“Show me the money!” The popular catchphrase shouted by Tom Cruise’s character in the movie Jerry Maguire is very relatable to investing. Show me where the smart money is going and you can probably uncover a stock worth betting on.
If these billionaire investors are putting big money on the line then there is a good chance the stock will be ready to move higher. Of course, we don’t simply blindly follow the money into hedge fund stocks they like. Sometimes the smart money can be very dumb. That’s why we perform our own due diligence. We don’t want to follow the money right into a big burn pit.
Yet seeing where hedge funds are investing is a way to narrow down the vast universe of stocks into a more manageable list. Every quarter, hedge funds are required to file with the Securities & Exchange Commission a 13-F form which shows all the stocks the fund owns. It tells us how many shares they bought and sold.
Below are three hedge fund stocks the smart money has been piling into lately. They represent an excellent place to start your investigation into whether they belong in your portfolio as well.
Adobe (ADBE)
Over the first six months of 2024, hedge funds were buying cloud software giant Adobe (NASDAQ:ADBE). It is unrivaled in content creation software. From image editing (Photoshop) and video editing (Premiere) to simple document files (Acrobat), Adobe revolutionized the world of digital manipulation.
Over the 10-year period between 2011 and 2021, Adobe stock was unstoppable. It soared 2,300% compared to a 250% return by the S&P 500. Its subscription model invited return users and there were few replacements for its digital tools. Over the past three years, though, it has been a different story. Shares are down 16% and at one point Adobe had lost 40% of its value. The advent of generative artificial intelligence didn’t help as the market wondered whether AI would eliminate the need for the software giant’s products.
Those worries were proved misplaced. Adobe integrated AI into its tools and actually made them even more relevant. Second-quarter revenue hit a record $5.3 billion, up 10% year-over-year, with adjusted profits of $4.48 per share, up 15% from $3.91 per share.
Although early into the stock, Viking Global Investors bought over 562,000 shares of Adobe in the first quarter. With an average buy-in price of $550 per share, its holding of this hedge fund stock is valued at $284 million. The fund is breaking even now but should see further upside going forward.
Salesforce (CRM)
The State Street (NYSE:STT) hedge fund was already a significant holder of Salesforce (NYSE:CRM) stock with 46 million shares at the end of 2023 but in the first quarter it bought another 1 million shares. With an average buy-in price of $131 a stub, State Street’s stake is worth $14.2 billion and is up 89%.
The tranche it just bought might be slightly underwater depending upon when it bought shares but Salesforce has significantly more growth in store. The customer relationship management leader also used the proliferation of AI to enhance its product offerings. Its AI platform, Einstein GPT Copilot, offers predictive analytics and personalized recommendations. Salesforce says Einstein is generating hundreds of billions of predictions per day and trillions per week.
The platform is helping to drive sales too. In its fiscal 2025 first quarter, 25% of its sales are now from customers spending $1 million or more.
Salesforce stock is down 6% in 2024 but is up 28% from its lows and should continue moving higher with the aid of its Einstein AI platform.
Taiwan Semiconductor Manufacturing (TSM)
It is probably no surprise hedge funds are swarming into Taiwan Semiconductor Manufacturing (NYSE:TSM).Because demand for AI chips is unrelenting, the world’s largest pure-play foundry has been running full-tilt to keep up. Even when it was thought a slowdown would hit the semiconductor market, TSM said it wouldn’t affect its business.
June sales soared 33% year-over-year to $6.4 billion, easily trouncing Wall Street’s expectations of $5.7 billion. Second quarter sales were 40% higher year-over-year.
It probably didn’t take a crystal ball to see that Taiwan Semiconductor Manufacturing would benefit from AI but Phillipe Lafont at Coatue Management bet big. Really big. He bought 10 million shares of TSM earlier this year, a 3,200% increase in his holdings. His stake is now worth $1.4 billion, a 39% increase on his average buy-in price.
AI demand is not going to let up anytime soon and Taiwan Semiconductor makes chips for all the leading chipmakers, especially Nvidia (NASDAQ:NVDA), Advanced Micro Devices (NASDAQ:ADM) and Qualcomm(NASDAQ:QCOM). It makes TSM the top hedge fund stock to buy.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor held a long position in NVDA.