Heading into next year, the outlook for artificial intelligence is quite optimistic. It is anticipated that the AI boom will continue boosting US stocks next year, supporting economic growth. However, there is a looming risk of rising U.S. government debt levels which could threaten its upbeat 2025 forecasts at the same time. As per the BlackRock Investment Institute, technological innovations in AI will benefit US stocks more than their European peers.
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Meanwhile, private markets will increasingly play a key role in financing AI-related infrastructure. The institution further stated that economic growth may cool next year, but it is anticipated that the Federal Reserve will not be able to lower interest rates meaningfully given that inflation remains sticky and above the central bank’s target.
“We’re watching very closely rate repricing dynamics, we’re also watching very closely tariffs announcements that can lead to higher inflation expectations and markets volatility”.
-Chief Investment Strategist Wei Li
The current year was marked by concerns over the high valuations of the Mag 7 stocks, and investors are keenly watching how things will turn out this year. In particular, Citigroup analysts are generally optimistic for 2025, noting how the Magnificent 7 isn’t trading at unprecedented valuations. Instead, it is the other S&P-500 stocks that are at a higher risk.
On the other hand, Goldman Sachs analysts anticipate that the Magnificent 7 will continue outperforming the rest of the S&P-500 in 2025, albeit only by 7 percentage points. This is the lowest amount that it has witnessed in seven years. In turn, UBS analysts anticipate 16% earnings growth in 2025 for AI-related companies and the broader technology sector.
“With big tech looking to spend over USD 200bn in capex this year, we believe further innovation is in store for the technology. AI is disrupting traditional industries, from video-making and music, to education, to name a few”.
– Solita Marcelli, chief investment officer Americas
Even though there is optimism around AI, some experts are also advising caution. An MIT economist Daron Acemoglu estimates that only 5% of jobs will be replaced or substantially assisted by AI within the next decade. This prediction warns of potential overinvestment and the risk of an economic downturn, similar to the dot-com bubble in the early 2000s. Looking at different analyst’s predictions, it is safe to say that while AI is poised to drive significant advancements and economic growth by 2025, adopting a balanced approach will help in fully harnessing its potential.
For this article, we selected AI stocks by going through news articles, stock analysis, and press releases. These stocks are also popular among hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A scientist at a computer station, surrounded by a neural network of artificial intelligence code.
10. Quantum Corporation (NASDAQ:QMCO)
Quantum Corporation (QMCO) provides leading data storage, archive, and protection solutions. On December 18, the company announced that it has developed a parallel file system client for the Quantum Myriad® all-flash file system. The direct client is designed to work with NVIDIA GPUDirect Storage® and ARM-based architectures like NVIDIA Grace Hopper. The new system is an innovative method to build artificial intelligence and machine learning infrastructure, letting customers add powerful new graphics processing unit (GPU) nodes to Myriad clusters. This will help them adapt to changing workflows. It is designed to maximize GPU utilization and performance, making it ideal for GPU-intensive workloads such as AI/ML model training and inferencing, high-performance computing (HPC) visualization and modeling, and video rendering.
“Myriad’s parallel client development is guided by our vision to make Myriad the most capable, most flexible and easiest to use all-flash storage solution. The new client brings unique capabilities by running as a fully integrated GPUDirect Node on client systems. Unlike traditional parallel file system clients, which rely on other appliances to perform these operations on their behalf, Myriad’s client performs its own metadata operations, data reduction, and data protection operations. This approach minimizes common bottlenecks, lets customers maximize their GPU investment across architectures, and allows performance to scale with the number of parallel clients accessing the Myriad system”.
-Jeff Mulder, chief development officer, Quantum.
9. Tempus AI, Inc (NASDAQ:TEM)
Number of Hedge Fund Holders: 7
Tempus AI, Inc (NASDAQ:TEM) is a healthcare technology company that provides AI-enabled precision medicine solutions. On December 18, the company announced that it has secured agreements for in-network provider status with Blue Cross Blue Shield (BCBS) of Illinois, Blue Shield of California, and Avalon Healthcare Solutions, a laboratory benefit manager. Tempus is a participating provider with BCBS North Carolina, BCBS South Carolina, BCBS Vermont, Capital BlueCross, and CareSource in four markets as part of the agreement with Avalon. Patients having access to these insurance plans will now have access to Tempus testing as a participating provider. Its AI-enabled molecular profiling services will offer personalized treatment decisions, improve care and potentially reduce out-of-pocket costs for patients.
“Molecular profiling tests are increasingly a critical part of patients’ treatment journeys as they enable physicians to make more informed decisions on a deeply personalized level. In addition to offering one of the most comprehensive testing portfolios, our mission is to expand access to the many patients in need of optimized care”.
8. Perfect Corp. (NYSE:PERF)
Number of Hedge Fund Holders: 9
Perfect Corp. (NYSE:PERF) is a leader in AI and AR-powered beauty technology solutions. On December 18, the company announced that it has launched its latest innovation: AI APIs. The tools will help simplify the integration of advanced AI-powered beauty technology into products and applications. They will provide developers with a comprehensive suite of pre-built beauty and image-processing technologies. These include generative AI APIs such as virtual hairstyles and aging simulations, as well as image-processing APIs such as AI Colorizer and AI image enhancer. The APIs will help businesses infuse their unique branding elements such as logos, colors, and designs through cutting-edge AI technology. All in all, businesses will be able to enhance customer engagement, streamline workflows, and empower innovative user experiences.
“Our AI APIs are designed to make beauty technology more accessible and impactful for companies. With these AI APIs, developers can enable more creative solutions for their customers like never before in faster, easier, and more effective ways”.
-Alice Chang, Founder and CEO of Perfect Corp.
7. C3.ai, Inc. (NYSE:AI)
Number of Hedge Fund Holders: 17
C3.ai, Inc. (NYSE:AI) is an enterprise artificial intelligence (AI) software company engaged in building and operating enterprise-scale AI applications. C3.ai was recently sinking following news that Chief Executive Office Thomas Siebel has warned about an AI bubble. He further noted how markets were over-evaluating the AI technologies, and that the market will correct at some point. On December 18, KeyBanc Capital Markets downgraded C3.ai Inc (NYSE:AI) to “Underweight” with a $29 price target. As per the analysts, the stock is trading at 13.3 times revenue and only growing between 10% and 20%, which has led to an “unfavorable” risk-reward.
There are also worries about estimates for fiscal 2026 and 2027 which are “too high,” as subscription revenue growth excluding upfront license has slowed to 1%. Some additional concerns that have led to the downgrade include C3.ai’s operating losses, uncertainty over the company’s partnership with oil-services firm Baker Hughes, and that the Microsoft (MSFT) “partnership does not yield material results”. C3.ai was also downgraded to “Underweight” by JP Morgan last week.
“While we understand that C3.ai is going after a massive and rapidly evolving opportunity around Artificial Intelligence, we think it’s uneven and subpar growth-plus-margin performance leaves a lot to be desired”.
-JP Morgan analyst
6. Five9, Inc. (NASDAQ:FIVN)
Number of Hedge Fund Holders: 29
Five9, Inc. (NASDAQ:FIVN) is a technology company that offers cloud software solutions for contact centers. On December 18, Morgan Stanley raised the firm’s price target on Five9 to $46 from $40 and kept an “Equal-Weight” rating on the shares. According to the analyst, names in communication software suffered for most of 2024. However, there was some improvement in the second half of the year, as per the analyst’s 2025 outlook. The analyst further said that it anticipates the best performers to be those with “accelerating growth stories or extreme FCF support that we think will find outperformance”.
Last month, Five9 reported strong third-quarter results. The company reported a revenue increase of 15% year-over-year, reaching a record $264.2 million. Subscription revenue also grew 20% while operating cash flow was a record $41 million. The company has been capitalizing on the acceleration of AI technologies to augment its CX offerings. However, the stock has been facing headwinds driven by investor concerns about valuation and competition. This has led to a stock decline of more than 40% year-to-date.
5. SentinelOne, Inc. (NYSE:S)
Number of Hedge Fund Holders: 37
SentinelOne, Inc. (NYSE:S) is one of the leading artificial intelligence-powered cybersecurity providers. On December 17, TIG analyst Gray Powell kept a “Buy” rating and $30 price target on SentinelOne (NYSE:S). The stock is considered “controversial”, as critics point out that SentinelOne’s performance has been volatile over the last two years. Moreover, the firm is also concerned about competition at the high end from companies such as Crowdstrike and Microsoft, the analyst told investors in a research note. At the same time, the firm is positive on the stock considering trends such as net new annual recurring revenue – ARR – which turned positive in Q3. This was driven by improved go-to-market initiatives that launched at the beginning of 2024. The firm is also “very bullish” on the growing adoption of Sentinel One’s new AI agent, Purple AI.
4. Palo Alto Networks, Inc. (NASDAQ:PANW)
Number of Hedge Fund Holders: 64
Palo Alto Networks, Inc. (NASDAQ:PANW) is a leader in AI-powered cybersecurity. On December 19, Jefferies raised the firm’s price target on Palo Alto Networks to $240 from $225 and kept a “Buy” rating on the shares. According to the analyst, software stocks are going to witness a slow start because of changes in the administration. More importantly, material benefits from artificial intelligence are unlikely to materialize until late 2025. The firm still expects cybersecurity to demonstrate greater resilience in the first half of the year due to strong fundamentals. This is despite that it may lag behind a broader AI-driven rebound in the software market.
3. CrowdStrike Holdings, Inc. (NASDAQ:CRWD)
Number of Hedge Fund Holders: 74
CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is a leader in AI-driven endpoint and cloud workload protection. On December 18, the company announced that it has become the first pure-play SaaS cybersecurity vendor to surpass $1 billion in sales through SHI International. SHI International, a leading global provider of innovative technology solutions, has been working with Crowdstrike to transform cybersecurity with their AI-native CrowdStrike Falcon® cybersecurity platform. CrowdStrike’s industry-leading technology coupled with SHI’s extensive customer reach has been helping businesses reduce their operational costs, consolidate point products, and achieve better security outcomes by embracing the Falcon platform.
“SHI’s expertise in delivering CrowdStrike’s Falcon platform has been pivotal in helping customers to transform their security posture with next-gen SIEM, cloud security, identity protection, and managed services. Surpassing the $1 billion milestone together is a testament to the strength of our partnership and SHI’s ability to deliver cybersecurity transformation and consolidation for organizations of all sizes around the globe”.
-George Kurtz, CEO and founder, CrowdStrike.
2. Micron Technology, Inc. (NASDAQ:MU)
Number of Hedge Fund Holders: 107
Micron Technology, Inc. (NASDAQ:MU) is a US-based innovative memory and storage solutions provider. On December 19, Morgan Stanley analyst Joseph Moore lowered the firm’s price target on Micron (MU) to $98 from $114 and kept an “Equal Weight” rating on the shares. The analyst noted that the company guided Q2 revenue below expectations, which is driven largely by a revenue decline in NAND. The company has projected fiscal second-quarter revenue of $7.9 billion, below the analyst consensus of $8.93 billion compiled by Visible Alpha. Consequently, the analyst has lowered estimates and anticipates that AI growth is likely to be weighed down by commodity weakness.
1. Salesforce, Inc. (NYSE:CRM)
Number of Hedge Fund Holders: 116
Salesforce Inc (NYSE:CRM) is a cloud-based CRM company that has gained traction after the launch of its AI-powered platform called Agentforce. On December 18, Macquarie issued a Neutral rating on Salesforce, Inc. (NYSE:CRM) with a price target of $370. The rating was issued after the firm attended the launch of Agentforce 2.0 in San Francisco on Tuesday, which made it incrementally more positive on the company’s progress in developing the updated version of the AI-driven platform and testing it with customers. At the same time, the firm also acknowledges that mass-market adoption will take some time. This may be years, instead of quarters.
While we acknowledge the potential of CRM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CRM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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