This article discusses the top 10 top technology sector picks of Cliff Asness’ AQR Capital Management at the end of June and elaborates on Mr. Asness’ experience, the fund’s history and recent performance.
Cliff Asness is a name that needs no introduction on Wall Street. Mr. Asness credentials and CV are filled with some of the most reputed schools and organizations that one can imagine. He graduated summa cum laude with a double major in computer science and economics from Moore School of Electrical Engineering and Wharton School, respectively, at the University of Pennsylvania. He followed it up with an M.B.A. with high honors and a Ph.D. in finance from the University of Chicago.
At the University of Chicago, Mr. Asness worked as a teaching assistant for Nobel laureate Eugene Fama, who was also Mr. Asness’ doctoral advisor. Eugene Fama and Kenneth French are considered the founders of factor investing, which became extremely popular in the last two decades. In 1992, Mr. Fama and Mr. French developed the Fama–French three-factor model, which expanded on the capital asset pricing model (CAPM), adding the size of a company and its valuation as two other factors that can adequately measure the riskiness of a stock.
Further research on these factors by Mr. Asness led him to persuade his seniors at Goldman Sachs Asset Management, where Mr. Asness was working as a manager at the quantitative research desk, to provide him with $10 million in 1995 to deploy his computer-driven models. Goldman Sachs’ initial $10 million investment in an in-house investment vehicle later became the famous Goldman Sachs Global Alpha Fund. Mr. Asness left Goldman Sachs in 1998 to start AQR Capital Management, one of the first large-scale quantitative asset management firms, along with David Kabiller, John Liew, and Robert Krail. AQR Capital Management is today a behemoth in the quantitative asset management industry, managing capital worth over $140 billion through multiple hedge funds and mutual funds. As per AQR Capital Management’s latest 13F filing, its top ten stock picks, which include Alphabet Inc. (NASDAQ:GOOG), Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) and Meta Platforms, Inc. (NASDAQ:META), accounted for 14% of the aggregate value of its portfolio, at the end of June.
Cliff Asness of AQR Capital Management
Our Methodology
We selected the top technology stocks in AQR Capital Management’s portfolio based on the 13F filing the firm submitted with the SEC for the quarter ending June 30.
Top 10 Technology Stocks to Buy According to Billionaire Cliff Asness
10. Tesla, Inc. (NASDAQ:TSLA)
AQR Capital Management’s Stake Value: $227,357,000
Percentage of AQR Capital Management’s 13F Portfolio: 0.51%
Number of Hedge Fund Holders: 72
Tesla, Inc.’s (NASDAQ:TSLA) popularity among smart money investors seems to have followed its stock price trajectory. The number of hedge funds tracked by Insider Monkey that disclosed a stake in the EV major increased to 92 from 29 between September 2019 and the end of 2021. However, since then, the hedge funds have been selling their holdings in the company as only 72 hedge funds we cover disclosed a stake Tesla, Inc. (NASDAQ:TSLA) at the end of Q2.
According to a recent report published on Electrek, Tesla, Inc. (NASDAQ:TSLA) would soon open its charging stations to non-Tesla owners. Opening its charging station network is critical for the company as that will allow it to access funds from the Federal government reserved for accelerating the deployment of EV charging states in the country. On August 18, Reuters reported that Tesla, Inc. (NASDAQ:TSLA) had reduced the waiting time for its Model Y car in China to a minimum of four weeks. The company had revealed earlier that customers in China needed to wait for 8 to 24 weeks to get their keys for some of the company’s bestselling cars.
9. Intel Corporation (NASDAQ:INTC)
AQR Capital Management’s Stake Value: $269,072,000
Percentage of AQR Capital Management’s 13F Portfolio: 0.6%
Number of Hedge Fund Holders: 65
Intel Corporation’s (NASDAQ:INTC) stock might have fallen more than 30% year-to-date, but this decline has made it a bargain at its current trading price.
In a note to clients, Citigroup analyst Christopher Danely maintained his ‘Neutral’ rating on Intel Corporation’s (NASDAQ:INTC) stock on August 16. Mr. Danely wrote:
“We reiterate our Neutral ratings on Intel and AMD as we expect the downturn in the PC market to negatively impact both and our estimates remain below consensus.”
For its most recent quarter of FY 2022, Intel Corporation (NASDAQ:INTC) reported GAAP earnings per share loss of $0.11, missing analysts’ estimate by $0.64. For the same period, the company reported revenue of $15.32 billion, which missed analysts’ projections by $2.6 billion and was also 22% lower than the $19.63 billion it had reported for Q2 FY2021.
8. Arrow Electronics, Inc. (NYSE:ARW)
AQR Capital Management’s Stake Value: $269,562,000
Percentage of AQR Capital Management’s 13F Portfolio: 0.6%
Number of Hedge Fund Holders: 24
Arrow Electronics, Inc. (NYSE:ARW) is a Centennial, Colorado-based electronic components and enterprise computing solutions company founded in 1935. Arrow Electronics, Inc. (NYSE:ARW) has two main divisions it operates – Global Components and Global Enterprise Computing Solutions. While its Global Enterprise Computing Solutions division provides computing solutions like cloud, security, analytics solutions, and datacenters, its Global Components manufactures and distributes semiconductor products and related services.
On August 16, Arrow Electronics, Inc. (NYSE:ARW) announced that it had hired Rajesh Agrawal as the company’s new chief financial officer and senior vice president. Previously, Mr. Agrawal served as an executive vice president and chief financial officer at The Western Union Company (NYSE:WU). Earlier in May, Arrow Electronics, Inc. (NYSE:ARW) announced that Sean J. Kerins would succeed Michael J. Long as the company’s chief executive officer (CEO), effective June 1, 2022. Mr. Kerins has worked at Arrow Electronics, Inc. (NYSE:ARW) for 15 years and has been serving as the company’s chief operating officer since December 2020.
7. Cisco Systems, Inc. (NASDAQ:CSCO)
AQR Capital Management’s Stake Value: $291,729,000
Percentage of AQR Capital Management’s 13F Portfolio: 0.65%
Number of Hedge Fund Holders: 63
AQR Capital Management upped its stake in Cisco Systems, Inc. (NASDAQ:CSCO) by 16% to 6,906,458 shares during Q2. Other prominent hedge funds tracked by us that also increased their stake in the networking giant during that time included billionaire Bruce Kovner’s Caxton Associates LP, Israel Englander’s Millennium Management, and Dmitry Balyasny’s Balyasny Asset Management.
Cisco Systems, Inc.’s (NASDAQ:CSCO) stock has gone up by over 150% in the last 10 years but still trades below the all-time high it made during the peak of the tech boom of the late 1990s. On August 18, the stock jumped by more than 6.5% following the company’s better than expected fourth-quarter earnings release and strong guidance for future quarters.
After the fourth quarter earnings release, several analysts covering Cisco Systems, Inc. (NASDAQ:CSCO) on Wall Street increased their price target on the stock. This included Morgan Stanley analyst Meta Marshall, who raised the price target to $48 from $46 while maintaining a ‘Neutral’ rating on the stock and Citigroup analyst Jim Suva, who, despite continuing with his ‘Sell’ rating on the stock, increased his price target to $44 from $40.
6. Amazon.com, Inc. (NASDAQ:AMZN)
AQR Capital Management’s Stake Value: $365,974,000
Percentage of AQR Capital Management’s 13F Portfolio: 0.82%
Number of Hedge Fund Holders: 252
Amazon.com, Inc. (NASDAQ:AMZN) got displaced to the second most popular stock among hedge funds tracked by Insider Monkey from the top spot, with only 252 hedge funds reporting a stake in the company at the end of Q2 from 271 funds at the end of Q1. The fall of nearly 35% that Amazon.com, Inc.’s (NASDAQ:AMZN) stock saw during Q2 could be one of the reasons that smart money investors were bailing out of the stock in that period.
On August 10, Bloomberg reported that CVS Health Corporation (NYSE:CVS) was in talks with 1Life Healthcare, Inc. (NASDAQ:ONEM) to acquire the latter before Amazon.com, Inc. (NASDAQ:AMZN) jumped in and, on July 21, announced that it would acquire the membership-based primary care platform for $3.9 billion.
According to TF International Securities analyst Ming-Chi Kuo, Amazon.com, Inc.’s (NASDAQ:AMZN) new Inferentia chip, which is being mass produced and will be shipped in Q4, can increase the company’s AWS division’s dominance in the cloud computing market. In a series of tweets on August 16, Mr. Kuo said:
“My latest survey indicates all-new design AWS Inferentia chip (Alchip being the ASIC design service provider) will start mass production/shipments in 4Q22. Thanks to the adoption of the 7nm advanced node (vs. existing 16nm), it markedly improves performance & latency.
From Amazon’s last earnings call, AWS’s revenue beats the market consensus and is a critical profit driver amid the recession. The new AWS Inferentia can strengthen AWS’s competitiveness and growth momentum further.
For Alchip, the new AWS Inferentia with a higher unit price can benefit revenue/profits and increase the proportion of US customers to lower geopolitical risks.”
5. Meta Platforms, Inc. (NASDAQ:META)
AQR Capital Management’s Stake Value: $437,486,000
AQR Capital Management’s 13F Portfolio: 0.98%
Number of Hedge Fund Holders: 184
Despite many analysts considering Meta Platforms, Inc. (NASDAQ:META) a value buy at current levels, smart money investors seem to be fleeing the stock in droves. The ownership of a stake in Meta Platforms, Inc. (NASDAQ:META) among around hedge funds tracked by Insider Monkey has seen a steady decline to 184 at the end of June this year from 275 at the same time last year.
According to Bloomberg, US District Judge Edward Davila will hear Meta Platforms, Inc.’s (NASDAQ:META) plea against the Federal Trade Commission in December on a case related to the latter pre-emptively blocking the former’s acquisition of VR app maker Within. In July, the FTC had filed a suit to block Meta Platforms, Inc.’s (NASDAQ:META) $400 million acquisition of Within. Following this, on August 5, Meta Platforms, Inc. (NASDAQ:META) said that it is temporarily putting the acquisition on hold as it prepares to fight the FTC in court over this deal.
4. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
AQR Capital Management’s Stake Value: $557,382,000
Percentage of AQR Capital Management’s 13F Portfolio: 1.25%
Number of Hedge Fund Holders: 72
Apart from Intel Corporation (NASDAQ:INTC), Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) was another company that made it to Insider Monkey’s recently published lists 5 Stocks That Will Benefit from CHIPS Act and 5 Semiconductor Stocks to Buy on the Dip.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is one of the few companies currently facing double quandaries in the form of increasing tensions between China and Taiwan and a slowdown in the semiconductor industry. Yet, despite those concerns, Taiwan Semiconductor Manufacturing Company Limited’s (NYSE:TSM) stock has fallen only 19% in the last one year and is still up by more than 520% over the past 10 years.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) has been paying a dividend to its shareholders for many years in a row and, as of August 2022, pays an annual dividend of $1.93 per share, which, based on its current stock price translates to a dividend yield of 2.07%.
3. Alphabet Inc. (NASDAQ:GOOG)
AQR Capital Management’s Stake Value (Class A Stock): $619,843,000
Percentage of AQR Capital Management’s 13F Portfolio (Class A Stock): 1.4%
AQR Capital Management’s Stake Value (Class C Stock): $358,986,000
Percentage of AQR Capital Management’s 13F Portfolio (Class C Stock): 0.81%
Number of Hedge Fund Holders (Class A Stock): 191
Number of Hedge Fund Holders (Class C Stock): 153
AQR Capital Management reduced its stake in both class C and class A stock of search giant Alphabet Inc. (NASDAQ:GOOG) during the second quarter, yet the search giant was the fund’s third favorite stock pick in the tech sector. While AQR Capital Management cut its stake in the class C stock by 291,020 shares to 3,282,240 shares, it lowered its stake in the class A stock by 482,620 shares to 5,754,580 shares.
Funds tracked by us that disposed of their entire holdings in Alphabet Inc. (NASDAQ:GOOG) during Q2 included billionaire Jim Simons’ Renaissance Technologies and Crispin Odey’s Odey Asset Management Group.
Of the 20 analysts on Wall Street who cover Alphabet Inc. (NASDAQ:GOOG), 19 currently have a ‘Buy’ rating on the stock, and those 20 analysts have a consensus price target of $158.4, representing a potential upside of over 30%. On July 27, analysts at Piper Sandler reduced their price target on Alphabet Inc.’s (NASDAQ:GOOG) stock to $135 from $139 but maintained their ‘Overweight’ rating on it.
2. Microsoft Corp. (NASDAQ:MSFT)
AQR Capital Management’s Stake Value: $1,195,293,000
Percentage of AQR Capital Management’s 13F Portfolio: 2.7%
Number of Hedge Fund Holders: 258
Microsoft Corp. (NASDAQ:MSFT) retained its top spot as the most popular stock among hedge funds covered by Insider Monkey, with 258 hedge funds disclosing a stake in the company at the end of Q2, one less than the 259 that reported a stake at the end of the previous quarter. Also, billionaire Ken Fisher’s Fisher Asset Management increased its stake in the company by 3% to 28,694,382 shares and remained the hedge fund with the largest stake in Microsoft Corp. (NASDAQ:MSFT) at the end of Q2 among the 895 hedge funds we cover.
For the fourth quarter of its fiscal year 2022, Microsoft Corp. (NASDAQ:MSFT) reported earnings per share of $2.23 on revenue of $51.87 billion, missing analysts’ projections by $0.07 and $493.37 million, respectively. Nonetheless, most analysts covering the stock continue to remain bullish on it. On August 12, analysts at Guggenheim initiated coverage on Microsoft Corp.’s (NASDAQ:MSFT) stock with a ‘Neutral’ rating and a $292 price target.
1. Apple Inc. (NASDAQ:AAPL)
AQR Capital Management’s Stake Value: $1,329,757,000
Percentage of AQR Capital Management’s 13F Portfolio: 3%
Number of Hedge Fund Holders: 128
Apple Inc. (NASDAQ:AAPL) remained the apple of AQR Capital Management’s eye at the end of Q2. Not only did the company retain its spot as AQR Capital Management’s top stock pick from the technology sector, but it also remained the fund’s favorite stock pick overall at the end of June. The surprising part of that achievement was that AQR Capital Management reduced its stake in Apple Inc. (NASDAQ:AAPL) by 6% to 9,852,970 shares between April and June.
On August 18, celebrated tech analyst and founder of Loup Ventures, Gene Munster, appeared on CNBC and said that based on his analysis, 70% of Apple Inc.’s (NASDAQ:AAPL) current product offerings are ‘necessities’ and not what one would consider ‘discretionary spending.’ Mr. Munster also talked about how far he thinks the stock can go from here, saying:
“I think that from an upside potential, I think there is still measurable upside, I think 40%+ upside over the next couple years, around $250.”
On the same day, Bank of America’s Chief Market Technician, Stephen Suttmeier, released a note to clients in which he mentioned that if Apple Inc.’s (NASDAQ:AAPL) stock finds support near $157-$150 levels during a downturn, it will set a bullish head and shoulders continuation pattern. Mr. Suttmeier further argued that if that were to happen, the stock could march towards its December 2021 highs of $183 from $176, which will confirm the pattern and then the stock can see further upside to $230 levels.
You can also look at 10 Best Tech Stocks to Buy Now According to Lee Munder’s Hedge Fund and Levin Easterly Partners’ Latest Portfolio: Top 10 Stock Picks.
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Disclosure: None. Top 10 Technology Stocks to Buy According to Billionaire Cliff Asness is originally published on Insider Monkey.
