In this article, we will take a detailed look at the 10 Best AI Stocks for 2024.
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.
Methodology
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.
10. Crowdstrike Holdings Inc (NASDAQ:CRWD)
Number of Hedge Fund Investors: 69
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 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. 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.
We have underscored that the purpose of our risk management framework is to enhance value creation and aid in the execution and implementation of our investment program. However, this stage of risk management best manifests itself in down markets as it did in 2022. This year has been quite different since equities have broadly recovered, and our risk management focus has shifted toward establishing a level of permanence. We characterize this phase of risk management as Value Capture. Essentially, we have harvested disproportionate equity outcomes (Nvidia)and other strong performers (Passport holdings such as CrowdStrike) to fund a ~700bps increase in our India weighting (Makemytrip, Apollo Healthcare), a 235bps investment in Coca Cola (in correlation terms the real thing), and even a 114bps position in Alibaba (6.6X consensus 2023 EPS at purchase). These investments are not risk free, but they are stores of value that have the potential to enhance diversification and staying power in any market reversal. Moreover, we have marginally reduced portfolio concentration over the course of the year. Essentially, 2022 was a moment of extremely low reinvestment risk that allowed us to deemphasize China and other holdings, while concentrating around a handful of financially and strategically sound investments such as Nvidia, MercadoLibre, Airbnb and CrowdStrike.With these investments having largely reflated, we have sought to redistribute some of this capital while retaining significant residual positions. It is our hope that these actions can enhance our ability to execute our investment program if, for example, market exuberance about monetary policy proves excessive.”
9. Adobe Inc (NASDAQ:ADBE)
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 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 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 as of the end of the third quarter. The most significant stakeholder of Adobe Inc was Ken Fisher’s Fisher Asset Management which owns a $2.3 billion stake in Adobe Inc.
In addition to Adobe, hedge funds are also piling into Amazon.com Inc, NVIDIA Corp and Meta Platforms Inc.
Here is what Polen Global Growth has to say about Adobe Inc. 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.”
8. Advanced Micro Devices, Inc. (NASDAQ:AMD)
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. has a history of catching up to its competition and Advanced Micro Devices, Inc. is already out with its new AI-focused chips.
In December, UBS called Advanced Micro Devices, Inc. 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..
Artisan Global Opportunities Fund made the following comment about Advanced Micro Devices, Inc. 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.”
7. Salesforce Inc (NYSE:CRM)
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, 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. 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.”
6. Alphabet Inc Class C (NASDAQ:GOOG)
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 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 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 as of the end of the third quarter of 2023. The biggest stakeholder of Alphabet Inc Class C during this period was Ken Fisher’ s Fisher Asset Management which owns a $5.7 billion stake in Alphabet Inc Class C.
Diamond Hill Long-Short Fund made the following comment about Alphabet Inc. 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, NVIDIA Corp and Meta Platforms Inc, Alphabet is also a hedge fund favorite when it comes to AI investing.
5. NVIDIA Corp (NASDAQ:NVDA)
Number of Hedge Fund Investors: 180
NVIDIA Corp is perhaps one of the most obvious names in any AI stock recommendation list on the Wall Street these days. Despite having tripled in 2023, NVIDIA Corp’s (NASDAQ:NVDA) valuation has been attracting many analysts. In December 2023, Stacy Rasgon, Bernstein Research senior semiconductor analyst, said that NVIDIA Corp was the cheapest of the AI stocks in the market. He was referring to NVIDIA Corp’s (NASDAQ:NVDA) relatively low earnings multiples seen in December when compared to peers. Since the start of 2024 the stock has gained about 6%.
Joseph Moore, Morgan Stanley semiconductor analyst, recently said in a program on CNBC that NVIDIA Corp will “find ways” to fill the China portfolio of their business. He was referring to the US-China tensions and America’s new policies affecting US chipmakers’ exports to China.
As of the end of the third quarter of 2023, 180 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in NVIDIA Corp.
In its fourth quarter 2023 investor letter, ClearBridge Large Cap Growth Strategy stated the following regarding NVIDIA Corporation:
“Much of that differential can be attributed to the performance of the Magnificent Seven (Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft, Nvidia and Tesla), a basket of mega cap growth stocks that accounted for 47.8% of the benchmark return for the quarter and 65.4% for 2023.
The ClearBridge Large Cap Growth Strategy maintains exposure to six of the seven stocks, with overweights in Amazon.com, Meta and NVIDIA Corporation (NASDAQ:NVDA). Those three stocks, as well as Microsoft, were among the leading contributors to Strategy performance for the quarter. Microsoft and Nvidia continued to be supported by strong execution and leadership positions in the implementation of generative artificial intelligence (AI).
These are high-quality, cash flow generative businesses that we will continue to own, actively adjusting our positioning sizes based on risk/reward and portfolio construction priorities. With Nvidia shares more than tripling in 2023, we opportunistically took profits throughout the year, an approach that continued in the fourth quarter with additional trims that brought the position down to 6% of overall assets.
Active management of our mega cap exposure contributed to the Strategy outperforming the benchmark both in the fourth quarter and through the narrow leadership market of 2023. We also attribute these improved results to solid stock picking, being opportunistic in adding to or initiating new positions in growth companies at or near the bottom of their earnings cycle, and maintaining a commitment to diversification across our three buckets of growth: select, stable and cyclical.”
4. ServiceNow Inc (NYSE:NOW)
Number of Hedge Fund Investors: 199
Macquarie Equity recently picked ServiceNow Inc (NYSE:NOW) as one of its top AI picks for a “disruptive 2024.” The firm set an $800 price target on the stock, which shows significant upside potential from the stock’s $699 trading price as of January 9.
As of the end of the third quarter of 2023, 99 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in ServiceNow Inc.
In its October 2023 investor letter, Lakehouse Capital stated the following regarding ServiceNow, Inc.:
“ServiceNow, Inc. (NYSE:NOW) also delivered a strong quarterly result that surprised on the upside. Subscription revenues grew 27% year-on-year to $2.29 billion and non-GAAP operating income grew 41%, both exceeding analyst expectations and the company’s own guidance. Key performance indicators were healthy, with current remaining performance obligations growing 27% year-on-year to $7.4 billion and renewal rates holding firm at 98%. Despite the challenging macro environment for many software companies, ServiceNow’s multi-product platform continues to resonate with large enterprise customers with the number of clients spending over $1 million in annual contract value (ACV) up 17% year-on-year to 1,789, while the cohort spending over $20 million swelled by 58% year-on-year to 49. Helping drive some of that product adoption was their Creator Workflows module, first launched near the start of 2021, which crossed the $1 billion ACV threshold this quarter.
We remain impressed by the execution from management, who continue to expand the company’s total addressable market with new product launches that generate significant return on investment for their customers. Right before the quarter ended, they launched the Vancouver Platform release, which embedded generative AI across all workflows on the Now Platform and managed to close four large deals in a single day. Their generative AI offering drove the highest number of customer requests ever for a prerelease product in the company’s history, providing an attractive pipeline of new deals. Overall, we have high conviction in their growth trajectory and are happy to remain patient shareholders.”
3. Meta Platforms Inc (NASDAQ:META)
Number of Hedge Fund Investors: 234
Meta Platforms Inc ranks second in our list of the best AI stocks to buy according to hedge funds. Meta Platforms Inc (NASDAQ:META) recently received positive comments from BMO which said Meta Platforms Inc, along with several other major tech companies, will benefit from the blend of AI and content creation in 2024.
As of the end of the third quarter of 2023, 234 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in Meta Platforms Inc.
In its fourth quarter 2023 investor letter, ClearBridge Large Cap Growth Strategy stated the following regarding Meta Platforms, Inc.:
“Much of that differential can be attributed to the performance of the Magnificent Seven (Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft, Nvidia and Tesla), a basket of mega cap growth stocks that accounted for 47.8% of the benchmark return for the quarter and 65.4% for 2023.
The ClearBridge Large Cap Growth Strategy maintains exposure to six of the seven stocks, with overweights in Amazon.com, Meta and Nvidia. Amazon benefited from strong margin expansion across segments, most notably its core e-commerce business, while Meta Platforms, Inc. (NASDAQ:META) saw accelerated revenue growth and share gains in online advertising.
Active management of our mega cap exposure contributed to the Strategy outperforming the benchmark both in the fourth quarter and through the narrow leadership market of 2023. We also attribute these improved results to solid stock picking, being opportunistic in adding to or initiating new positions in growth companies at or near the bottom of their earnings cycle, and maintaining a commitment to diversification across our three buckets of growth: select, stable and cyclical.”
2. Amazon.com Inc (NASDAQ:AMZN)
Number of Hedge Fund Investors: 286
Amazon.com Inc remains one of the top AI stocks thanks to its Cloud business since Amazon.com Inc is rolling out several AI-related features that would help companies develop and deploy AI applications on the Cloud.
Amazon.com Inc’s (NASDAQ:AMZN) ecommerce business is also set to benefit from the AI boom. BMO Capital’s Brian Pitz recently started covering Amazon.com Inc with an Outperform rating and explained how AI would help ecommerce companies. The analyst said AI would help ecommerce companies in product recommendations and same-day delivery.
“…AI is helping with product recommendation, while companies with same-day delivery and regionalization of their fulfillment networks have made it easier to get products into the hands of consumers,” Pitz said.
In its fourth quarter 2023 investor letter, ClearBridge Large Cap Growth Strategy stated the following regarding Amazon.com, Inc.:
“Much of that differential can be attributed to the performance of the Magnificent Seven (Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft, Nvidia and Tesla), a basket of mega cap growth stocks that accounted for 47.8% of the benchmark return for the quarter and 65.4% for 2023.
The ClearBridge Large Cap Growth Strategy maintains exposure to six of the seven stocks, with overweights in Amazon.com, Inc. (NASDAQ:AMZN), Meta and Nvidia. Amazon benefited from strong margin expansion across segments, most notably its core e-commerce business, while Meta saw accelerated revenue growth and share gains in online advertising.
Active management of our mega cap exposure contributed to the Strategy outperforming the benchmark both in the fourth quarter and through the narrow leadership market of 2023. We also attribute these improved results to solid stock picking, being opportunistic in adding to or initiating new positions in growth companies at or near the bottom of their earnings cycle, and maintaining a commitment to diversification across our three buckets of growth: select, stable and cyclical.”
1. Microsoft Corp (NASDAQ:MSFT)
Number of Hedge Fund Investors: 306
Microsoft Corp (NASDAQ:MSFT) is a ubiquitous name in the Wall Street these days, popular among both money managers and analysts. It is the most popular stock among the 910 hedge funds tracked by Insider Monkey.
Bank of America analysts led by Alkesh Shah recently added Microsoft Corp to their top AI picks for 2024 list. While the analyst said now is not the right time to be a “blind bull” on tech stocks given the massive rally already experienced by these companies, he sees a significant upside for some companies in the space. The analyst is bullish on Microsoft Corp as he sees “incremental” growth in Azure and Office due to AI.
In its fourth quarter 2023 investor letter, ClearBridge Dividend Strategy stated the following regarding Microsoft Corporation:
“Microsoft Corporation (NASDAQ:MSFT) is the largest holding in our portfolio. Given its partnership with OpenAI and leading position in the cloud, Microsoft is well-positioned to profit from the boom in AI. However, due to Microsoft’s tremendous scale and diversification, the company is not dependent upon AI for its success. Microsoft’s diverse portfolio of software and cloud offerings ensures the company will thrive even if the next hot thing, like AI, fizzles out. In this way, Microsoft is emblematic of our broader investing approach. We seek to benefit from powerful trends, but we do so with an eye toward managing risk and limiting downside in case the future turns out to be less rosy than hoped for.”
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Disclosure. None. 10 Best AI Stocks for 2024 was initially published on Insider Monkey.
