Meta Platforms, Inc. (NASDAQ:META), Tesla, Inc. (NASDAQ:TSLA), and Salesforce, Inc. (NYSE:CRM) are some of the hottest stocks on the market this year, which is likely of little surprise to their bullish hedge fund shareholders, which own each of them in significant quantities.
Stocks are off to a strong start in 2023 as they look to rebound from an underwhelming 2021 and an even poorer 2022. The SPDR S&P 500 ETF Trust has gained 11.9% this year on the heels of 19.5% losses in 2022, while the NYSE is up a more modest 1.3% after 11.5% losses last year. The biggest winners though have been tech stocks, as the Nasdaq has soared by 26.9% year-to-date following a 33.1% decline in 2022.
That’s left no shortage of hot stocks to buy according to hedge funds, with several of their top 10 most popular stocks all delivering big returns this year, while the majority of stocks on this last, all of which have gained at least 30% in 2023, rank among their 30 most popular stocks. Unsurprisingly, tech stocks occupy most of the spots on this list, with AI being a key theme that is driving many of their results to new heights or expanding their capabilities in exciting ways.
To determine which hot stocks to buy according to hedge funds, you first need to know how to find out what hedge funds are buying. Insider Monkey specializes in exactly that, publishing dozens of articles quarterly on the latest hedge fund activity according to their most recent 13F filings with the SEC, in which hedge funds with more than $500 million in assets under management must disclose their holdings.
Insider Monkey also compiles the quarterly ownership data from a select group of 900+ top performing funds to create industry and other theme-specific lists of what stocks hedge funds are buying now, so investors can get a quick snapshot into how some of the brightest minds in the investment world feel about the prospects of companies compared to their rivals in various industries and sectors.
Critics sometimes point to the fact that any list of the hot stocks to buy according to hedge funds is already outdated by the time their holdings data becomes available, given that most hedge funds don’t disclose their holdings until the 13F filing deadline approximately six weeks after the date on which they’re reporting their holdings. However, given their general focus on long-term investing, this criticism is relatively unwarranted and makes them the ideal investors to piggyback for anyone who’s looking to build a portfolio of diversified assets with great long-term potential.
That’s not to say we don’t see significant swings in hedge fund ownership of certain stocks each quarter, as just a single event or earnings report can dramatically alter the long-term outlook for companies. In other cases, some of the hottest stocks to buy according to hedge funds see slight declines in ownership in the following quarter(s) simply because they’ve been doing so well and may have reached a valuation point that has surpassed the fair value estimates that some funds have on those stocks.
With all of that in mind, let’s check out 12 hot stocks to buy according to hedge funds, which have enriched their shareholders with at least 30% returns this year.
The following list of the hottest stocks to buy according to hedge funds are ranked based on hedge fund sentiment and include only the most popular stocks among hedge funds which have posted at least 30% gains year-to-date. We follow a select group of hedge funds because Insider Monkey’s research has uncovered that their consensus stock picks can deliver outstanding returns.
All hedge fund data is based on the exclusive group of 900+ funds tracked by Insider Monkey that filed 13Fs for the Q1 2023 reporting period.
12 Hot Stocks to Buy According to Hedge Funds
12. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Number of Hedge Fund Shareholders: 102
Year-to-Date Return (through June 5): 32.3%
Salesforce, Inc. (NYSE:CRM), Meta Platforms, Inc. (NASDAQ:META), and Tesla, Inc. (NASDAQ:TSLA) are a few of the hottest stocks buy according to hedge funds, who own large stakes in all of those high-performing stocks. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is another hot stock hedge funds love, having hit an all-time high in hedge fund ownership during Q1, topping 100 for the first time. The number of smart money TSM shareholders has more than doubled over the last four years. Lee Ainslie’s Maverick Capital and Stanley Druckenmiller’s Duquesne Capital were among the funds to add TSM to their 13F portfolios during Q1.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is the first of several semiconductor stocks to make the list of hot stocks to buy according to hedge funds thanks to its dominant position in the high-performance chip market, where it currently controls close to a 90% share of the global market. As the demand for top-of-the-line chips intensifies in the coming years thanks to the expected robust growth in AI and cloud computing applications, Taiwan Semiconductor appears poised to continue its impressive growth and further grow its already-strong margins.
Wedgewood Partners likes Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)’s long-term growth outlook, as relayed in its Q1 2023 investor letter:
“Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) contributed to performance as revenues grew +27% (in USD) from the year ago quarter. Despite this strength, the Company’s customers have seen near-term weakness in demand due to Covid-19 normalization as well as the launch timing of new products. However, the Company is well-positioned to continue a long-term growth trajectory because its leading-edge capacity is being absorbed by high-performance computing applications, particularly at nontraditional integrated circuit (IC) design houses, such as Apple, Alphabet and Amazon, which have become IC-design powerhouses over the past decade. Importantly, the Company’s aggressive investment in leading-edge equipment, tight development with fabless IC designers, and embrace of open development libraries, should continue to foster a superior competitive position and attractive long-term growth.”
Micron Technology, Inc. (NASDAQ:MU) shares have rallied this year after a miserable 2022 that saw them lose 46% of their value. While they still have a ways to go to make up all of those losses, their 38.2% gains year-to-date have convinced several hedge funds to go long MU, including Rajiv Jain’s GQG Partners, which bought nearly 4.3 million MU shares in Q1.
Despite recently being banned in China when it comes to certain critical infrastructure projects and installations, Micron Technology, Inc. (NASDAQ:MU) shares have outperformed even TSM’s this year, gaining 35% year-to-date. According to Bernstein analyst Mark Li, the impact of the China ban should be relatively negligible for Micron in the grand scheme of things, as Micron’s enterprise segment accounts just 20% of overall revenue, with China’s portion of that likely accounting for as little as 2% of overall revenue.
Claret Asset Management noted that Micron Technology, Inc. (NASDAQ:MU) shares had lost nearly half their value through the first nine months of 2022 in the fund’s Q3 2022 investor letter:
“Inflation is still higher than interest rates… not an incentive to save for most people. Either inflation must come down or interest rates have to go up further. Or both. And probably both. Now that they are taking the punch bowl away and the party is over, what happens next? For whatever reason, the stock market seems to always precede the economic reality: Micron reached a high of $98.45 on January 5th, 2022 and is trading at $50.00 today.”
Microsoft Corporation (NASDAQ:MSFT) is the most popular stock among hedge funds in terms of single-ticker ownership (Alphabet has more hedge fund shareholders combined between its two tickers) and it hasn’t disappointed smart money managers this year, returning 36% year-to-date. Unsurprisingly, The Bill & Melinda Gates Foundation Trust, managed by Michael Larson, is the largest MSFT shareholder with 39.3 million shares. Its 13F portfolio has 31% exposure to Microsoft.
Microsoft Corporation (NASDAQ:MSFT) is taking some intriguing steps to eat into Google’s search dominance, having recently integrated its own search engine Bing into the AI chatbot ChatGPT, a move that was facilitated by Microsoft’s earlier $13 billion investment in the AI platform’s creators, OpenAI. The tech giant is also gaining a strong foothold in the cloud computing space, as Azure is slowing gaining market share on Amazon’s AWS.
Alger Spectra Fund discussed the latest AI innovations at Microsoft Corporation (NASDAQ:MSFT) in its Q1 2023 investor letter:
“Microsoft Corporation (NASDAQ:MSFT) is a beneficiary of corporate America’s transformative digitization. Microsoft’s CEO expects technology spending as a percent of Gross Domestic Product (GDP) to jump from about 5% now to 10% in 10 years and that Microsoft will continue to capture market share within the technology sector. The company operates through three segments: Productivity and Business Processes (Office. LinkedIn, and Dynamics), Intelligent Cloud (Server Products and Cloud Services. Azure, and Enterprise Services), and More Personal Computing (Windows Devices, Gaming, and Search). While the company reported decent fiscal second quarter results, their investment in OpenAl’s ChatGPT captured the attention of investors. Contributing to positive performance. Throughout the quarter. Microsoft surprised investors with continual rollouts of new Al capabilities across the company’s portfolio (e.g., Bing, GitHub. Teams, Office 365). Furthermore, the company announced Microsoft 365 Copilot, which leverages GPT-4, a large language model, combined with the Microsoft Graph of data to provide Al virtual assistance. We believe Microsoft’s investment in OpenAl provides a first-mover advantage in the Al transformer model space. Despite challenges in the early days of Al-powered applications, the pace of Al innovation is faster than any other enterprise technology previously observed, in our view.”
Number of Hedge Fund Shareholders: 204 (GOOGL)/155 (GOOG)
Year-to-Date Return (through June 5): 41.2%
Hedge fund ownership of Alphabet Inc. (NASDAQ:GOOG) peaked at the end of 2021 with nearly 400 long positions in the company’s class A and class C shares being held by hedge funds (some of which owned both classes). That was followed by a 6.9% drop in ownership during the first-half of 2022 and another slight dip in the first quarter of this year.
Considering the broad questions facing the long-term viability of Google Search in the age of AI, as outlined in the Microsoft writeup above, it’s perhaps somewhat surprising to see Alphabet Inc. (NASDAQ:GOOG) shares up 41% this year. That said, the effect of ChatGPT/Bing on Google Search’s market share has been negligible thus far. In fact, Google’s market share rose by 20 basis points to 92.8% in April compared to December 2022, when ChatGPT was first unleashed. And while Search undoubtedly remains the company’s bread-and-butter when it comes to ad revenue, it also has a strong cloud division that grew revenue by 28% in Q1, while YouTube remains the world’s dominant streaming platform with more than 2 billion monthly active users.
The Diamond Hill Large Cap Strategy detailed why Alphabet Inc. (NASDAQ:GOOG) was one of its strongest Q1 performers in the fund’s Q1 2023 investor letter:
“We did have several strong performing stocks this quarter. Our top contributors to return included NVR, Amazon, Alphabet Inc. (NASDAQ:GOOG), Microsoft and Booking Holdings, all of which posted double-digit gains. Shares of media and technology giant Alphabet outperformed as the company announced expense discipline while continuing to invest in its core products of Google Search, YouTube and Google Cloud.”
Shares of SaaS workflow platform operator ServiceNow, Inc. (NYSE:NOW) have shot up by 38% in 2023 as the company continues to grow its business at an impressive rate. Hedge funds may be getting concerned about the stock’s valuation, as their ownership of NOW has ticked down slightly for three straight quarters, but it nonetheless remains one of the 30 most popular holdings among smart money managers.
ServiceNow, Inc. (NYSE:NOW) is also turning to AI to bolster the digital transformation suite of services that it offers clients, including recently launching an AI collaboration with NVIDIA Corporation (NASDAQ:NVDA), one of the hottest stocks on the planet in 2023 (look for it in the second half of this article). The company will use Nvidia’s software to train its own proprietary AI algorithms in how to better manage workflows and disrupt bottlenecks. ServiceNow is also well on the path to profitability, which has investors excited about the stock’s near-term and longer-term outlook.
The Polen Global Growth Strategy believes ServiceNow, Inc. (NYSE:NOW) can grow free cash flow at a greater than 20% annualized rate over the next three-to-five years, which it outlined in its Q4 2022 investor letter:
“ServiceNow, Inc. (NYSE:NOW) is an $80 billion market cap business based in California. Its purpose is to make the world of work, work better for people. Getting a job done in an enterprise (what the company refers to as “workflow”) usually requires different people in various functions of an organization to work together. Often, they rely on different technology systems and inefficient manual processes to complete each step of the job before moving on to the next.
Apple Inc. (NASDAQ:AAPL) is another prominent tech company that’s rallied in 2023, gaining over 38%. That’s great news for investing icon Warren Buffett, whose 13F portfolio has unprecedented exposure to the mobile tech giant at 46.4% as of March 13. Overall, there was a slight drop in hedge fund ownership of Apple during Q1.
Apple Inc. (NASDAQ:AAPL) shares slumped by 27% in 2022 but have quickly made up those losses this year, having pushed back near their all-time highs. While the iPhone still accounts for over 50% of Apple’s revenue, its higher-margin services segment continues to grow at an accelerated rate, hitting $20.9 billion in revenue during the company’s fiscal Q2 of 2023. That robust services segment also gives Apple an impressively high moat, as it keeps customers insulated within its own ecosystem, which is undoubtedly why Buffett is such a fan of the company.
RiverPark Large Growth Fund believes Apple Inc. (NASDAQ:AAPL) is still one of the most innovative and well-positioned mobile tech companies in the world, as it divulged in its Q1 2023 investor letter:
“Apple Inc. (NASDAQ:AAPL): Apple shares were our final top contributor for the quarter. While the company reported a rare quarterly earnings miss, investors had expected slower sales due to macro headwinds. Services continue to be a bright spot for the company with an all-time high of $21 billion in quarterly revenue, a 6% year-over-year increase, and management expects iPhone revenue growth to re-accelerate in 2Q. Operating Cash Flow was $34 billion for the quarter, and the company returned $23 billion to shareholders in the last three months, including $4 billion in dividends and $19 billion in share repurchases.
There was a 25% drop in hedge fund ownership of CrowdStrike Holdings, Inc. (NASDAQ:CRWD) during the final quarter of 2022 as investors worried about weakening demand for the company’s cybersecurity offerings. There was a slight 9% rebound in hedge fund positions in Q1, during which Crowdstrike posted promising Q4 results and boasted a record Q1 pipeline.
Closing out the first half of our list of hot stocks to buy according to hedge funds is CrowdStrike Holdings, Inc. (NASDAQ:CRWD), yet another company that has been successfully using AI, in this case to bolster the speed and efficiency of its cybersecurity solutions. CrowdStrike’s extensible platform has clearly struck a positive note with the majority of its clients, over 60% of which use at least five of the company’s modules. CrowdStrike isn’t overly profitable yet, but it is beginning to generate more free cash flow, a figure which could top $1 billion in the company’s current fiscal year.
Artisan Developing World Fund discussed CrowdStrike Holdings, Inc. (NASDAQ:CRWD)’s latest financial results in its Q1 2023 investor letter:
“Top contributors to performance for the quarter included graphics semiconductor company Nvidia, Southeast Asian e-commerce platform Sea, Latin American marketplace MercadoLibre, online travel marketplace Airbnb, and endpoint security company CrowdStrike Holdings, Inc. (NASDAQ:CRWD). CrowdStrike rebounded as its financial results eased demand-related concerns in its core endpoint business, while adoption in platform adjacencies continued to rise.”
Tesla, Inc. (NASDAQ:TSLA), Salesforce, Inc. (NYSE:CRM), and Meta Platforms, Inc. (NASDAQ:META) have performed even better than the aforementioned seven stocks this year, and are also highly regarded by world-class hedge funds. Check out all the details by clicking the link below.
