Investors Eye AI Stocks as US Market Shows Resilience Amid Rate Cuts

The US stock market is demonstrating notable resilience, even as warnings of an AI bubble circulate alongside concerns about the labor market. With the Federal Reserve entering a cycle of interest rate cuts and indications that trade tensions between the United States and China may soon ease, bullish sentiment is driving adjustments to year-end targets for the S&P 500.

Jim Lebenthal, a partner at Cerity Partners, expressed optimism during a recent appearance on CNBC. He noted that we are currently in a “trend is your friend” market, suggesting that investors should align with the prevailing bullish momentum. “You look at this and you do say, isn’t this already priced into the market? But that sort of analysis just doesn’t matter,” Lebenthal stated. He highlighted that even minor market dips see significant cash inflows from both retail and professional investors eager to catch up to their benchmarks. The prospect of a US-China trade deal could further propel the market, he added.

Top AI Stocks Capturing Hedge Fund Interest

As investors look for opportunities, particular attention is on stocks heavily favored by hedge funds. Research indicates that mimicking the top stock picks of successful hedge funds can lead to market outperformance. A recent newsletter highlighted a strategy that has returned 427.7% since May 2014, significantly outperforming its benchmark.

Among the stocks attracting attention is Joby Aviation Inc (NYSE:JOBY), which has garnered interest from 31 hedge fund investors. Following a recent $514 million discounted share sale, Josh Brown, CEO of Ritholtz Wealth Management, discussed the stock’s decline but maintained a bullish outlook. He likened Joby’s situation to that of Tesla, emphasizing that the ability to conduct a secondary offering reflects investor confidence. Brown remarked, “This is great news… Look at the demand that’s there to be invested in the low altitude economy.”

Another stock under scrutiny is Dell Technologies Inc (NYSE:DELL), with 54 hedge fund investors backing it. Ben Reitzes, head of technology research at Melius Research, highlighted Dell’s potential as enterprises increasingly adopt AI. He characterized Dell as a “cheap stock” and noted its plans for stock buybacks, stating, “There’s a shot that a lot of these hardware companies get over a market multiple or better.”

IBM, with 63 hedge fund backers, is also in focus. Reitzes discussed how AI has transformed the software landscape, presenting new opportunities for IBM. He believes the tech giant is successfully reinventing itself around infrastructure software, which is gaining traction in the market.

Prominent Stocks in the AI Landscape

Cisco Systems Inc (NASDAQ:CSCO), favored by 81 hedge fund investors, is seen as well-positioned amid rising AI demand. Jim Cramer noted Cisco’s unveiling of a new chip and networking system designed to connect AI data centers. He emphasized the attractiveness of Cisco’s valuation compared to its historical highs, stating, “Cisco makes a much lower 16-times-earnings stock, not 400-times earnings.”

Another semiconductor giant, Advanced Micro Devices Inc (NASDAQ:AMD), is favored by 113 hedge funds. Reitzes highlighted AMD as one of the “elite” semiconductor stocks, projecting substantial growth in the total addressable market for compute and networking, potentially reaching $2 trillion by 2030.

The tech sector also eyes Oracle Corp (NYSE:ORCL), which has 124 hedge fund investors. Lebenthal dismissed recent margin concerns as unsubstantiated rumors, affirming his belief in Oracle’s potential. The company recently reported significant increases in remaining performance obligations, indicating strong future revenue streams.

Broadcom Inc (NASDAQ:AVGO), backed by 156 hedge fund investors, is another stock being recommended for its role in the AI market. Cramer noted the rising demand for semiconductor stocks amid AI advancements, stating that the total addressable market for these companies could reach $2 trillion by the end of the decade.

Healthcare also sees movement, with UnitedHealth Group Inc (NYSE:UNH) attracting 159 hedge fund investors. Stephen Weiss, Chief Investment Officer at Short Hills Capital Partners, acknowledged the company’s leadership in the healthcare sector while raising concerns about its current stock valuation.

Finally, Alphabet Inc (NASDAQ:GOOG), which has 178 hedge fund backers, recently benefited from a favorable ruling in an antitrust case, attracting positive market sentiment. Lebenthal remarked on the stock’s recovery from initial negative reactions to comments made by Apple Services VP Eddy Cue regarding Google search trends.

Investors are closely monitoring these developments as they navigate the evolving landscape of AI and its implications for market performance. The combination of a strengthening economy and strategic stock selection could yield substantial returns in the coming months.