We recently published a list of 10 Best Innovative Stocks to Invest in According to Hedge Funds. In this article, we are going to take a look at where Meta Platforms Inc (NASDAQ:META) stands against other best innovative stocks to invest in according to hedge funds.
Technology is a Big Deal, Strategist Highlights
The Magnificent Seven continues to grasp a sizeable market share of the market gains over the past few years. That said, investors and analysts are excited to see what this earnings period has to offer for the magnificent seven and how much of an influence they have on the market. On October 31, Christian Dery, head of macro strategy at Capital Fund Management, appeared in an interview on Yahoo Finance to discuss the impact of the magnificent seven on the market.
Dery suggested that these companies have grown to become large entities and their market capitalization often fluctuates by $2 billion to $400 billion on earnings events. Looking at the dispersion of the index, Dery adds that individual stocks within the S&P are very diverse and more independent, hinting towards a very low correlation in the index.
He adds that generative AI and LLMs are very different from the traditional software business. Therefore, the hyperscaling model that is conventionally taken from software can not be applied here. For every new customer in the software business, the marginal cost often goes down to nearly zero. However, if you look at the “tech incumbents”, they have to increase their capital expenditures to develop compute clusters and scale their operations, suggests Dery.
In 2023, the chips industry generated revenue of about $3 billion, reflecting that we are yet to find a killer use case or see results of generous AI spending. Dery adds that the market is more likely to be “discerning” on the path to profitability since companies are going to focus more on capital expenditures and projections for capital expenditures. He is particularly interested in the CapEx projections of the Magnificent Seven and shares that if they miss there could be a negative reaction among those stocks.
Dery reiterated that the market is yet to see the investments pay off multiple times but maintains his interest in capital expenditures by these companies playing out. While he is bullish on technological innovation and believes artificial intelligence is disruptive and a “big deal”, he fails to see viable results as of now. Dery also emphasizes that these companies are directing their investments to AI because they do not want to fall behind competitors, with no proper timeline for AI monetization.
That said, some companies are investing heavily in innovation and are at the forefront of a technological revolution.
Our Methodology
To come up with the 10 best innovative stocks to invest in according to hedge funds, we went over multiple similar rankings on the internet from credible financial websites. We then examined the hedge fund sentiment of each stock and picked the most popular ones. Our list is in ascending order of the number of hedge fund holders as of the end of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A team of developers working in unison to create the company’s messaging application.
Meta Platforms Inc (NASDAQ:META)
Number of Hedge Fund Holders: 219
Meta Platforms Inc (NASDAQ:META) is a technology conglomerate behind Facebook, Instagram, Threads, and WhatsApp. The company has a large user base of over 3 billion daily active users across all its platforms.
Over the past few months, the company has ventured into AI and augmented reality, having launched its debut AR glasses, Orion, in September. On the same day, the company released its most affordable mixed-reality headset, Meta Quest 36. Meta Platforms Inc (NASDAQ:META) is striving to become one of the best recommendation technology companies and to reach that position META launched new features that allow users to explore their interests and like-minded people.
The company is expanding its position on AI and for good reason. On November 1, Brent Thill, Senior Analyst at Jefferies, appeared in an interview on Yahoo Finance to discuss his thesis on META and its AI spending. Thill emphasized the role of AI in showing appropriate content to users and personalizing commerce suggestions across all META platforms. He adds that for advertisers and small business owners, especially, AI spending by META has started to show results.
Meta Platforms Inc (NASDAQ:META) has a strong business model and its position as one of the innovative stocks is evidence of that. The company is pioneering ad tech using artificial intelligence, challenging for any other company to replicate.
Rowan Street Capital stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q2 2024 investor letter:
“We are pleased to report that Meta Platforms, Inc. (NASDAQ:META), our largest position in the fund, has delivered a remarkable performance, +450% since our November 2022 note. Our investment in Meta dates back to 2018, with an average cost basis of approximately $172 per share. Today, the stock trades around $535, reflecting a 3x return over the six-year holding period, equating to a 20% annualized return.
We would like to remind you that achieving these types of returns is never a straight path. From time to time, we might experience volatility — that’s simply part of the investment journey. In fact, wealth creation and volatility go hand in hand. There’s no escaping it; it’s the “price of admission” the market demands. If you take a look at the chart below, you’ll notice the drawdowns META stock has faced over the years, with 2022 standing out as a particularly challenging period, where the stock saw a 75% drop….. ” (Click here to read the full text)
Overall, META ranks 3rd on our list of best innovative stocks to invest in according to hedge funds. While we acknowledge the potential of META to grow, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than META but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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