Because hedge funds employ complex financial analysis, they're often able to find stocks with above-average value or growth potential. If a stock is popular with hedge funds, that's one sign it could be a quality investment.
As artificial intelligence (AI) technology has become more sophisticated, hedge funds have invested heavily in AI stocks. But it's a top-heavy market so far, with a few AI companies getting most of the attention.
We ranked hedge fund interest in AI stocks based on five metrics:
- Net change in holdings to track buying and selling trends for shares of the stock.
- Percentage of hedge funds holding the stock.
- Number in top 10 holdings to show how many hedge funds have a high level of conviction in the stock.
- Quarter-over-quarter (QoQ) 13F market cap changes tracking if hedge funds are increasing or decreasing their exposure to the stock.
- Put/call ratio to assess bullish or bearish sentiment, with a lower ratio indicating a bullish sentiment.
Based on that methodology, hedge funds tend to favor tech giants that have integrated AI across their businesses, like Microsoft (MSFT -1.44%), Amazon (AMZN -1.57%), [Alphabet’s] Google (GOOG +1.05%), and Nvidia (NVDA +0.47%). Funds are less bullish on companies that provide nice AI applications.
The AI Stocks Hedge Funds Love
The Top 5 Stocks Hedge Funds Are Bullish About
1. Microsoft
Why Hedge Funds Love It
- Microsoft is the most popular AI stock among hedge funds, with 45% holding it and 527 having it in their top 10.
- It has invested in and partnered with OpenAI, the company behind ChatGPT.
- It launched Microsoft Copilot, an everyday AI companion and one of its most notable AI products, in 2023.
Key Metrics
- Net Change in Holdings: -8,147,380
- Percent of Hedge Funds Holding: 44.76%
- Appearances in Top 10 Holdings: 527
- QoQ Market Cap Change: -6%
- Put/Call Ratio: 1.10
2. Amazon
Why Hedge Funds Love It
- Amazon comes in second for fund ownership of AI stocks, as 42% of hedge funds are holding it. The retail giant is one of the top 10 holdings for 393 hedge funds.
- It has incorporated AI technology into its business for decades, starting with personalized product recommendations in the 1990s.
- AI powers its virtual assistant, Alexa, as well as its forecasting, supply chain, and capacity planning. It’s also rolling out generative AI features for AWS users, in its fulfillment operations, and for buyers and sellers in its ecommerce business.
Key Metrics
- Net Change in Holdings: -64,316,749
- Percent of Hedge Funds Holding: 41.79%
- Appearances in Top 10 Holdings: 393
- QoQ Market Cap Change: -9%
- Put/Call Ratio: 1.27
3. Meta Platforms
Why Hedge Funds Love It
- Meta Platforms (META -1.74%) has one of the lowest put/call ratios at 0.87, indicating hedge funds are feeling bullish about this stock.
- This company's market cap is up 11% quarter over quarter, and more than one-third (37%) of hedge funds are holding it.
- Meta released a large language model (LLM), Llama, in February 2023, and Meta AI Assistant in April 2024.
- Advertising makes up the bulk of Meta's revenue, and it provides businesses with generative AI tools to improve ad performance.
Key Metrics
- Net Change in Holdings: -2,628,023
- Percent of Hedge Funds Holding: 37.11%
- Appearances in Top 10 Holdings: 300
- QoQ Market Cap Change: 11%
- Put/Call Ratio: 0.87
Methodology
The Motley Fool selected 20 stocks with strong AI capabilities to analyze. To rank stocks, the Motley Fool analyzed the following metrics: net change in holdings, percentage of hedge funds holding a stock, inclusion in top 10 holdings, quarter-over-quarter market cap changes, and the put/call ratio. Each metric was normalized and then weighted. The weights are as follows:
- Net Change: 0.3
- Percent Hedge Funds Holding: 0.2
- Number in Top 10 Holdings: 0.25
- Quarter-Over-Quarter Market Cap Change: 0.15
- Put/Call Ratio: 0.1
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