We recently published our list of “7 Biggies to Forget: Analysts Discuss the ‘Big 10’ AI Stocks for 2024,” and Micron Technology Inc (NASDAQ:MU) is ranked No. 8 on the list, so it’s worth taking a closer look.
When the AI revolution began with the launch of ChatGPT, investors began pouring money into a handful of companies that were leading AI technology development thanks to their industry position and endless free cash flows. Market analysts quickly began to point out the phenomenon of profit concentration in the market: just a few stocks account for most of the overall market profits. This technology concentration is still strong today, with every significant AI or cloud technology we see in the news being developed, acquired, or sold by a mega-cap technology company that everyone knows. In a recent report, Bank of America analyst Michael Hartnett noted that while the S&P 500 is up about 12% so far this year, if you exclude 10 technology companies, these gains shrink to just 3.6%. Hartnett calls these companies the “AI Big Ten” group.
What about the Magnificent Seven group of stocks that stole the show in 2023 and early 2024? Hartnett calculated that if you excluded these seven stocks, the overall market would have risen only 4.9% so far this year. There is a third group of stocks that most investors don’t know about: the top 30 hedge funds. These 30 stocks include the Magnificent Seven as well as 23 other promising stocks. These 30 stocks returned 53.2% in 2023 and 20.2% in the first five months of 2024, compared to 11% for the S&P large-cap index. You can see the latest list here: 31 Most Popular Hedge Fund Stocks.
In this article, we look at the Big 10 AI stocks that Bank of America analyst Michael Hartnett covered in his report. For each stock, we include the number of hedge fund investors at the end of the March quarter. Why are we interested in stocks that hedge funds are flocking to? The reason is simple: our research shows that you can outperform the market by mimicking the top stocks selected by the best hedge funds. Our quarterly newsletter strategy, which selects 14 small and large stocks each quarter, has returned 275% since May 2014 and outperformed its benchmark by 150 percentage points (more here).
The story continues
Forget the Magnificent 7. Analysts are talking about Micron Technology Inc. (NASDAQ:MU) among the “Big 10” AI stocks for 2024.
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Micron Technology, Inc. (NASDAQ:MU)
Number of hedge fund investors: 115
Wall Street is keeping a close eye on Micron Technology Inc. (NASDAQ:MU)’s rise in the AI industry dominance hierarchy. Bank of America believes Micron Technology Inc. (NASDAQ:MU) will be one of the Big 10 AI stocks in 2024 after a massive rally of about 62% so far this year.
UBS recently maintained a buy rating on Micron Technology Inc. (NASDA:MU) and raised its price target on the stock from $125 to $155, citing its industry research suggesting rising prices in the DRAM and NAND memory industries. UBS said Micron Technology Inc. (NASDA:MU)’s valuation could become attractive once gross margins peak in the fourth quarter of 2025. UBS expects Micron Technology Inc. (NASDA:MU) to earn EPS of approximately $17.50 in 2025.
In the second quarter, three of the four segments posted year-over-year growth of 50%. On a consolidated basis, Micron Technology Inc (NASDA:MU) posted 58% year-over-year revenue growth. In the third quarter, Micron Technology Inc (NASDA:MU) expects revenue growth to increase to 76%. Analysts expect Micron Technology Inc (NASDA:MU) to continue to accelerate growth as demand for the company’s chips powering cloud and AI servers increases. One of Micron Technology Inc’s (NASDA:MU) best-known AI chips, the Micron HBM3E, has already sold out of most of its 2024 and 2025 supplies.
According to data compiled by Yahoo Finance, Wall Street expects Micron Technology Inc (NASDA:MU) revenues to grow a total of 44% in 2025, with profits expected to grow 750% the following year. The stock has a forward P/E ratio of 18, but this figure will be justified if Micron Technology Inc (NASDA:MU) can deliver sustainable growth in the coming months.
In its fourth-quarter 2023 investor letter, Sequoia Fund said the following about Micron Technology Inc. (NASDAQ:MU):
“Last year’s divestments included Netflix, Bank of America and Micron Technology Inc. (NASDAQ:MU). As we discussed in our second quarter shareholder letter, we divested from Micron because rising geopolitical tensions have undermined our rationale for the investment. These tensions have increased investment risks in the high-performance semiconductor industry. While these risks are tolerable, we believed it was prudent to reduce our portfolio exposure. We believe Bank of America and Micron were purchased conservatively given the facts at hand, but the facts have changed and we have moved on.”
Overall, Micron Technology Inc (NASDAQ:MU) ranks 8th on Insider Monkey’s “Forget Magnificent 7: Analysts are Talking About ‘Big 10’ AI Stocks in 2024” list. While we acknowledge the potential of Micron Technology Inc (NASDAQ:MU), we believe AI stocks are more likely to deliver higher returns and do so in a shorter time frame. If you’re looking for AI stocks that are more promising than Micron Technology Inc (NASDAQ:MU) but still trade at less than 5 times earnings, check out our report on the cheapest AI stocks.
Read next: Analyst sees new $25 billion ‘opportunity’ in NVIDIA, Jim Cramer recommended these 10 stocks in June.
Disclosures: None. This article was originally published on Insider Monkey.
