the generative AI space so far, so this move may seem to some as a way to rectify this image. The company may be attempting to mark its own territory within this space by signaling to other big tech competitors that it is now working to bring generative AI tools and models to its cloud customers through Amazon Web Services. Here are some comments on this move from Adam Selipsky, the CEO of Amazon Web Services:

“The reality of it is that Amazon has been working on artificial intelligence, as mentioned earlier, for longer than almost any of these companies. We have long accumulated experience, we have many, many experts, thousands of practioners of different kinds inside the company. Many of those experts are now working specifically on generative AI. Nobody else has the full stack of capabilities that we’re putting together.”

Selipsky also mentioned in his CNBC interview that Amazon.com, Inc. (NASDAQ:AMZN) is now also working on developing its own “machine learning, AI-specific chips” alongside several other projects within the AI space. It was noted that other companies like Alphabet Inc. (NASDAQ:GOOG) and Microsoft Corporation (NASDAQ:MSFT) have been receiving more recognition on Wall Street for their AI contributions, particularly in generative AI, to which Selipsky responded that Amazon.com, Inc. (NASDAQ:AMZN) has a saying which goes “pioneers have to be willing to be misunderstood for long periods of time.” He elaborated on this by saying that the company has many past examples which show that it was more focused on its customers and building what they want, adding that if that led to misconceptions about the company’s trajectory, that was alright, as long as its customers understood where it was going. In light of this, Amazon.com, Inc.’s (NASDAQ:AMZN) move to make generative AI available to its customers now may begin to make more sense to Wall Street as this shows how the company is once again trying its best to meet customer needs.

The above-mentioned deals, acquisitions, and programs highlight how many companies are trying to enter the generative AI race by partnering with other companies using generative AI. We have elaborated on more of these companies below in our list to show which generative AI stocks the markets should be watching today.

Pixabay/Public Domain

Our Methodology

We have selected stocks that have recently been making moves to join the AI sector, particularly the generative AI area, for our list below. We used Insider Monkey’s hedge fund data for the first quarter to rank these stocks from the lowest to the highest number of hedge funds holding stakes in them.

Stocks Jumping On The Generative AI Wagon

10. Thomson Reuters Corporation (NYSE:TRI)

Number of Hedge Fund Holders: 16

Thomson Reuters Corporation (NYSE:TRI) is a research and consulting services company based in Toronto, Canada. The company provides business information services internationally.

This June, Thomson Reuters Corporation (NYSE:TRI) agreed to acquire Casetext for $650 million. Casetext is a legal AI company that develops AI-powered legal workflows. Steve Hasker, the CEO of Thomson Reuters Corporation (NYSE:TRI) commented that this acquisition would be part of the company’s “build, partner, and buy strategy” through which it can bring generative AI solutions to its customers.

There were 16 hedge funds long Thomson Reuters Corporation (NYSE:TRI) in the first quarter, with a total stake value of $144 million.

Tim Casey, an analyst at BMO Capital, maintains an Outperform rating on Thomson Reuters Corporation (NYSE:TRI) as of June 28. The analyst also raised his price target from $184 to $192.

Junto Capital Management was the largest shareholder in Thomson Reuters Corporation (NYSE:TRI) at the end of the first quarter, holding 268,335 shares in the company.

9. C3.ai, Inc. (NYSE:AI)

Number of Hedge Fund Holders: 24

Our hedge fund data for the first quarter shows 24 funds holding stakes in C3.ai, Inc. (NYSE:AI). Their total stake value in the company was $151 million.

C3.ai, Inc. (NYSE:AI) is an information technology company based in Redwood City, California. The company has developed a new enterprise search tool powered by language models similar to those powering ChatGPT. C3.ai, Inc.’s (NYSE:AI) search bar retrieves answers from an organization’s own knowledge base and can summarize this information while also citing its sources.

On June 1, Daniel Ives at Wedbush upgraded C3.ai, Inc. (NYSE:AI) shares from Neutral to Outperform while also raising his price target on the stock from $24 to $50.

Kerrisdale Capital mentioned C3.ai, Inc. (NYSE:AI) in its March investor letter:

“We are short shares of C3.ai, Inc. (NYSE:AI), a $4 billion market capitalization enterprise software company that has risen from the ashes of its busted IPO based on the misconception that its self-proclaimed “AI leadership” somehow positions it to benefit from Silicon Valley’s current tech theme du jour: generative AI as represented by media obsession ChatGPT. We believe these speculative flames won’t burn bright much longer, as the realities of C3’s poor customer traction, failing sales partnerships, and financial pressures will catalyze what is likely to be a painful reality check.

This isn’t the first time C3 has sought to ride a hot investment theme. The company was originally founded as C3 Energy to develop analytics solutions for public utilities preparing for the emergence of cap-and-trade and smart grids. C3 pivoted in 2016, renaming the company C3 IoT to capitalize on that buzzy opportunity. But management’s master stroke was rebranding operations as C3.ai in 2019 and going public with the “AI” stock ticker, thus securing its place as the default artificial intelligence stock play for the undiscriminating investor despite the bulk of its business coming from relatively dated analytics models built for a very small number of utility, energy, and government customers. C3 is a minor, cash-burning consulting and services business masquerading as a software company, and its true value is a fraction of its current market capitalization…” (Click here to read the full text)

C3.ai, Inc. (NYSE:AI), like Thomson Reuters Corporation (NYSE:TRI), Snowflake Inc. (NYSE:SNOW), and NVIDIA Corporation (NASDAQ:NVDA), is a stock that might see more upside because of its involvement in generative AI.

8. International Business Machines Corporation (NYSE:IBM)

Number of Hedge Fund Holders: 49

Credit Suisse analyst Shannon Cross reiterated an Outperform rating on International Business Machines Corporation (NYSE:IBM) on June 26 alongside a $162 price target.

Citadel Investment Group held 3.1 million shares in International Business Machines Corporation (NYSE:IBM) at the end of the first quarter, making it the most prominent shareholder in the company for that quarter.

International Business Machines Corporation (NYSE:IBM) is another information technology company on our list. It is based in Armonk, New York. The company launched a new generative AI platform, Watsonx, this May for businesses. International Business Machines Corporation (NYSE:IBM) believes Watsonx can help businesses manage their own AI-supported data while ensuring their data is secure and in compliance with regulatory and ethical requirements.

International Business Machines Corporation (NYSE:IBM) was spotted in the portfolios of 49 hedge funds in the first quarter, with a total stake value of $1.5 billion.

7. Accenture Plc (NYSE:ACN)

Number of Hedge Fund Holders: 60

In June, Accenture Plc (NYSE:ACN), an information technology company, acquired Flutura, an industrial AI company based in India, to help boost its own industrial AI services. It has also launched a new AI Navigator for Enterprise, a generative AI-based platform that will help its clients define business cases, make decisions, and more.

We saw Accenture Plc (NYSE:ACN) in the 13F holdings of 60 hedge funds during the first quarter. Their total stake value was $2.8 billion.

An Outperform rating was reiterated on Accenture Plc (NYSE:ACN) shares on June 23 by Daniel Perlin, an analyst at RBC Capital, who also holds a $340 price target on the stock.

In its first-quarter 2023 investor letter, Polen Capital said the following about Accenture Plc (NYSE:ACN):

“To fund this new purchase, we made modest trims to our positions in Aon and Accenture plc (NYSE:ACN). In order to fund the purchase of, and subsequent addition to, Teleperformance, we modestly trimmed our positions in Aon and Accenture. We trimmed our weighting in Aon, though it remains a top three weighting in the Portfolio. We believed there was room to trim the position after significant relative outperformance by the stock in 2022. There is no change to our positive outlook for this business. We also trimmed our weighting in Accenture, our second trim in the past four months, as the company returns to a normal growth trajectory after an extended stretch of robust results brought about by the pandemic. In addition to growth normalizing, we see increased signs of slowing enterprise tech spending. We continue to believe Accenture is well positioned to grow in line with historical performance, meaning we see the business producing low-double digit total return growth from here.”

Accenture Plc (NYSE:ACN), like Thomson Reuters Corporation (NYSE:TRI), Snowflake Inc. (NYSE:SNOW), and NVIDIA Corporation (NASDAQ:NVDA), is a stock to watch in light of generative AI developments.

6. Cisco Systems, Inc. (NASDAQ:CSCO)

Number of Hedge Fund Holders: 61

On June 30, Jim Suva at Citigroup initiated coverage on Cisco Systems, Inc. (NASDAQ:CSCO) with a Neutral rating and a $54 price target.

In the first quarter, 61 hedge funds were long Cisco Systems, Inc. (NASDAQ:CSCO). Their total stake value was $2.5 billion.

Cisco Systems, Inc. (NASDAQ:CSCO) sells Internet Protocol-based networking and other products internationally. The company also provides AI and machine learning offerings, including computing solutions for enterprises with a focus on cybersecurity, keeping in mind the threats posed by generative AI technology. Cisco Systems, Inc. (NASDAQ:CSCO) has also added new generative AI features across its Collaboration and Security portfolios.

Holding 9.6 million shares, AQR Capital Management was the largest shareholder in Cisco Systems, Inc. (NASDAQ:CSCO) at the end of the first quarter.

Artisan Partners made the following comment about Cisco Systems, Inc. (NASDAQ:CSCO) in its fourth-quarter 2022 investor letter:

“We had one sale this quarter, exiting network equipment company Cisco Systems, Inc. (NASDAQ:CSCO). We chose to use the proceeds on more attractive value opportunities as Cisco’s growth has come in below what we had hoped for, and the company is increasingly looking at M&A to augment its growth rate.”

5. Snowflake Inc. (NYSE:SNOW)

Number of Hedge Fund Holders: 63

Snowflake Inc. (NYSE:SNOW) entered into a partnership with NVIDIA Corporation (NASDAQ:NVDA) this June, the aim of which is to make it easier to build generative AI applications by using stored unstructured data in the cloud and running it on NVIDIA Corporation’s (NASDAQ:NVDA) GPUs.

On June 30, Keith Weiss at Morgan Stanley reiterated an Overweight rating on Snowflake Inc. (NYSE:SNOW) shares while also maintaining a $215 price target on the stock.

We saw 63 hedge funds long Snowflake Inc. (NYSE:SNOW) in the first quarter, with a total stake value of $5 billion.

In its first-quarter 2023 investor letter, The Ithaka Group said the following about Snowflake Inc. (NYSE:SNOW):

“Snowflake Inc. (NYSE:SNOW) is a dominant player in the Data Warehousing market, offering customers the ability to break down data silos and derive value from rapidly growing data sets through Snowflake’s analytical database product, the Data Cloud. The company’s base business is benefitting from a number of secular tailwinds, the three most prevalent being: 1) data-driven decision making, 2) cloud adoption, and 3) the exponential growth of corporate data. The company’s visionary management team, headed by industry veteran Frank Slootman, plans to capture its fair share of this growth through: 1) executing on its land and expand model, 2) acquiring new customers, 3) growing internationally, and 4) expanding its nascent partner network. The stock’s negative contribution in the quarter was due to the timing of Ithaka’s purchase (mid-February) and its small portfolio weighting (100bps).”

4. NVIDIA Corporation (NASDAQ:NVDA)

Number of Hedge Fund Holders: 132

Louis Miscioscia at Daiwa Capital upgraded NVIDIA Corporation (NASDAQ:NVDA) from Neutral to Outperform on June 30.

NVIDIA Corporation (NASDAQ:NVDA) is a chip producer that has revolutionized AI. The company’s many contributions to the generative AI space include the NVIDIA Picasso, a cloud service for building generative AI-powered visual applications.

NVIDIA Corporation (NASDAQ:NVDA) had 132 hedge funds long its stock in the first quarter, with a total stake value of $12.3 billion.

Here’s what The Ithaka Group said about NVIDIA Corporation (NASDAQ:NVDA) in its first-quarter 2023 investor letter:

“NVIDIA Corporation (NASDAQ:NVDA) is the market leader in visual computing through the production of high-performance graphics processing units (GPUs). The company targets four large and growing markets: Gaming, Professional Visualization, Data Center, and Automotive. NVIDIA’s products have the potential to lead and disrupt some of the most exciting areas of computing, including: data center acceleration, artifi cial intelligence, machine learning, and autonomous driving. The stock’s appreciation in the quarter was twofold. First, the stock benefi ted from tremendous excitement surrounding the release of more advanced chatbots, specifi cally ChatGPT, and the likelihood this would necessitate the purchase of a large number of Nvidia’s products far into the future. Second, Nvidia posted a clean beat and raise quarter in mid-February, with investors becoming increasingly convinced the company and its suppliers are adequately working through the build up in channel inventories, which is reducing overall fears of ongoing inventory write-offs.”

3. Alphabet Inc. (NASDAQ:GOOG)

Number of Hedge Fund Holders: 155

Alphabet Inc. (NASDAQ:GOOG) is a big tech company that entered the generative AI race soon after the launch of ChatGPT with Bard, the company’s own AI chatbot. Bard is considered to be a rival AI platform for ChatGPT at Bing.

As of June 15, BofA analyst Justin Post maintains a Buy rating on Alphabet Inc. (NASDAQ:GOOG) shares.

There were 155 hedge funds long Alphabet Inc. (NASDAQ:GOOG) in the first quarter. Their total stake value was $18.6 billion.

The London Company said the following about Alphabet Inc. (NASDAQ:GOOG) in its first-quarter 2023 investor letter:

“Alphabet Inc. (NASDAQ:GOOG) – GOOG rebounded during Q1 along with other large technology companies. While the industry is facing a pullback in ad spending, GOOG continues to find ways to monetize the business and improve efficiency. Management is committed to reengineering the cost structure and growing revenues faster than expenses. GOOG continues to invest in ways to expand its ecosystem (search, cloud, Al, and hardware) with a larger focus on privacy and security. GOOG continues to repurchase shares, maintains a solid balance sheet, and is the share leader in its primary markets.”

2. Amazon.com, Inc. (NASDAQ:AMZN)

Number of Hedge Fund Holders: 243

A total of 243 hedge funds held stakes in Amazon.com, Inc. (NASDAQ:AMZN) at the end of the first quarter, with a total stake value of $25.8 billion.

Amazon.com, Inc. (NASDAQ:AMZN) is another big tech company on our list. The company is using generative AI to summarize product reviews, while Amazon Web Services is also using generative AI to reinvent applications, create new customer experiences, increase productivity, and more.

Needham’s Laura Martin holds a Buy rating on Amazon.com, Inc. (NASDAQ:AMZN) shares as of June 28.

L1 Capital made the following comment about the company in its first-quarter 2023 investor letter:

“We commented in the December 2022 Quarterly Report “sentiment towards many high-quality technology and ecommerce related businesses like Amazon and Alphabet is negative. Capital flows and an over-emphasis on short-term challenges is driving share prices well below fair value, providing compelling investment opportunities for longer term investors”. In that report we outlined in detail why Amazon’s share price has been oversold and offered compelling value.

During the March 2023 quarter the share price of many large capitalisation technology companies increased significantly. The Fund has investments in Alphabet, Amazon.com, Inc. (NASDAQ:AMZN) and Microsoft and their share prices increased 17%, 23% and 20% (in U.S. dollars), respectively. While we continue to see value in these privileged, high-quality businesses, share prices are no longer trading at materially oversold levels and we have selectively started to trim some of the Fund’s exposure.”

1. Microsoft Corporation (NASDAQ:MSFT)

Number of Hedge Fund Holders: 289

Microsoft Corporation’s (NASDAQ:MSFT) foray into the generative AI area started with a $3 billion investment in OpenAI, the company behind ChatGPT. The company has added the integration of the Bing chatbot in Windows 11 to its generative AI contributions as well.

In total, 289 hedge funds were long Microsoft Corporation (NASDAQ:MSFT) in the first quarter. Their total stake value was $57.9 billion.

On June 15, Gregg Moskowitz at Mizuho maintained a Buy rating on Microsoft Corporation (NASDAQ:MSFT) shares.

L1 Capital mentioned Microsoft Corporation (NASDAQ:MSFT) in its first-quarter 2023 investor letter:

“We commented in the December 2022 Quarterly Report “sentiment towards many high-quality technology and ecommerce related businesses like Amazon and Alphabet is negative. Capital flows and an over-emphasis on short-term challenges is driving share prices well below fair value, providing compelling investment opportunities for longer term investors”. In that report we outlined in detail why Amazon’s share price has been oversold and offered compelling value.

During the March 2023 quarter the share price of many large capitalisation technology companies increased significantly. The Fund has investments in Alphabet, Amazon and Microsoft Corporation (NASDAQ:MSFT) and their share prices increased 17%, 23% and 20% (in U.S. dollars), respectively. While we continue to see value in these privileged, high-quality businesses, share prices are no longer trading at materially oversold levels and we have selectively started to trim some of the Fund’s exposure. Microsoft was trimmed due to share price performance and position size.”

See also How to Play The AI Boom And NASDAQ Rally and 11 Best AI ETFs to Invest In 2023.

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Disclosure: None. 10 Stocks Jumping On The Generative AI Wagon is originally published on Insider Monkey.