In this article, we discuss the 11 best artificial intelligence and robotics stocks to buy according to hedge funds.
Machines are becoming smarter everyday. Even chess professionals have started to acknowledge the incredible capabilities of modern-day computers that have the ability to process information at lightning speeds, instantly analyzing data and suggesting solutions. Artificial intelligence, a simulation of human intelligence by machines, has evolved beyond language processing and speech recognition to reactive learning and self-awareness. The commercial side of the technology has also exploded to over $40 billion in value.
The AI sector is growing at a brisk pace. According to a report by Research and Markets, the AI industry is slated to grow at a compound annual growth rate of more than 28% and will reach $171 billion in value within the next three years. Some of the companies leading this growth include Amazon.com, Inc. (NASDAQ:AMZN), Facebook, Inc. (NASDAQ:FB), and Microsoft Corporation (NASDAQ:MSFT), among others discussed in detail below. These are also some of the favorite hedge funds stocks, according to the latest 13F filings.
A study by professional services firm PwC has forecast that AI products could contribute as much as $15 trillion to the world economy by 2030. Local economies could be given a 26% boost by AI over the period. The firm has identified over 300 use cases of AI in an AI Impact Index. China and the United States are named market leaders in AI by PwC. In a recent interview with news publication Financial Times, Nicolas Chaillan, a former chief software officer at the Pentagon, said that the US has lost the AI race to China.
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Our Methodology
With this context in mind, here is our list of the 11 best artificial intelligence and robotics stocks to buy according to hedge funds. The list is compiled according to the number of hedge funds having stakes in each stock. Data from the 873 hedge funds tracked by Insider Monkey was used for this purpose.
Why pay attention to hedge fund holdings? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Best Artificial Intelligence and Robotics Stocks To Buy According To Hedge Funds
11. International Business Machines Corporation (NYSE:IBM)
Number of Hedge Fund Holders: 41
Although International Business Machines Corporation (NYSE:IBM) operates as a diversified technology company, it has a pretty impressive artificial intelligence setup that offers various AI-related services, including integration with cloud and training courses. Earlier this week, the company announced that it would be collaborating with professional services firm Deloitte and defense company Raytheon to jointly develop AI, crypto, and quantum solutions for the aerospace and defense industries.
International Business Machines Corporation (NYSE:IBM) is placed eleventh on our list of 11 best artificial intelligence and robotics stocks to buy according to hedge funds. On October 5, the company revealed at an investor conference that it was expecting to generate $35 billion in revenue over the next three years. Of the free cash flow over the period, the firm expects the software section, of which the AI forms a large part, to deliver 75% of the total, while 25% will be generated by the consulting department.
Out of the hedge funds being tracked by Insider Monkey, Boston-based investment firm Arrowstreet Capital is a leading shareholder in International Business Machines Corporation (NYSE:IBM) with 3.4 million shares worth more than $508 million.
Just like Amazon.com, Inc. (NASDAQ:AMZN), Facebook, Inc. (NASDAQ:FB), and Microsoft Corporation (NASDAQ:MSFT), International Business Machines Corporation (NYSE:IBM) is one of the stocks that is attracting the attention of elite investors.
In its Q2 2020 investor letter, Distillate Capital, an asset management firm, highlighted a few stocks and International Business Machines Corporation (NYSE:IBM) was one of them. Here is what the fund said:
“AT&T and IBM exited the portfolio as they no longer met the quality criteria for inclusion with AT&T exceeding the debt limit and IBM falling out due to deteriorating long-term fundamental stability.”
10. Teradyne, Inc. (NASDAQ:TER)
Number of Hedge Fund Holders: 44
Teradyne, Inc. (NASDAQ:TER) is ranked tenth on our list of 11 best artificial intelligence and robotics stocks to buy according to hedge funds. The firm makes and sells a range of products specially catered for the AI industry that boost device efficiency, optimize yield and improve silicon performance. The firm beat market expectations on earnings per share and revenue in the second quarter. It also earned rating upgrades from investment advisories like DA Davidson and Susquehanna in the first week of October.
Since Teradyne, Inc. (NASDAQ:TER) caters to the semiconductor industry, it is expected to benefit from the $50 billion investment in the semiconductor sector under the new $2 trillion American Jobs Plan of US President Biden. It has also grown as a result of the dramatic increase in semiconductor prices this year on the back of recovery demand and supply chain constraints. This chip crisis is expected to last well into 2022, according to analyst forecasts.
Out of the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Teradyne, Inc. (NASDAQ:TER) with 128 million shares worth more than $544 million.
Along with Amazon.com, Inc. (NASDAQ:AMZN), Facebook, Inc. (NASDAQ:FB), and Microsoft Corporation (NASDAQ:MSFT), Teradyne, Inc. (NASDAQ:TER) is one of the stocks on the radar of institutional investors.
9. Raytheon Technologies Corporation (NYSE:RTX)
Number of Hedge Fund Holders: 53
Raytheon Technologies Corporation (NYSE:RTX) primarily operates in the defense and aerospace domain, but the giant leaps in the technology industry over the past few years have made quantum computing and AI an important part of the defense sector as well. In line with the developments, the company has adapted, pouring resources into AI and robotics while delivering impressive earnings. It is placed ninth on our list of 11 best artificial intelligence and robotics stocks to buy according to hedge funds.
Raytheon Technologies Corporation (NYSE:RTX) offers various AI-related services and products, including AI-powered analytics software, the Stinger Virtual Trainer for battlefield exercises, and a smart combat vehicle named the Lynx Infantry Fighting Vehicle. In the robotics field, the firm has automated the advanced missile production lines, freeing up skilled labor for more important tasks.
At the end of the second quarter of 2021, 53 hedge funds in the database of Insider Monkey held stakes worth $2.1 billion in Raytheon Technologies Corporation (NYSE:RTX), down from 58 in the preceding quarter worth $2.4 billion.
In addition to Amazon.com, Inc. (NASDAQ:AMZN), Facebook, Inc. (NASDAQ:FB), and Microsoft Corporation (NASDAQ:MSFT), Raytheon Technologies Corporation (NYSE:RTX) is one of the stocks that hedge funds are buying.
In its Q4 2020 investor letter, Davis Funds, an asset management firm, highlighted a few stocks and Raytheon Technologies Corporation (NYSE:RTX) was one of them. Here is what the fund said:
“In today’s uncertain economy, we believe we have found such businesses trading at bargain prices in two sectors: industrials and financials. In the industrial space, concerns about the impact of the economic downturn on short-term profitability led to a wave of selling in a select group of leaders with durable competitive advantages, long records of profitability and bright long-term prospects. Companies like Raytheon Technologies is a wonderful example of attractive investments in this sector.”
8. Intuitive Surgical, Inc. (NASDAQ:ISRG)
Number of Hedge Fund Holders: 60
Intuitive Surgical, Inc. (NASDAQ:ISRG) operates in the healthcare sector and has invested heavily in the use of robotics as a substitute for and in the manufacturing of surgical systems and instruments. The firm delivered impressive earnings results for the second quarter in late July, beating market expectations on earnings per share and revenue. It also reported an 87% quarter-on-quarter increase in the shipping of the flagship da Vinci Surgical Systems. Piper Sandler and Bank of America raised the price targets on the stock following the results.
Intuitive Surgical, Inc. (NASDAQ:ISRG) has returned over 29% to investors over the past year. It is ranked eighth on our list of 11 best artificial intelligence and robotics stocks to buy according to hedge funds.
At the end of the second quarter of 2021, 60 hedge funds in the database of Insider Monkey held stakes worth $3.4 billion in Intuitive Surgical, Inc. (NASDAQ:ISRG), up from 53 the preceding quarter worth $2.3 billion.
Amazon.com, Inc. (NASDAQ:AMZN), Facebook, Inc. (NASDAQ:FB), and Microsoft Corporation (NASDAQ:MSFT) are some of the top stocks to buy right now, just like Intuitive Surgical, Inc. (NASDAQ:ISRG).
In its Q1 2021 investor letter, Ensemble Capital, an asset management firm, highlighted a few stocks and Intuitive Surgical, Inc. (NASDAQ:ISRG) was one of them. Here is what the fund said:
“Notable detractors to the Fund’s returns this quarter (included) Intuitive Surgical. Intuitive Surgical’s (6.3% weight in the Fund) growth slowed in 2020 as COVID hit the brakes on many elective surgeries. Given continued COVID-related risks in the US and Europe in 2021, it’s still unclear as to when elective surgeries recover to more normal levels. As such, hospitals may be holding off on planned surgical robot investments until demand rebounds. That said, in Asia, where COVID has been well contained, Intuitive Surgical’s procedures and systems utilizations improved, which bodes well for recovery in the US and EU. Most procedures can’t be delayed indefinitely or canceled, so we continue to expect a resumption of strong, durable growth as the pandemic recedes.”
7. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 86
NVIDIA Corporation (NASDAQ:NVDA) products power some of the powerful electronic devices around the world today. The company has benefited from the recent increase in chip prices, reporting record revenues and sales. It is placed seventh on our list of 11 best artificial intelligence and robotics stocks to buy according to hedge funds. Since AI products and robotics require powerful processors to convert real-time data into computer commands, the products of the firm are in high demand these days.
NVIDIA Corporation (NASDAQ:NVDA) also offers products that use AI-technology to power self-driving cars. One of these is the NVIDIA DRIVE PX2, a car platform that will help automakers speed up the production of autonomous vehicles.
At the end of the second quarter of 2021, 86 hedge funds in the database of Insider Monkey held stakes worth $9 billion in NVIDIA Corporation (NASDAQ:NVDA), up from 80 the preceding quarter worth $6 billion.
In its Q1 2021 investor letter, Vulcan Value Partners, an asset management firm, highlighted a few stocks and NVIDIA Corporation (NASDAQ:NVDA) was one of them. Here is what the fund said:
“NVIDIA Corp. is the dominant supplier of Graphics Processing Units (GPUs) worldwide. NVIDIA’s GPUs are at the intersection of a number of important computing trends including the movement to the Cloud, artificial intelligence, autonomous vehicles, edge computing, gaming, and more. We previously owned NVIDIA and sold it in the third quarter of 2020 as the price to value gap closed and our margin of safety was reduced. As with all our MVP companies, we continued to follow NVIDIA closely. Since that time, NVIDIA reported excellent results and its value has compounded rapidly. The technology selloff at the beginning of the year negatively affected the stock price while our estimate of NVIDIA’s value per share increased. This happy combination of events created a margin of safety and an opportunity to once again add NVIDIA to the portfolio.”
6. Micron Technology (NASDAQ:MU)
Number of Hedge Fund Holders: 87
Micron Technology (NASDAQ:MU) is another chipmaker that is a leading brand in the AI universe. The firm posted earnings for the fourth fiscal quarter last month, beating market expectations on earnings per share and revenue. It also raised guidance for the coming months. It is ranked sixth on our list of 11 best artificial intelligence and robotics stocks to buy according to hedge funds. The firm markets several hardware and software products for deep learning applications that make use of artificial intelligence.
One of these, the AI Development Platform, offers better memory storage density, bandwidth, and processing speeds than peers. It is used in analytics and IoT devices. Micron Technology (NASDAQ:MU) has also been making products that cater specifically to the health industry in the precision medicine domain.
At the end of the second quarter of 2021, 87 hedge funds in the database of Insider Monkey held stakes worth $6.3 billion in Micron Technology (NASDAQ:MU), down from 100 in the preceding quarter worth $7.6 billion.
In its Q1 2021 investor letter, Bonsai Partners, an asset management firm, highlighted a few stocks and Micron Technology (NASDAQ:MU) was one of them. Here is what the fund said:
“Micron is a manufacturer of memory semiconductor chips. Micron appreciated 17.3% during the quarter.
With the semiconductor cycle in full swing, sentiment continued to improve for major DRAM and NAND suppliers. Spot pricing for DRAM continues its upward march due to supply shocks across the industry and sustained demand levels that continue to outstrip supply.
As a result, Micron showed improving results for the fiscal first quarter, raised guidance intra-quarter for the fiscal second quarter, and offered strong guidance for the fiscal third quarter in both growth and margins.
While the cyclical nature of DRAM hasn’t changed, the cycles themselves continue to become more benign, leading to long-term economic improvement across these businesses. Micron is now continuously profitable, with industry players in a dramatically stronger position than even just five years ago.
The biggest negative surprise in the quarter came from Micron’s exit from its 3D XPoint hybrid memory business. The company also announced its decision to sell its accompanying Utah fab. Fortunately, this development does not alter the investment thesis much since 3D XPoint was an option ticket for future growth. While it’s unfortunate this product didn’t pan out, now is an excellent time to sell a fab, so perhaps it is a blessing in disguise?”
5. ServiceNow, Inc. (NYSE:NOW)
Number of Hedge Fund Holders: 91
ServiceNow, Inc. (NYSE:NOW) offers built-in artificial intelligence services in the cloud computing solutions for enterprises. These products, which make use of “predictive intelligence”, integrate workflows with machine learning. They also automate routine tasks. The firm first introduced these new products into the cloud in 2020. It also bought AI startup Element AI that year as part of a plan to enhance AI capabilities on the flagship NOW platform. The firm beat market estimates on earnings per share and revenue in the second quarter.
ServiceNow, Inc. (NYSE:NOW) is placed fifth on our list of 11 best artificial intelligence and robotics stocks to buy according to hedge funds. Analysts are bullish on the long-term future of the firm, with JPM Securities, Summit Insights, DZ Bank, and Barclays all rating the stock positively in the last few weeks.
Out of the hedge funds being tracked by Insider Monkey, Connecticut-based investment firm Lone Pine Capital is a leading shareholder in ServiceNow, Inc. (NYSE:NOW) with 2.4 million shares worth more than $1.3 billion.
In its Q1 2021 investor letter, Palm Capital, an asset management firm, highlighted a few stocks and ServiceNow, Inc. (NYSE:NOW) was one of them. Here is what the fund said:
“ServiceNow provides software solutions to structure and automate various task and processes for large businesses. The company began in 2004 with a solution to help businesses manage the IT services they offer employees and customers. Unlike the existing solutions in the market, ServiceNow’s offering was built using modern architecture that was flexible, modular, and user-friendly. And it left the incumbents – large companies such as BMC, IBM and MicroFocus – playing catch up.
As the company grew to dominate this market, it saw the opportunity to expand its offering to include the broader task of IT Operations Management – or the monitoring and control of an entire business’s IT infrastructure. And over time its success in improving productivity and user experience in IT resulted in customers asking the company to expand its offering into other business workflows including HR Management and Customer Services – which it has since done.
All ServiceNow’s applications (including those built by customers and third parties) are built on its ‘Now’ platform. This allows the company and its customers to innovate and deploy new solutions quickly. And it helps ServiceNow gather a large amount of data to gain insights into and use machine learning to build solutions to meet customer needs in other areas. Crucially, this platform can interface with other SaaS and legacy software services used by its customers. Not only does this allow an IT department to manage all the myriad software services used by a business from a single point of control, it also reduces the operational disruption risk for those transitioning from legacy software systems to the cloud.
Aside from the ease of use of ServiceNow’s offerings, the other factor driving its growth is that its ‘land and expand’ strategy starts in the IT department of customers – the very department whose task it is to recommend other software solutions for businesses. It is therefore no surprise that more than 75% of ServiceNow’s customers use more than one of its products and 80% of its new business is from existing clients.
The company now serves…”[read the entire letter here]
4. Alphabet Inc. (NASDAQ:GOOG)
Number of Hedge Fund Holders: 155
Large companies like Alphabet Inc. (NASDAQ:GOOG) have a significant advantage over other software companies in the artificial intelligence domain because of the larger budgets available to them and the enormous datasets they can use to improve the capabilities of their AI products. Google AI, the AI division of Google, has made some Google products compatible with deep learning and AI software, while continuing research into the field. It is ranked fourth on our list of 11 best artificial intelligence and robotics stocks to buy according to hedge funds.
Most market analysts are bullish on Alphabet Inc. (NASDAQ:GOOG) stock, with Goldman Sachs recently initiating coverage at Buy. The firm recently announced a $1 billion investment for the digital transformation of Africa. It had, earlier this year, announced a $1.2 billion investment in a Germany-based cloud computing project as well.
Out of the hedge funds being tracked by Insider Monkey, London-based investment firm TCI Fund Management is a leading shareholder in Alphabet Inc. (NASDAQ:GOOG) with 2.9 million shares worth more than $7.3 billion.
In its Q1 2021 investor letter, Artisan Partners, an asset management firm, highlighted a few stocks and Alphabet Inc. (NASDAQ:GOOG) was one of them. Here is what the fund said:
“Large-cap tech companies have been resilient through the pandemic—Alphabet among them. A top contributor, Alphabet’s Play Store and Google Cloud are in demand as businesses accelerate online activity which, along with strong YouTube user growth, is helping stabilize temporarily weaker search ad revenue trends. Through the lens of our disciplined bottom-up research process, we view Alphabet as one of the best businesses in the world, capable of expanding revenues at a rapid rate for years to come, with a bullet proof balance sheet and an average asking price. It’s a name we’ve owned since 2012 and for which we continue to have high hopes regarding future prospects.”
3. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 238
Microsoft Corporation (NASDAQ:MSFT) has pledged to use artificial intelligence tools to present solutions to some of the challenging environmental problems of the world. The company, which is placed third on our list of 11 best artificial intelligence and robotics stocks to buy according to hedge funds, aims to accomplish this using the AI for Earth program. The company has also integrated AI capabilities into Cortana, a virtual assistant that comes loaded with some software products of the company.
Microsoft Corporation (NASDAQ:MSFT) has earned positive ratings from Tigress Financial and Morgan Stanley recently. The company has chosen Barcelona as a research and development hub for artificial intelligence. It aims to attract top European talent to the city in this regard over the next few years.
Out of the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Microsoft Corporation (NASDAQ:MSFT) with 24.8 million shares worth more than $6.7 billion.
In its Q1 2021 investor letter, Polen Capital, an investment management firm, highlighted a few stocks and Microsoft Corporation (NASDAQ:MSFT) was one of them. Here is what the fund said:
“We have written extensively about Microsoft in recent commentaries. It was our leading contributor last year and one of our largest weightings within the Portfolio. It continues to experience business momentum through several dominant, essential, and competitively advantaged businesses, like Office 365 and Azure. The markets it competes for are enormous, which gives the company the ability to compound at scale. In the past quarter alone, the company generated over $40 billion in revenue, representing a 17% growth rate. The inherent operating leverage in Microsoft’s business model continues and led to 34% earnings growth this past quarter. Despite the broad rotation we saw in the first quarter and Microsoft’s robust performance in 2020, we think its business fundamentals continue to exhibit strength, and the stock continues to reflect the fundamentals.”
2. Facebook, Inc. (NASDAQ:FB)
Number of Hedge Fund Holders: 266
Facebook, Inc. (NASDAQ:FB) has grown beyond a social media manager to a diversified technology company in recent years, expanding reach in the ecommerce, crypto, and artificial intelligence sectors. It is ranked second on our list of 11 best artificial intelligence and robotics stocks to buy according to hedge funds. The firm has integrated AI into already existing applications as well. The DeepFace AI system made by the firm uses image recognition technology and AI tools to identify people in photos and suggest tags. It is over 90% accurate.
Facebook, Inc. (NASDAQ:FB) was recently named among a list of S&P 500 stocks that are expected to beat market expectations on earnings in the third quarter. The firm also recently received a Buy rating from Bank of America, which said the regulatory risk to the firm because of lawsuits was already factored into the share price.
At the end of the second quarter of 2021, 266 hedge funds in the database of Insider Monkey held stakes worth $42 billion in Facebook, Inc. (NASDAQ:FB), up from 257 in the preceding quarter worth $40 billion.
In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Facebook, Inc. (NASDAQ:FB) was one of them. Here is what the fund said:
“We continued to keep our learnings from 2020 in mind during the quarter as we sought to increase the up capture of the portfolio. We also made adjustments to the portfolio’s top 10 holdings to increase the participation of select stocks, including Facebook, while trimming our weighting to stable names, which now represent 47% of the portfolio. Our repositioning has been encouraging so far with the portfolio performing better on up days in the market while maintaining good down capture during more turbulent sessions.”
1. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 271
Amazon.com, Inc. (NASDAQ:AMZN) has developed AI tools primarily for web services it markets, but these AI tools are being used across the suite of products made and sold by the firm. The company first made use of AI tools to suggest recommendations to users on the ecommerce platform. Since then, it has invested in AI to develop a range of other products, including the popular virtual assistant Alexa. The assistant is now integrated across Amazon Music, Prime Video, and other services.
Amazon.com, Inc. (NASDAQ:AMZN) is placed first on our list of 11 best artificial intelligence and robotics stocks to buy according to hedge funds. The company is also experimenting with robots instead of actual workers at fully automated stores in the US in a bid to compete with other retail giants with better manpower.
Out of the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Amazon.com, Inc. (NASDAQ:AMZN) with 3.8 million shares worth more than $13 billion.
In its Q1 2021 investor letter, Hayden Capital, an asset management firm, highlighted a few stocks and Amazon.com, Inc. (NASDAQ:AMZN) was one of them. Here is what the fund said:
“Amazon (AMZN):We sold our last remaining stake in Amazon this quarter. Amazon was our longest-running investment holding, after having originally purchasing it at the inception of Hayden in 2014, at a price of ~$317.
I gave some details of how Amazon has progressed over these past 6.5 years in last year’s Q2 2020 letter, which partners can find here (LINK). The company has executed amazingly well over this tenure, with revenues up ~3.3x and since our initial purchase, and reported operating income up ~30x over that period.
Generally, I believe there are three reasons to sell an investment:1) we recognize our initial thesis is wrong (sell out as quick as possible), 2) we have a significantly higher returning opportunity to redeploy the capital into (sell-down to fund the new investment), or 3) the company is maturing and hitting the top part of it’s S-curve / business lifecycle, so the business has fewer places to reinvest its capital internally. As such, the future returns will likely be lower than the past. This investment thus becomes a “source of capital” in the future, as we fund earlier-stage investment opportunities.
In the case of Amazon, we decided to sell due to the third scenario. I’m sure Amazon will continue to generate value for shareholders and continue to keep pace with the broader technology sector. However, I’m just not confident it’s as attractive an investment as when we first invested.
With ~51% of US households having an Amazon Prime account (and with very low churn), each of these households continuing to increase their annual spend with Amazon, and few / no real competitors in sight, Amazon is a dominant force that will only continue to accrue value as consumers continue to move from offline to online purchases for their everyday needs. Likewise, the “cash-flow machine” of Amazon Web Services is in a similar position of strength, with AWS now having ~32% market share and continuing to grow at +30% y/y. Because of this, I think Amazon is probably one of the safest investments in the technology sector today.
So why did we decide to sell the investment then? Simply put, Amazon is …”read the entire letter here]
You can also take a peek at 10 Best Dividend Stocks to Buy According to Michael Burry and 10 Best Cheap Stocks to Buy According to Michael Burry.
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Disclosure. None. 11 Best Artificial Intelligence and Robotics Stocks To Buy According To Hedge Funds is originally published on Insider Monkey.
