In this article, we discuss 10 AI news you probably missed.
AI Boosts Data Center Market to New Heights
According to Synergy Research Group, data center M&A activity set a new record in 2024, with deals totaling $57 billion, compared to the previous high of $52 billion in 2022. While 2023 saw a sharp decline to $26 billion, the rebound in 2024 included two major equity investments in Vantage Data Centers worth $9.2 billion combined. Moreover, equity investments in data center solutions providers, EdgeConneX and DataBank contributed to the rise. Private equity played a dominant role, accounting for 80-90% of deal values since 2021. With $29 billion in pending deals and a $15 billion future pipeline, the trend is expected to continue in 2025, fueled by increasing demand for cloud services, digital platforms, and generative AI.
Moreover, the firm believes that global spending on data center hardware and software in 2024 probably rose by 34%, reaching a record $282 billion. Public cloud infrastructure spending, up 48%, now makes up 55% of the market, due to the increasing demand for GPUs to support generative AI workloads. Enterprise spending also saw a significant 21% increase after years of marginal growth. According to Synergy, public cloud spending is expected to grow further and could reach 65% of the market within five years.
READ ALSO: 10 AI Stocks Making Waves on Wall Street and Top 10 AI Stocks on Wall Street’s Radar.
U.S. Boosts AI Infrastructure with New Executive Order
As the global AI infrastructure landscape is rapidly evolving, the U.S. is positioning itself at the forefront. On January 14, former President Joe Biden signed an executive order to boost U.S. leadership in artificial intelligence by fast-tracking the development of domestic AI infrastructure. The order directed the Department of Defense and Department of Energy to lease federal sites for gigawatt-scale AI data centers powered by clean energy, with developers covering all costs.
Requirements include using U.S.-manufactured semiconductors, adhering to labor standards, and ensuring AI safety and national security. Agencies will streamline permits, upgrade energy transmission, and support global AI infrastructure expansion while promoting clean energy technologies.
For this article, we selected AI stocks by reviewing news articles, stock analysis, and press releases. We listed the stocks in ascending order of their hedge fund sentiment taken from Insider Monkey’s database of 900 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).
10 AI News You Probably Missed
10. Oklo Inc. (NYSE:OKLO)
Number of Hedge Fund Holders: N/A
Oklo Inc. (NYSE:OKLO) is developing next-generation nuclear power plants that recycle nuclear waste to provide clean, reliable energy, offering sustainable solutions for AI’s increasing energy demands.
Oklo Inc. has partnered with RPower, a provider of onsite power solutions, to create a phased energy plan for data centers. The plan starts with RPower’s natural gas generators to meet immediate energy needs within 24 months, then transitions to Oklo’s Aurora nuclear powerhouses as they become available.
Over time, Aurora powerhouses will provide most of the energy, while natural gas generators will serve as backups and support the local grid. The collaboration aims to provide a scalable and sustainable energy solution for data centers and other large energy consumers.
9. Palladyne AI Corp. (NASDAQ:PDYN)
Number of Hedge Fund Holders: N/A
Palladyne AI Corp. (NASDAQ:PDYN) creates AI software designed to improve the autonomy of robotic systems.
Palladyne AI (NASDAQ:PDYN) has received a contract from the Air Force Research Laboratory (AFRL) to migrate its Palladyne Pilot AI software platform to next-generation U.S.-made AI chipsets. It is a 26-month project and will start in early 2025. It aims to improve the software’s performance on a wider range of unmanned aerial vehicle platforms. The Pilot platform integrates multi-sensor fusion and real-time sensor management to improve intelligence, surveillance, and reconnaissance capabilities. The move will expand Pilot’s availability to more small drone platforms.
8. Energy Vault Holdings, Inc. (NYSE:NRGV)
Number of Hedge Fund Holders: 5
Energy Vault Holdings, Inc. (NYSE:NRGV) creates utility-scale energy storage solutions, including gravity-based, battery, and green hydrogen technologies, to support sustainable energy and reduce costs.
Energy Vault has formed a strategic partnership with NuCube Energy to advance the deployment of NuCube’s NuSun platform, designed for large energy users like data centers. This collaboration will integrate NuSun with Energy Vault’s VaultOS Energy Management System and B-VAULT Battery Energy Storage System, offering carbon-free, flexible baseload generation for continuous AI data center operations. The partnership is looking to deliver rapid, scalable, and cost-effective energy solutions by the end of 2028. NuSun utilizes a safe, compact nuclear microreactor design with minimal moving parts, which improves safety and reduces operational costs for data centers.
7. Lumentum Holdings Inc. (NASDAQ:LITE)
Number of Hedge Fund Holders: 36
Lumentum Holdings Inc. (NASDAQ:LITE) produces optical and photonic technologies used in cloud data centers, AI/ML applications, and industrial technologies.
Barclays upgraded Lumentum (NASDAQ:LITE) to Overweight from Underweight and raised the price target to $125 from $80. The firm revised its outlook due to strong growth in LITE’s module business, driven by increased port counts and a shift to U.S. supply chains, enabling faster qualification by hyperscalers. Despite a weaker-than-expected Q1, Barclays expects significant growth in 2025, with a 59% year-over-year increase in port count and a 76% rise in Datacom revenue. The analyst raised LITE’s 2026 earnings per share estimate to $4.91, surpassing the street’s expectation of $4.36.
6. Arm Holdings plc (NASDAQ:ARM)
Number of Hedge Fund Holders: 38
Arm Holdings plc (NASDAQ:ARM) designs and licenses microprocessors, system IPs, and related technologies for semiconductor companies, supporting various industries including automotive, computing, and IoT.
Arm Holdings (NASDAQ:ARM) has appointed Eric Hayes as executive vice president of Operations, effective immediately. Hayes will oversee the execution of operational activities across multiple products, reporting to Arm CEO Rene Haas. Hayes brings extensive experience, having previously served as CEO of Fungible Inc. before its acquisition by Microsoft in 2023. He also held leadership roles at Inphi Corporation, Marvell Technology, Cavium, Inc., and Broadcom Inc. Hayes will focus on aligning operational activities as Arm expands its portfolio, especially in the growing AI market. Arm CEO Rene Haas said:
“Aligning on the operational activities across products and solutions is critical as we continue to diversify our portfolio and meet the increasingly complex demands of AI… Eric is a long-time industry veteran who brings extensive experience in operations and the strategic planning that will advance innovation across the ecosystem as we build the future of computing on Arm.”
5. Atlassian Corporation (NASDAQ:TEAM)
Number of Hedge Fund Holders: 44
Atlassian Corporation (NASDAQ:TEAM) creates a variety of software solutions, emphasizing AI and analytics to enhance business flexibility and boost developer efficiency.
Morgan Stanley raised its price target for Atlassian (NASDAQ:TEAM) to $315 from $259, keeping an Overweight rating and naming it its top pick for 2025. The increase reflects higher growth estimates, better free cash flow projections for 2029, and a focus on 2026 for valuation.
The optimism is based on steady 20% revenue growth, over 25% free cash flow growth, and better profit margins in the next three years. Key reasons include growing market opportunities, better cross-selling and upselling, more customers moving to the cloud, strong pricing power, and improved operational efficiency aided by generative AI. Even after recent stock gains, Morgan Stanley is seeing more room for growth.
4. Cloudflare, Inc. (NYSE:NET)
Number of Hedge Fund Holders: 44
Cloudflare, Inc. (NYSE:NET) offers cloud solutions that incorporate AI to improve security, performance, and zero-trust services across multiple platforms, such as IoT and SaaS applications.
Citi analyst Fatima Boolani upgraded Cloudflare (NYSE:NET) to Buy from Neutral and raised its price target to $145 from $95, due to confidence in its role in AI development, especially as AI training shifts to inferencing. The analyst highlighted opportunities through its Apple partnership, improved sales productivity following 2023 changes, and strong leadership additions. While the stock carries a high valuation, Citi believes Cloudflare can sustain 27-30% revenue growth and achieve $5 billion in revenue by 2028, with profitability supported by expanding free cash flow margins.
3. Applied Materials, Inc. (NASDAQ:AMAT)
Number of Hedge Fund Holders: 74
Applied Materials, Inc. (NASDAQ:AMAT) provides manufacturing equipment, services, and software for the semiconductor, display, and related industries. On January 17, KeyBanc upgraded Applied Materials (NASDAQ:AMAT) to Overweight with a $225 price target, highlighting its strong market position in advanced technologies supporting AI growth, chip efficiency, and advanced packaging.
While traditional markets like mobile, PC, and server haven’t fully recovered, improvements in these areas and the ICAPS segment, driven by automotive and industrial demand, could boost revenue and earnings. The firm noted AMAT’s 27% stock decline since July 2024 has made its valuation more attractive, though the positive outlook relies on expected market recovery. The analyst noted:
“In terms of where we could be wrong, should the cycle turn down it would suggest further share price downside, but we also think a significant cycle deceleration from here would likely only occur in a recession, which we don’t currently see.”
2. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 193
NVIDIA Corporation (NASDAQ:NVDA) specializes in AI-driven solutions, offering platforms for data centers, self-driving vehicles, robotics, and cloud services.
Barclays analyst Tom O’Malley raised Nvidia’s (NASDAQ:NVDA) price target to $175 from $160, maintaining an Overweight rating as part of its 2025 outlook for the semiconductor sector. The firm expects 2025 to continue to be shaped by the divide between companies benefiting from AI and those that are not. Barclays remains selective in its AI stock picks, favoring those with proprietary serializer/deserializer technology, while being less optimistic about cyclical semiconductors, analog, PC, and handset stocks, noting that recoveries in these areas may take longer to materialize.
1. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 279
Microsoft Corporation (NASDAQ:MSFT) prioritizes AI through its advanced cloud offerings, AI-enabled business applications, and language processing and computing technologies.
Cantor Fitzgerald initiated coverage of Microsoft (NASDAQ:MSFT) with an Overweight rating and a $509 price target. The analyst highlighted Microsoft’s leading position across various markets, emphasizing its Intelligent Cloud division, which is projected to grow from 35% of revenue in FY23 to 41% by FY26, driven primarily by Azure’s expansion from 58% to 76% within the division. The firm noted that Azure benefits from rapid AI-related revenue growth, supported by its broad infrastructure, platform offerings, and bundled services like Teams and security.
Analyst Thomas Blakey further noted:
“Checks on Copilot were mixed; positive on GitHub Copilots but lesser so on M365. That said, even less-than-stellar checks generally concluded they would cont. to trial with confidence products would improve. We believe the debate re: capex and ultimate ROI favors Microsoft not only related to potentially lower compute and infrastructure costs LT, but core AI is likely more inference-related, in our view, driving more recurring and sustainably growing topline sources if/when capex is normalized.”
While we acknowledge the potential of Microsoft Corporation (NASDAQ:MSFT) 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 MSFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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