The Magnificent Seven continues to command a substantial portion of the market gains accumulated over the last few years. Investors and analysts alike are eagerly anticipating this earnings season to discern how these powerhouse companies will impact the market. On October 31, Christian Dery, the head of macro strategy at Capital Fund Management, engaged in an insightful interview with Yahoo Finance, where he analyzed the potential effects of the Magnificent Seven on market trends.
Dery pointed out that these tech juggernauts have expanded significantly, often experiencing market capitalization fluctuations ranging from $2 billion to as much as $400 billion in response to earnings announcements. He elaborated on the diverse nature of stocks within the S&P 500, indicating a marked independence among individual stocks, which suggests a relatively low correlation across the index.
Dery noted that generative AI and large language models (LLMs) differ dramatically from traditional software businesses. Consequently, the standard hyperscaling model associated with software cannot be applied in these cases. In the realm of software, each new customer typically lowers an organization’s marginal cost to nearly zero. In contrast, established tech companies, or “tech incumbents,” face the necessity of ramping up their capital expenditures to build advanced compute clusters and scale their operations, Dery explained.
The semiconductor industry, as of 2023, generated an impressive $3 billion in revenue, yet we have yet to pinpoint a definitive “killer” use case or witness significant returns from the abundant investments in generative AI. Dery stated that the market is becoming increasingly “discerning” regarding the quest for profitability since companies are now focusing intensively on capital expenditures and their future projections. He expressed particular interest in the CapEx forecasts for the Magnificent Seven, noting that any misses could trigger adverse reactions in their stock prices.
Dery reiterated that the market has yet to see a payoff from these investments; however, he remains optimistic about the long-term potential of capital expenditures from these tech giants. Though he is bullish on technological innovation and considers artificial intelligence to hold substantial transformative power, he has yet to observe viable outcomes. He emphasized that these companies are heavily investing in AI technologies to remain competitive in the evolving landscape, without a clear timeline for monetization of AI solutions.
While the market grapples with uncertainty, several firms are pouring resources into groundbreaking innovations as they lead the charge in a technological revolution.
In an effort to identify the top 10 innovative stocks favored by hedge funds, extensive research was conducted, analyzing various credible financial websites’ rankings. The sentiment surrounding hedge fund activity for each stock was examined, allowing us to select the most favored options. Our curated list ranks stocks in ascending order based on the number of hedge fund holders recorded as of the end of Q2 2024.
Why do we pay close attention to stocks heavily favored by hedge funds? The rationale is straightforward: our research indicates that mirroring the top stock picks of elite hedge funds can lead to outperformance in the market. Our quarterly newsletter has employed a strategy selecting 14 small-cap and large-cap stocks every quarter, achieving a remarkable 275% return since May 2014 and surpassing its benchmark by an impressive 150 percentage points (see more details here).
Micron Technology, Inc. (NASDAQ:MU) ranks seventh on our list of the best innovative stocks according to hedge funds. The company specializes in memory and storage products.
In fiscal year 2024, Micron Technology, Inc. (NASDAQ:MU) experienced remarkable growth, with revenue climbing by 62% and gross margins widening by over 30 percentage points thanks to advancements in its data center and automotive divisions. During this period, the company allocated $8.1 billion toward capital expenditures and projects even higher CapEx for 2025.
On October 15, Micron Technology, Inc. (NASDAQ:MU) unveiled a new suite of memory solutions designed to empower the next generation of AI-driven PCs. Dinesh Bahal, the company’s corporate vice president, emphasized the urgency for a shift in memory paradigms as AI technology continues to advance. In alignment with this vision, Micron is diligently working to address the upcoming requirements for AI workloads. Additionally, the company is collaborating with Intel to deliver next-generation computing performance to the market.
Micron Technology, Inc. (NASDAQ:MU) is redirecting its entire focus to meet the increasing demands of artificial intelligence and data center clients, two of the fastest-growing segments in the technology landscape. With an anticipated surge in server unit shipments, the company is poised to capitalize on the escalating demand for AI servers, solidifying its position as a key player in this burgeoning sector.
Baird Chautauqua International and Global Growth Fund provided insights regarding Micron Technology, Inc. (NASDAQ:MU) in its Q3 2024 investor letter:
“Following a 54% appreciation in Micron Technology, Inc.’s (NASDAQ:MU) stock price in the first half of 2024, investor concerns have emerged regarding potential weaknesses in the memory market, uncertain cyclical recovery, and the rationality of competitor Samsung in its capacity expansion strategies. Nevertheless, we uphold a long-term positive outlook on the industry’s demand and supply dynamics. Micron stands out for its technological capabilities, and we anticipate its margins will continue on an upward trajectory.”
Overall, MU ranks 7th in our compilation of the top innovative stocks for investment as noted by hedge funds. While we recognize the potential for MU’s growth, our stronger conviction lies in our belief that particular AI stocks present even greater promise for delivering superior returns in a shorter timeframe. For those seeking an AI stock with more potential than MU, yet trading at less than five times its earnings, we invite you to explore our report detailing the cheapest AI stock.
### Interview with Christian Dery on Market Trends and the Magnificent Seven
**Interviewer:** Welcome, Christian Dery, head of macro strategy at Capital Fund Management. Thank you for joining us today, especially amidst this buzzing earnings season. The Magnificent Seven are always in the spotlight. What are your thoughts on how these tech giants might influence market trends this earnings season?
**Christian Dery:** Thank you for having me. The Magnificent Seven undoubtedly hold significant weight in the market. Their earnings reports can swing market capitalization by impressive margins, anywhere from $2 billion to as high as $400 billion. That level of volatility captures the attention of investors eager to understand the broader market dynamics.
**Interviewer:** You mentioned that these companies operate somewhat independently within the S&P 500. Can you elaborate on that point?
**Christian Dery:** Absolutely. While we often see trends across the index, the independency among individual stocks, especially in the tech sector, is becoming more pronounced. This suggests that one company’s performance doesn’t necessarily reflect the movement of the entire index, which presents both opportunities and risks for investors.
**Interviewer:** That’s interesting. You also highlighted a crucial distinction between generative AI and traditional software companies. What should investors consider about this?
**Christian Dery:** Yes, generative AI and large language models present a different operating model than the standard software hyperscaling approach. With traditional software, acquiring new customers lowers marginal costs almost to zero. However, with generative AI, established tech companies must increase their capital expenditures significantly to develop the necessary computing infrastructure. This requires a new strategic outlook for both investors and the companies themselves.
**Interviewer:** Speaking of capital expenditures, you mentioned that the market is becoming increasingly discerning regarding profitability. What are you expecting from the CapEx forecasts of the Magnificent Seven?
**Christian Dery:** CapEx will be critical this earnings season. Any setbacks or misses in forecasts could lead to negative reactions in stock prices. While we haven’t yet seen direct payoffs from heavy investments in AI technologies, I’m cautiously optimistic about the long-term potential. The key will be in how these companies manage their expenditures and how that translates into future growth.
**Interviewer:** Lastly, could you share your insights on Micron Technology and its recent performance?
**Christian Dery:** Micron is a fascinating example. It has shown remarkable growth, particularly with a 62% revenue increase driven by advancements in its data center and automotive divisions. Their focus on AI-driven memory solutions reflects a larger trend in the industry. With significant investment in capital expenditures, they seem well-positioned to meet the increasing demand from AI workloads, solidifying their role in this evolving landscape.
**Interviewer:** Thank you, Christian, for sharing your valuable insights on these pivotal market developments. It will be intriguing to observe how these earnings results unfold.
**Christian Dery:** Thank you for having me. I look forward to discussing these trends as they develop further in the coming weeks.
