Chinese artificial intelligence company DeepSeek is threatening to bring to an end the Wall Street artificial intelligence-driven rally. The company, stating that it developed an AI model that matches that of American rivals while using inferior chips, has left the markets on edge, triggering double-digit percentage losses in the US equity markets.
In late December, DeepSeek released a large language model that is free and open-source. The company claimed that the model was created in two months for less than $6 million, significantly less than what their Western counterparts have demanded. According to numerous independent tests, the model also performed better than OpenAI’s most recent model.
The prospect of DeepSeek disrupting US tech dominance on artificial intelligence solutions is one factor that is sending jitters in the investment community. Its R1 and V3 models outperforming the likes of ChatGPT while using inferior chips has once again put to question the hundreds of billions of dollars that US tech giants have spent and committed to spend in a bid to spearhead the AI revolution.
Alexandra Wang, CEO of Scale AI, told CNBC last week that DeepSeek’s last AI model was “earth-shattering” and that its R1 release is even more powerful.
“What we’ve found is that DeepSeek … is the top performing, or roughly on par with the best American models,” Wang said, adding that the AI race between the U.S. and China is an “AI war.”
Over the past two years, US equity markets have raced to all-time highs amid blockbuster gains in companies exposed to the AI frenzy. In the end, valuations have gotten out of hand as investors placed bets while shunning multiples that have gotten to all-time highs. In comes DeepSeek, which is the catalyst that could once again trigger a significant pullback after months of blockbuster gains.
Even as the DeepSeek sell-off continues to rattle the markets, stock bargains amid the AI revolution are cropping up. While semiconductor companies have been the hardest hit owing to concerns that companies will no longer spend big on hardware for AI, there are companies still positioned to benefit even with the expected capital expenditure cuts.
Some of the best and safest AI plays amid the DeepSeek news are companies already leveraging the technology to strengthen their offering, especially on the software front. Cybersecurity companies using AI to detect and deter attacks should continue being at the forefront of the AI revolution. Likewise, companies leveraging AI to enhance cloud offerings stand to reap big even as China takes the war to the US on AI innovation.
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).
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10. Agora, Inc. (NASDAQ:API)
Number of Hedge Fund Holders: 7
Agora, Inc. (NASDAQ:API) is a software application company that offers real-time engagement platform-as-a-services. It provides developers with application programming interfaces to embed real-time voice, video, interactive live-streaming and artificial intelligence capabilities into their applications. On January 23rd, the company moved to enhance the use of AI to enhance decision-making and coordination in the crypto space with the acquisition of blockchain governance startup Boardroom.
With the Boardroom acquisition, Agora, Inc. (NASDAQ:API) is set to enhance governance within the broader Ethereum governance as the Donald Trump administration enhances regulatory clarity in the blockchain industry. The two join forces to provide user-friendly open-source governance for DAOs that leverage artificial intelligence power. Large dataset analysis, outcome prediction, and process automation are all areas where artificial intelligence (AI) can significantly improve the effectiveness and efficiency of DAO governance platforms.
9. Rezolve AI Limited (NASDAQ:RZLV)
Number of Hedge Fund Holders: 3
Rezolve AI Limited (NASDAQ:RZLV) develops and offers retail and engagement technology solutions. Its tools allow users to discover and purchase goods and services, provide personal details in response to advertising, pay a bill, make a charitable donation, and more through a mobile device. On January 22nd, the company echoed the $500 billion Stargate project, given its potential impact.
While the $500 billion Stargate project is expected to accelerate AI adoption across sectors, it also reinforces Rezolve’s AI’s strategic position in the $300 trillion retail market. With its established global distribution connections with Google and Microsoft, which offer unmatched access to merchants globally, Resolve Ai intends to take advantage of the AI boom. Thanks to Google’s retail ecosystem and Microsoft’s co-selling initiatives, it plans to quickly grow its intelligent commerce solutions and provide millions of customers with AI-powered shopping experiences.
8. BlackSky Technology Inc. (NYSE:BKSY)
Number of Hedge Fund Holders: 7
BlackSky Technology Inc. (NYSE:BKSY) provides geospatial intelligence, imagery, and related data analytic products for satellite and ground systems for government and commercial customers. The company is making impressive strides in space-based intelligence by combining high-resolution imagery with high frequency.
On January 23rd, BlackSky Technology Inc. (NYSE:BKSY) unveiled a first-of-its-kind Gen 3 satellite offering for mission-critical insights. Backed by high resolution and rapid revisit 35-centimeter imagery, the satellite also features AI-enabled analytics designed to deliver industry-leading speed and scale. The newest satellite is designed to address the needs of defense and intelligence customers around the globe. BlackSky’s space-based intelligence applications for tactical ISR missions and strategic intelligence operations will be further made possible by the new satellite’s capabilities.
7. Booz Allen Hamilton Holding Corporation (NYSE:BAH)
Number of Hedge Fund Holders: 32
Booz Allen Hamilton Holding Corporation (NYSE:BAH) provides management and technology consulting, analytics, engineering, digital solutions, mission operations, and cyber services to governments, corporations, and not-for-profit organizations. On January 24th, it expanded its strategic partnership with Amazon to accelerate the use of advanced technology, such as AI, to improve outcomes and efficiencies for the US government.
The two are joining forces to develop and market solutions that help federal agencies drive innovation and, most importantly, decision-making. The two will also build and bring to market solutions that make accelerating digital transformation in government easier. Because of this, Booz Allen Hamilton Holding Corporation (NYSE:BAH) will be able to provide agencies at scale with pre-made and reusable enterprise-level digital solutions in fields like cloud migration, cybersecurity, and generative artificial intelligence (AI) for the first time.
Booz Allen Hamilton Holding Corporation (NYSE:BAH) and AWS have collaborated for years to provide federal missions with high-impact results. They have already collaborated with the US Army Japan to provide end-to-end encryption of warfighter data globally. The collaboration combines the strength of AWS’s services and scale with Booz Allen’s technical know-how and mission understanding.
6. UiPath Inc. (NYSE:PATH)
Number of Hedge Fund Holders: 34
UiPath Inc. (NYSE:PATH) is a software application company that provides an end-to-end automation platform with a range of robotic process automation (RPA) solutions. It is one of the companies well positioned to benefit amid growing demand for agentic artificial intelligence needed to tackle complex business workflows. On January 27th, the company unveiled findings from a new study that showed that 90% of IT executives have business operations that would benefit from agentic AI.
AI agents are becoming increasingly popular in business and work environments as they operate autonomously by mimicking human decision-making or problem-solving processes. UiPath Inc. (NYSE:PATH) already has a solution; the UiPath Platform is designed to accelerate the shift towards a new era of agentic automation. The company is placing a strong emphasis on data use and AI-powered customer engagement solutions, which may lead to new revenue opportunities and platform use cases.
5. Blackstone Inc. (NYSE:BX)
Number of Hedge Fund Holders: 50
Blackstone Inc. (NYSE:BX) is an alternative asset management firm specializing in private equity, real estate, hedge fund solutions, equity and multi-asset class strategies. The asset management company is pushing for investment opportunities amid the artificial intelligence revolution. Likewise, on January 25th, the company announced the acquisition of the Potomac Energy Center.
The acquisition of the 774-megawatt natural gas power plant in Virginia positions Blackstone Inc. (NYSE:BX) to be a key supplier of clean energy needed to support data centres and the AI revolution. Consequently, the company is staring at tremendous opportunities, given that Virginia is home to 25% of the US data centre capacity. The Potomac plant is located close to 130 data centres, so Blackstone will surely attract significant deals for power.
4. Twilio Inc. (NYSE:TWLO)
Number of Hedge Fund Holders: 52
Twilio Inc. (NYSE:TWLO) is a leading provider of cloud communications platforms. It provides various application programming interfaces and software solutions for communications between customers and end users. Goldman Sachs analyst Kash Rangan upgraded the stock to a buy with a $185 price target on January 27th. The upgrade came on the company disclosing better than expected preliminary fourth-quarter results and better than expected 2025 outlook.
The better-than-expected financial results come when Twilio Inc. (NYSE:TWLO) is increasingly pursuing artificial intelligence-driven solutions. The company has already inked a strategic collaboration with OpenAI and has started integrating AI capabilities into its product offerings. With the help of AI, it has also succeeded in enhancing its self-service options, allowing customers to easily integrate its services into their applications. The company strongly emphasizes data use and AI-powered customer engagement solutions, which may lead to new revenue opportunities and platform use cases.
3. Baidu, Inc. (NASDAQ:BIDU)
Number of Hedge Fund Holders: 54
Baidu, Inc. (NASDAQ:BIDU) is a Chinese internet giant that provides online marketing and cloud services through an internet platform. It offers search-based, feed-based, and other online marketing services, cloud services, products, and other services from AI initiatives. On January 24th, analysts at Benchmark reiterated a Buy rating on the stock with a $130 price target amid expectations that the company’s advertising business will recover as the negative effects of AI search normalize.
In addition, the analyst reiterated that investors should not underestimate Baidu, Inc.’s (NASDAQ:BIDU) advancements in the Robotoaxi sector amid the AI revolution. The company has made significant progress and is eyeing entry into the international market in 2025. The remarks come on the heels of Baidu beating Microsoft and Google in natural language processing competition, affirming its vast investments in AI.
2. Arista Networks, Inc. (NYSE:ANET)
Number of Hedge Fund Holders: 70
Arista Networks, Inc. (NYSE:ANET) is a technology company that develops, markets and sells data-driven, client-to-cloud networking solutions for data centres. On January 17th, Goldman Sachs analyst Michael NG reiterated a Buy rating on the stock with a $135 price target.
The buy rating comes amid growing expectations that Arista Networks, Inc. (NYSE:ANET) is well-positioned to benefit from growing demands for data-driven and networking solutions for data centres. That was evident on January 24th as the stock also rallied in the market on Meta Platforms announcing plans to spend between $60 to $65 billion to gain an edge on artificial intelligence. Meta is one of Arista Networks’ biggest networking gear clients.
1. Oracle Corp (NYSE:ORCL)
Number of Hedge Fund Holders: 91
Oracle Corp (NYSE:ORCL) offers products and services that address enterprise information technology environments worldwide. Its Oracle cloud software is a service offering that includes various cloud software applications. It is one of the stocks that was hammered on January 27th on the confirmation that Chinese artificial intelligence company DeepSeek had developed AI models using inferior chips, having lost about 14% in a single day.
The selloff comes days after Oracle Corp (NYSE:ORCL) announced a $500 billion initiative to build data centres to support the artificial intelligence revolution. DeepSeek’s latest innovation casts doubt on the need to spend billions of dollars to try and tap the benefits of the revolutionary technology. In contrast to the tens of thousands of chips typically used for training models of comparable size, DeepSeek claimed in a technical report that it trained its V3 model using a cluster of over 2,000 Nvidia chips.
While we acknowledge the potential of Oracle Corp (NYSE:ORCL) as an investment, our conviction lies in the belief that 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 ORCL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
