Below we present the list of 5 Hot Stocks to Buy According to Hedge Funds. For our methodology and a more comprehensive list please see 12 Hot Stocks to Buy According to Hedge Funds.
5. Salesforce, Inc. (NYSE:CRM)
Number of Hedge Fund Shareholders: 136
Year-to-Date Return (through June 5): 55.7%
There was a 16% surge in the number of funds long Salesforce, Inc. (NYSE:CRM) during Q1 to hit an all-time high and elevating the stock into the top ten of hedge funds’ most popular stocks. Dan Loeb’s Third Point and Philippe Laffont’s Coatue Management were some of the leading hedge funds to add CRM to their 13F portfolios during the quarter.
If there’s been one clear trend among the hottest stocks to buy according to hedge funds, it’s been their deepening ties to AI, and that’s certainly the case with Salesforce, Inc. (NYSE:CRM), which has quickly applied generative AI capabilities to many of its product offerings, including Slack and Tableau, in addition to the forthcoming launch of Einstein GPT. Salesforce is also becoming more profitable even as it spends more money to improve its product offerings, hitting a non-GAAP operating margin of 27.6% in the company’s Q1 of fiscal 2024 ended April 30.
Vulcan Value Partners likes how quickly Salesforce, Inc. (NYSE:CRM) has ramped up its profitability according to the fund’s Q1 2023 investor letter:
Salesforce, Inc. (NYSE:CRM) was a material contributor during the quarter. The company has taken numerous positive steps to increase profitability more quickly than expected. Salesforce also improved its corporate governance by recommending three new board members. The company is focused on improving margins, deemphasizing acquisitions, and has expanded its stock buyback plan from $10 billion to $20 billion. We believe Salesforce can pursue these opportunities while continuing to increase its competitive position.
4. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Number of Hedge Fund Shareholders: 91
Year-to-Date Return (through June 5): 84.2%
Advanced Micro Devices, Inc. (NASDAQ:AMD) shares gained 50% in the first quarter and are having another strong second quarter to nearly double their value this year. Three semiconductor stocks cracked our list of the hottest stocks to buy according to hedge funds, and their most popular picks have also posted the biggest gains this year.
With Advanced Micro Devices, Inc. (NASDAQ:AMD), we’re now pushing into the first of four stocks that have delivered phenomenal returns so far in 2023. The chipmaker has fallen behind rival Nvidia in the AI race, but has scored a major victory on that front this year when it was announced last month that Microsoft is investing in and supporting the expansion of AMD’s AI chipmaking capabilities. AMD’s gaming segment also projects to be a strong growth driver for several years given it supplies all the chips for Sony’s PlayStation 5 and Microsoft’s Xbox Series X/S consoles, whose sales are projected to continue climbing over the next few years.
White Falcon Capital Management noted the market finally seems to understand how semiconductor-intensive AI is, which has helped to boost Advanced Micro Devices, Inc. (NASDAQ:AMD) shares this year according to the fund’s Q1 2023 investor letter:
“Last quarter we added Advanced Micro Devices, Inc. (NASDAQ:AMD) to the portfolio at 18x earnings and quickly made it into a top 5 position. At that time, Mr. Market was worried about earnings revisions for semiconductor stocks. In Q1 2023, it has been one of our best performing positions with the stock up 50%! In just three months, the market realized that Artificial Intelligence (AI) and related technologies require a lot of semiconductors. Mr. Market really is manic depressive but this volatility can give the enterprising investor just enough of a window to pick stocks with attractive risk rewards.”
3. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Shareholders: 82
Year-to-Date Return (through June 5): 104%
Following years of relatively muted hedge fund support, Tesla, Inc. (NASDAQ:TSLA) is now far and away the most popular automaker among the smart money. Billionaire money manager David Tepper added Tesla to Appaloosa Management’s 13F portfolio in Q1, while Cathie Wood’s ARK Investment Management raised its TSLA stake by 18% to 5.44 million shares.
Tesla, Inc. (NASDAQ:TSLA) shares have more than doubled this year as the company’s outlook is much improved compared to last year, when the stock crashed by 65%. CEO Elon Musk is back in the driver’s seat after finding a new CEO to take over Twitter, while the EV market has enjoyed explosive growth in the U.S., with sales rising by 65% last year. That’s significantly lowered concerns about how Tesla will fare in a rapidly intensifying competitive landscape. Tesla also topped deliveries estimates in Q1, with the Model Y being the world’s best-selling vehicle during the quarter.
The Aristotle Atlantic Focus Growth Strategy praised Tesla, Inc. (NASDAQ:TSLA)’s leading automotive profit margins in its Q1 2023 investor letter:
“Tesla, Inc. (NASDAQ:TSLA) was a negative contributor to performance due to our underweight position relative to Russell 1000 Growth Index, as the company had strong performance in Q1. The strength occurred after the company partially reversed a previously announced price cut for its electric vehicles following a period of strong demand. Tesla also reported better-than-expected results for Q4 2022 during the first quarter.
Tesla Motors designs, develops, manufactures, and markets high-performance, technologically advanced electric cars and solar energy generation and energy storage products. Tesla sells more than five fully electric cars, among others, the Model X and Y SUVs, as well as the Model S sedan and Model 3 sedan. The company has a growing global network of Tesla Superchargers, which are industrial grade, high-speed vehicle chargers, typically placed along well-traveled routes and in and around dense city centers to allow Tesla owners quick and reliable charging. Tesla offers certain advanced driver assist systems under its Autopilot and Full Self-Driving options. US customers generate nearly half of Tesla’s sales.
We see Tesla as the leading manufacturer of battery powered electric vehicles (EVs). The company has achieved scaled production of EVs before the other large automobile manufacturers. The company’s technology in battery production and self-driving technology is more mature than competitors’ offerings. EVs are one of the fastest growing categories within automobile manufacturing. The profit margin in the automotive segment is significantly above automotive competitors which provides the company flexibility to price its vehicles more strategically as the competition eventually scales up their EV production. The direct-to-consumer sales model gives the company more control over its relationship with its customers as well as a source of higher profit margin since there is no dealership share of the profits.”
2. Meta Platforms, Inc. (NASDAQ:META)
Number of Hedge Fund Shareholders: 220
Year-to-Date Return (through June 5): 118%
Hedge funds have started buying back into Meta Platforms, Inc. (NASDAQ:META) after the social media giant’s stock crashed to a 7-year low late last year. Smart money ownership of META has risen by 18% over the past two quarters after cratering by 34% during the five quarters prior to that. Philippe Laffont’s Coatue Management more than doubled the size of its META position during Q1, giving it 8.06 million shares worth $1.71 billion on March 31.
Ranking second is another stock that’s been heavily downtrodden in recent quarters but has bounced back big time this year, Meta Platforms, Inc. (NASDAQ:META). It’s certainly easy to envision why investors were selling off META shares prior to this year, as the company’s tepid growth and the heightened competition from TikTok have cast doubts on Meta’s long-term outlook. There’s also the company’s money-losing metaverse initiative, which continues to burn through around $4 billion quarterly. Despite that, Meta Platforms is a money-making machine, generating over $18 billion in free cash flow last year, which has proven heavily enticing to investors as META shares have fallen to compelling valuations.
Artisan Value Fund discussed the favorable risk/reward profile for Meta Platforms, Inc. (NASDAQ:META) shares late last year in its Q1 2023 investor letter:
“Our top contributors in Q1 were Meta Platforms, Inc. (NASDAQ:META), Warner Bros Discovery (WBD) and FedEx. Following sharp declines in 2022, shares of Meta Platforms have more than doubled since their early November 2022 lows. Last year’s drawdown created a highly favorable risk-reward, which we took advantage of by adding to our position. Management has wisely, in our view, recalibrated its spending plans to focus on profitability amid a weaker advertising environment, increased TikTok competition and Apple’s privacy changes. While investors got ahead of themselves back in 2021, extrapolating pandemic growth rates into the future, Meta is still a highly successful enterprise generating over $120 billion of revenue annually on a run-rate basis and has more than $40 billion in cash on its balance sheet to help it navigate its future course. Recent usage and engagement trends for Facebook and Instagram have been positive, and Reels—Meta’s answer to TikTok—is gaining traction.”
1. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Shareholders: 132
Year-to-Date Return (through June 5): 174%
NVIDIA Corporation (NASDAQ:NVDA) has also been extremely popular among smart money managers during the past two quarters, with ownership of the semiconductor titan rising by 48% during that time. Those bulls have been rewarded with exceptional returns of 174% so far this year, making big winners out of funds like David Goel and Paul Ferri’s Matrix Capital Management, which had 20% 13F exposure to NVDA on March 31.
With AI being a strong theme in this article, it’s not surprising that NVIDIA Corporation (NASDAQ:NVDA)’s spectacular returns in 2023 have largely been driven by the overwhelming demand the company has reported for its chips in the use of AI-based applications. Nvidia is projecting $11 billion in revenue during the current quarter, which would smash its previous quarterly record by $2.7 billion. At the heart of that demand is data centers’ burgeoning need for chips to power generative AI and large language models according to CEO Colette Kress. The demand has pushed the company’s data centers visibility out several quarters, setting it up for not just a dominant quarter, but a tremendous finish to its fiscal 2024 year.
The Alger Spectra Fund is bullish on NVIDIA Corporation (NASDAQ:NVDA)’s long-term growth prospects, as detailed in its Q1 2023 investor letter:
“NVIDIA Corporation (NASDAQ:NVDA) is a leading supplier of graphics processing units (GPUs) for a variety of end markets, such as gaming, PCs, data centers, virtual reality and high-performance computing. The company is leading in most secular growth categories in computing, and especially artificial intelligence and super-computing parallel processing techniques for solving complex computational problems. Simply put. Nvidia’s computational power is a critical enabler of Al and therefore critical to Al adoption, in our view. As such, we believe Nvidia is a long-term high unit volume growth opportunity. During the period, NVIDIA reported fiscal fourth-quarter results that met expectations, as the company navigated. through an inventory correction associated with the broad macroeconomic slowdown. Moreover, management gave fiscal year earnings guidance that was better than analyst estimates. noting strong year-over-year growth in gaming and data centers. Management’s constructive assessment of 2023 prospects. coupled with the rapid rollout and adoption of generative Al offerings, led to positive share price performance.”
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