In this piece, we will take a look at Citigroup’s top 5 AI stocks to buy. For more stocks on this list, head on over to Citigroup’s Top 10 AI Stocks to Buy.

5. NVIDIA Corporation (NASDAQ:NVDA)

Number of Investors in Q1 2023: 132

No other company has benefited from the AI Boom than NVIDIA Corporation (NASDAQ:NVDA). The company has more than doubled in value, with a market valuation powering through the $1 trillion milestone. The company is enjoying robust growth given that its chips are critical to training AI models and inferencing.

Its revenue is expected to surge by over 60% this year due to strong demand for GPUs, allowing companies to train AI models quickly. There is a long queue to buy the graphics that have proved effective and powerful.

As demand for generative AI software such as chatbots grows, the need for NVIDIA’s GPUs that enable such applications is expected to balloon over the next five years by over time. This explosion is why Nvidia has emerged as a solid AI play.

Insider Monkey found that 132 hedge funds invested in NVIDIA Corporation (NASDAQ:NVDA)’s shares after analyzing their Q1 2023 holdings. Out of these, the firm’s largest shareholder is Rajiv Jain’s GQG Partners with a $2.29 billion stake.

On July 10, Goldman Sachs raised price target on NVIDIA Corporation (NASDAQ:NVDA) to $495 and kept ‘Buy’ rating. Nvidia has been a leader and beneficiary of traditional AI, but now has a new growth phase from Generative AI, the analyst says. The firm increased its FY25 and FY26 revenue and non-GAAP EPS estimates by 8% and 22%, respectively.

Artisan Partners made the following comment about NVIDIA Corporation (NASDAQ:NVDA) in its second quarter 2023 investor letter:

“Top contributors to performance for the quarter included graphics semiconductor company NVIDIA Corporation (NASDAQ:NVDA). Nvidia rose after reporting strong results and forecasting significantly higher data center revenues for the coming quarter, driven by rising artificial intelligence investments around the world.

When we are successful in achieving disproportionate equity outcomes, we need a process for managing them. Entering this year, we had a ~6.5% position in Nvidia. Due to the enthusiasm for generative AI and a rapid conclusion to “cloud optimization,” the stock has surged 189.5% this year including 52.31% in Q2. We retained an investment in Nvidia with less capital at risk, an approach which afforded us the potential to prudently participate in excellent investments over long periods of time. Notably, despite our gradual position reductions, Nvidia has contributed 1491bps to performance since inception. In turn, these value pathways form the foundation upon which our risk management framework rests, and put us in position to execute our investment program in future periods of duress.”

4. Alphabet Inc. (NASDAQ:GOOG)

Number of Investors in Q1 2023: 155

Alphabet Inc. (NASDAQ:GOOG)’s Google has always dominated the search engine business racking up billions of dollars every year. Likewise, the company has resorted to generative AI to strengthen its dominance in the segment. The unveiling of the Bard Chatbot underscores how focused the company is on using the new age technology.

With generative AI, Google remains well-positioned to enhance the search and browsing experience online. Similarly, it is testing other innovative AI-powered solutions, like a program that answers questions about medical information. By enhancing its search tool using AI, it should strengthen its revenue stream on search.

Wolfe Research analyst Deepak Mathivanan raised his price target on Alphabet Inc. (NASDAQ:GOOG) to $140 and kept an ‘Outperform’ rating before Q2 earnings. The analyst favors e-commerce stocks with revenue and free cash flow upside. Among mega-caps, firm likes Meta Platforms, Amazon, and Alphabet. Wolfe’s agency checks showed strong digital advertising in Q2 and offline share shift.

Alphabet Inc. (NASDAQ:GOOG) was found in the portfolios of 155 hedge funds in the first quarter, with a total stake value of $18.57 billion.

In its investor letter for the second quarter of 2023, Oakmark Global Select Fund shared the following comment regarding Alphabet Inc. (NASDAQ:GOOG):

“Alphabet Inc. (NASDAQ:GOOG) (U.S.) was the top contributor to the Fund’s performance for the quarter. Alphabet’s first-quarter search revenue growth accelerated slightly sequentially, which was notable given that advertising spending has decreased across the board. Management cited the company’s travel and retail segments for their strong performance in contrast to the declines experienced in the finance and in the media and entertainment businesses. Advertising spending has also stabilized at YouTube, and the focus on “shorts” has driven strong viewership growth. In the near term, YouTube’s investment in shorts may not generate significant revenue, but we believe its profitability will accelerate over time. Alphabet’s cloud business reached GAAP profitability this quarter, moving from a -12% margin this quarter last year to a 3% margin this quarter. On the AI front, Alphabet upgraded Bard to run on its more powerful PaLM language model, and Bard can now assist with coding and software development. CEO Sundar Pichai compared AI’s evolution to the transition from desktop to mobile computing a decade ago and said there is “a lot more to come” in terms of its consumer AI applications. CFO Ruth Porat revised 2023 capital expenditures guidance due to higher spending on data center construction and servers that will support AI developments in consumer products, advertiser tools and the cloud business. Porat reiterated that the company plans to continue to hold expense growth below revenue growth and that Alphabet’s cost-reduction initiatives should bear fruit later this year and into 2024. At Alphabet’s annual developer conference in May, the company showcased an impressive array of new AI-powered consumer tools, which will be rolled out over the course of the year. Investors reacted positively to these presentations, which highlighted the extent of AI innovation occurring at Alphabet.”

3. Meta Platforms, Inc. (NASDAQ:META)

Number of Investors in Q1 2023: 220

Meta Platforms, Inc. (NASDAQ:META) is also at the forefront of spearheading the AI revolution with its LLaMA language model that enables the development of products integrated across the board. The social networking giant intends to integrate AI across all segments of the company, from advertising to aiding social interaction and even simplifying complex tasks like Metaverse.

With the LLaMA model, it plans to develop AI chatbots that help brands negotiate advertising deals while enhancing how people and businesses interact online. In addition, Meta is making strides in the development of its in-house chip designed for running AI models.

The custom-made hips should be able to run AI models and optimize data centers as parry of a 16,000 GPU supercomputer for AI research.

Insider Monkey took a look at 943 hedge funds for their March quarter of 2023 investments to find out that 220 had bought and invested in Meta Platforms, Inc. (NASDAQ:META)’s shares. Out of these, the company’s biggest shareholder is Philippe Laffont’s Coatue Management .

On July 7, Rosenblatt increased its price target for Meta Platforms, Inc. (NASDAQ:META) to $333 from $263 and maintained a ‘Buy’ rating on the shares. Meta’s new Threads feature received praise from the firm, as they see it as a promising opportunity that restores confidence in Meta’s social media expertise. This positive assessment influenced the adjustment of long-term estimates and multiples, leading to the higher price target.

In its investor letter for the second quarter of 2023, ClearBridge Investments provided the following comment regarding Meta Platforms, Inc. (NASDAQ:META):

“Delivering performance through fundamental, bottom-up stock selection has been a constant over our tenure managing the Strategy. We underperformed in the first half of 2022 from being too early in entering several stocks going through negative earnings revisions and have seen relative results rebound over the last 12 months due to better stock picking, especially among earnings reset names such as Netflix and Meta Platforms, Inc. (NASDAQ:META). Also within shadow tech, we added back to our weighting in Meta as steady advertising trends and continued cost management should lead to improved profitability.”

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

Number of Investors in Q1 2023: 243

Amazon.com, Inc. (NASDAQ:AMZN) has always dominated the cloud computing segment and has now turned to artificial intelligence to cement its dominance. While facing significant competition from Microsoft and Google, the e-commerce giant is set to compete on pricing.

 Given that AI models like ChatGPT require immense computing power to train and operate, Amazon is set to provide the power at a much lower price than its peers. By reducing the cost, the tech giants hope to trigger demand for their AI models, often referred to as Titan.

 In addition to leveraging AI on cloud computing to pursue growth opportunities, the company is also using the technology to enhance its e-commerce business. With the technology, its been able to better manage its inventory levels, therefore positioning products where they are mostly needed. With generative AI, Amazon can stay with consumer purchasing patterns and therefore place products close to the market in the race to enhance same-day and next-day deliveries.

There were 243 hedge funds long Amazon.com, Inc. (NASDAQ:AMZN) during the first quarter, with a total stake value of $25.76 billion. CICC initiated coverage of Amazon.com, Inc. (NASDAQ:AMZN), giving it an ‘Outperform’ rating and setting a price target of $140 on July 10.

ClearBridge Investments, an investment management company Amazon.com, Inc. (NASDAQ:AMZN) in its second-quarter 2023 investor letter:

“2023 has so far marked a return to mega cap leadership, with Apple, Microsoft, Alphabet, Amazon.com, Inc. (NASDAQ:AMZN) and Nvidia accounting for approximately two thirds of the benchmark return. At 41.3%, the five largest stocks in the market represent the highest concentration in the 26-year history of the Russell 1000 Growth Index. Among these names, we maintain overweights to Nvidia (+246 bps) and Amazon (+117 bps), underweights to Microsoft (-353 bps) and Apple.

The Strategy’s IT holdings also drove performance in the second quarter, led by the continued rerating of graphics chipmaker Nvidia as a key beneficiary of the generative AI boom. AI-connected holdings Microsoft and Amazon also delivered strong gains.”

1. Microsoft Corporation (NASDAQ:MSFT)

Number of Investors in Q1 2023: 289

Microsoft Corporation (NASDAQ:MSFT) kickstarted the generative AI frenzy by announcing a $10 billion investment in OpenAI, the parent company behind ChatGPT Chatbot. With the investment, the company has integrated the chatbot into its Bing search engine as it looks to leverage the power of machine learning to enhance web searching and browsing.

 There has been talk that if Microsoft gets it right with artificial intelligence, it could, for once, be a worthy competitor to google on the internet search market. By enabling a new kind of search and enhancing experience, Microsoft hopes to strengthen its edge on search.

 In addition, Microsoft has teamed up with AMD to create powerful chips that will power artificial intelligence innovations and tools. The two are to work together on a processor for AI workloads to address the growing need in the market.

In March 2023, Microsoft Corporation’s (NASDAQ: MSFT) shares were purchased by 289 out of the 943 hedge funds analyzed by Insider Monkey for their investments.

Michael Larson’s  Bill & Melinda Gates Foundation Trust is Microsoft Corporation (NASDAQ:MSFT)’s biggest shareholder through a $11.32 billion stake. Microsoft has a consensus rating of ‘Strong Buy.’ The average price target for Microsoft is $350.29, with the highest analyst price target at $420 and the lowest forecast at $232. The average price target suggests a 5.36% increase from the current price of $332.47.

Here is what ClearBridge Investments had to say about Microsoft Corporation (NASDAQ:MSFT) in its second-quarter 2023 investor letter:

“2023 has so far marked a return to mega cap leadership, with Apple, Microsoft Corporation (NASDAQ:MSFT), Alphabet, Amazon.com and Nvidia accounting for approximately two thirds of the benchmark return. At 41.3%, the five largest stocks in the market represent the highest concentration in the 26-year history of the Russell 1000 Growth Index. Among these names, we maintain overweights to Nvidia (+246 bps) and Amazon (+117 bps), underweights to Microsoft (-353 bps) and Apple.

The Strategy’s IT holdings also drove performance in the second quarter, led by the continued rerating of graphics chipmaker Nvidia as a key beneficiary of the generative AI boom. AI-connected holdings Microsoft and Amazon also delivered strong gains.”

Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily newsletter to get  the latest investment ideas from hedge funds’ investor letters by entering your email address below. You can also check out our articles on George Soros’ Top 10 Stock Picks and Billionaire Ken Fisher’s Top 10 Stock Picks.