In this article, we will take a detailed look at 10 AI Stocks on Investors’ Radar In January 2025.
Drew Pettit, U.S. equity strategist at Citi Research, said in a latest program on CNBC that he believes the AI growth story is still intact moving ahead in 2025. However, the analyst believes a lot of positive news is already “priced in.” He also mentioned the key areas that can benefit this year.
“I think the fundamental stories, at least for the pick-and-shovels names, continue. But where we think the trade is actually going to broaden out, and honestly, it has since mid-year, is into some of the users of AI. So, think about car companies that do autonomous driving or software companies putting that into their programs themselves, and even to some of the more cyclical names that, on the back end, can get some more productivity gains. So yes, the picks-and-shovels, the enablers of the trade, were attractive for the most part in 2024. We think AI continues to broaden out.”
The analyst said he has done some “reverse DCF work” and believes there are many companies that are mispriced and many that have the good news around them already priced in.
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For this article, we picked 10 AI stocks that analysts are talking about this month. With each company, we have mentioned the number of hedge fund investors. 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. Palantir Technologies Inc (NASDAQ:PLTR)
Number of Hedge Fund Investors: 43
King Lip, BakerAvenue Wealth Management chief strategist, recently said while talking to CNBC that he finds Palantir Technologies Inc (NASDAQ:PLTR) “interesting” in 2025 despite the company’s high valuation.
“It’s controversial because it sells at a very high multiple, we recognize that, but the company just became profitable just two years ago, but it’s been cash flow positive. We think it’s uniquely positioned in the incoming Administration. Peter Thiel was a founder of Palantir Technologies Inc (NASDAQ:PLTR), obviously a connection with Elon Musk there. And with the DOGE efforts that are coming in to reduce government expenditures we think Palantir Technologies Inc (NASDAQ:PLTR) is really uniquely positioned.”
However, Lip said he’d be hesitant to buy the stock at the current levels.
“We would be hesitant in terms of being buyers today. You know, if it does pull back, say to the mid-60s, it would be a lot more attractive to us. But given how volatile these stocks can trade, we think the opportunity is there for investors to participate in a name that’s going to be, in our view, a big winner going forward.”
What makes Palantir Technologies Inc (NYSE:PLTR) one of the top AI stocks? Its technologies are actually solving the problems of businesses. Palantir’s data technology Ontology is solving the famous hallucination problem for AI systems, thanks to the company’s years of experience with military and defense systems. Earlier this year at an event with customers, Palantir Technologies Inc (NYSE:PLTR) shared some specifics on how its customers are being able to reduce costs and increase profits due to its artificial intelligence platform (AIP) that was launched about a year ago.
Airbus accelerated A350 production by 33%, BP reduced costs per barrel by 60%, and Jacobs Connect cut power usage by 30%. Panasonic decreased waste by 12%, ESI Group sped up ERP harmonization by 70%, and PG&E reduced transformer ignitions by 65%. Eaton boosted productivity by 25%, while Tyson Foods achieved $200 million in cost savings.
However, revenue growth is expected to slow over the next two years, with estimates suggesting a 22% YoY growth rate, potentially bringing revenues to around $4 billion by fiscal 2026. If Palantir Technologies Inc (NYSE:PLTR) can improve margins by 100 basis points annually, it would be able to generate about $1.5 billion in adjusted operating income by FY26, with a present value of $1.3 billion when discounted at 8%. Applying an S&P 500-like growth multiple of 2.5 to 2.75 times earnings, Palantir Technologies Inc (NYSE:PLTR) would have a P/E of 46, translating to a price target of $27.
Fidelity Growth Strategies Fund stated the following regarding Palantir Technologies Inc. (NASDAQ:PLTR) in its Q3 2024 investor letter:
“Untimely ownership of Palantir Technologies Inc. (NASDAQ:PLTR) (+47%) also hurt the fund’s relative result. This software and services firm, which operates in both government and commercial segments, saw strong growth during the quarter, largely driven by its “AIP” – or Artificial Intelligence Platform – offering. In early August, the company reported Q2 financial results that mostly met somewhat lofty expectations. We established a sizable holding in Palantir Technologies during the quarter, and at quarter end it was the second-largest position and a slight overweight.”
9. Dell Technologies Inc (NYSE:DELL)
Number of Hedge Fund Investors: 60
Bryn Talkington from Requisite Capital Management explained on CNBC why she likes Dell Technologies Inc (NYSE:DELL) stock.
“Dell Technologies Inc (NYSE:DELL), to me, as a story, is more the parts are greater than the sum. For next quarter earnings, which are February of 2025, the Street’s looking for 10% and 14% revenue and earnings growth. But underneath the hood, their infrastructure solutions group is where people are buying Dell Technologies Inc (NYSE:DELL)—that is their networking, their servers, and that’s where they’re getting data center growth. They had 38% growth. So, when I look at this company, you’re going to continue to see that ISG group be a larger and larger part of the earnings. Right now, it’s about 40%.”
In the most recently reported quarter, Dell posted mixed results with revenue missing expectations. What stands out is Dell’s Infrastructure Solutions Group (ISG), which posted an impressive 34% year-over-year growth, reaching $11.4 billion in revenue. The server business rose a whopping 58% increase YoY to $7.4 billion.
Dell Tech Inc (NYSE:DELL) experienced a shift in AI server demand toward the next-generation Blackwell architecture. Dell Tech Inc (NYSE:DELL)’s management highlighted that there was a dramatic shift in orders toward Nvidia’s (NVDA) Blackwell-based systems during Q3, which impacted short-term shipments as these products ramp up production. This shift shows Dell Tech Inc (NYSE:DELL)’s competitive position, as customers are willing to wait for the latest tech solutions. Dell secured $3.6 billion in AI server orders this quarter, an 11% increase from the previous quarter. Dell Tech Inc (NYSE:DELL) also signed over 2,000 enterprise customers for their AI solutions.
Carillon Scout Mid Cap Fund stated the following regarding Dell Technologies Inc. (NYSE:DELL) in its Q2 2024 investor letter:
“Dell Technologies Inc. (NYSE:DELL) was a top contributor despite reporting disappointing first-quarter earnings results, because investors looked through the near-term disappointment and expected strong growth from AI-related servers and personal computers. We expect Dell to participate in the growth of artificial intelligence hardware, especially as enterprises invest more aggressively. We like the company’s depth and breadth of products and services, as well as its focus on keeping costs low.”
8. Advanced Micro Devices Inc (NASDAQ:AMD)
Number of Hedge Fund Investors: 107
Scott Bauer from Prosper Trading Academy said while talking to Schwab Network that he believes Advanced Micro Devices Inc (NASDAQ:AMD) has more upside than downside heading into 2025.
“That’s kind of been tossed aside and you know that’s part of the reason I like it. And you know there has been some pretty positive news lately with their relationship with Nvidia, and it may take Nvidia to get Advanced Micro Devices Inc (NASDAQ:AMD) going again. But just given the fact that it’s really fighting to hold those 52-week lows as we’re seeing here, and it’s putting in a lot of volume down here, I think the upside is way better than the downside is for the entire year.”
Advanced Micro Devices (NASDAQ:AMD) bulls believe the market should stop comparing the company’s chips with Nvidia and focus on its data-center growth and its competitive edge over other players like Intel. Advanced Micro Devices (NASDAQ:AMD)’s strong growth in the data center segment is indeed impressive, driven by Instinct GPU shipments and strong sales of EPYC CPUs. Advanced Micro Devices (NASDAQ:AMD) will continue to benefit from organic growth catalysts in this segment despite the competition from Nvidia. According to Goldman Sachs Research, global data center demand could surge by 160% by 2030. In the U.S., data centers are projected to use 8% of total power by 2030, up from 3% in 2022. McKinsey estimates that adding the required U.S. capacity will need over $500 billion in infrastructure investment by the decade’s end.
Columbia Threadneedle Global Technology Growth Strategy stated the following regarding Advanced Micro Devices, Inc. (NASDAQ:AMD) in its Q2 2024 investor letter:
“Shares of Advanced Micro Devices, Inc. (NASDAQ:AMD) lagged the market after the company reported earnings results that, while generally strong, left the market wanting more. The company reported AI revenue of ~$600 million and increased its forward-looking outlook for AI revenue growth, but shares took a breather, as results missed elevated expectations after the stock’s strong performance. Despite the stock’s underperformance during the quarter, the company’s AI story remains very much intact. The growth outlook for the company is supported by better cloud demand, enterprise recovery and continued share gains ahead of the company’s new AI product launch.”
7. Broadcom Inc (NASDAQ:AVGO)
Number of Hedge Fund Investors: 128
King Lip, BakerAvenue Wealth Management chief strategist, recently talked to CNBC and explained his bull case for Broadcom Inc (NASDAQ:AVGO):
“I think Broadcom Inc (NASDAQ:AVGO) is an interesting name just because it does something that Nvidia doesn’t do, which is custom AI chips for their customers. This segment is growing just as fast as Nvidia is, and the company itself actually has a lower multiple than Nvidia.”
Broadcom Inc (NASDAQ:AVGO) continues to be a leader in the AI ASCI and networking chips market. Broadcom Inc (NASDAQ:AVGO) has 3nm AI ASIC chip deals with Alphabet and Meta in addition to many other tech giants aiming massive spending for AI hyperscaling.
However, the stock could face the impact of what Nvidia is facing today: too high expectations.
In the latest quarterly results, Broadcom Inc (NASDAQ:AVGO) revenue was largely in line with estimates. The company has narrowly exceeded revenue expectations by less than 5% in most cases. Some analysts suggest Broadcom’s growth rates will moderate to below 20% CAGR starting the first quarter of 2025. In fiscal Q4, it was +50% topline growth. The market won’t be kind to the stock when the revenue growth rate slows. Broadcom has about $58 billion in net debt, which is relatively high.
Columbia Threadneedle Global Technology Growth Strategy stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its Q3 2024 investor letter:
“Similar to the earnings results for Nvidia, shares of Broadcom Inc. (NASDAQ:AVGO) initially sold off after the company reported solid earnings that fell light of elevated market expectations, but the stock did recover from its drawdown in the matter of a few weeks. With an enticing combination of custom chip offerings as well as networking assets, Broadcom remains one of the best positioned companies as part of the AI revolution. Broadcom outlined a path to derive a majority of its revenue from the AI end market within a couple of years, and the non-AI part of the business has stabilized after a deep correction. The company’s dominant market position in its end markets, along with durable growth, strong margins and best-in-class capital allocation, presents an opportunity to compound capital over time.”
6. Adobe Inc (NASDAQ:ADBE)
Number of Hedge Fund Investors: 123
Ray Wang, Constellation Research principal analyst, recently explained on CNBC why he is bullish on Adobe Inc (NASDAQ:ADBE) for 2025:
“We’re big on AI, but the question is, what are the AI derivatives? So, what are the second-order and third-order derivatives of AI? The second-order ones are looking at software companies that are taking advantage of AI because most customers can’t build it on their own. They’re going to want to consume it.”
Parnassus Core Equity Fund stated the following regarding Adobe Inc. (NASDAQ:ADBE) in its Q3 2024 investor letter:
“Also in the Information Technology sector, we exited a position in Adobe Inc. (NASDAQ:ADBE) and initiated a new one in Synopsys. Adobe is contending with market cyclicality, rising competition and lofty AI monetization expectations that are unlikely to be met in the near term. We sold Adobe for Synopsys, which faces fewer competitive threats and has room to grow as companies adopt Synopsys software for custom semiconductor design.”
5. Salesforce Inc (NYSE:CRM)
Number of Hedge Fund Investors: 116
Ray Wang, Constellation Research principal analyst, recently explained on CNBC why he is bullish on Salesforce Inc (NYSE:CRM) for 2025:
“We’re big on AI, but the question is, what are the AI derivatives? So, what are the second-order and third-order derivatives of AI? The second-order ones are looking at software companies that are taking advantage of AI because most customers can’t build it on their own. They’re going to want to consume it.”
Polen Focus Growth Strategy stated the following regarding Salesforce, Inc. (NYSE:CRM) in its Q3 2024 investor letter:
“In the third quarter, we purchased new positions in Apple and Oracle and eliminated our small positions in Nike and Salesforce, Inc. (NYSE:CRM). We exited our position in Salesforce to fund better opportunities in Shopify and MSCI. Salesforce is seeing slower revenue growth than we would have expected, given the weakening macroeconomic environment. Furthermore, since its core end markets in customer relationship management (“CRM”) and Service are fairly mature, a lower growth level versus our expectations could persist for some time.”
4. Apple Inc (NASDAQ:AAPL)
Number of Hedge Fund Investors: 158
Andy Swan from LikeFolio explained during a latest program on Schwab Network why he believes Apple Inc (NASDAQ:AAPL) had a strong holiday shopping season:
“Once we saw the September keynote and the reaction that consumers had to that keynote event, we knew that Apple Inc (NASDAQ:AAPL) was setting up for a really good holiday season. And so far, you know, everything that we’re seeing points to that being true. Web visits for Apple Inc (NASDAQ:AAPL) are up year-over-year by a pretty decent margin, but when we break it down by product category and look, you know, at the overall demand for each of these types of products, you really get the sense that Apple Inc (NASDAQ:AAPL), going into the Christmas holiday gift-giving season, just really has something for everyone on your list. If you want to spend $499, you can get an iPad Mini that is extraordinarily popular. The pencil looks like it’s getting added on at a tremendous clip, which is a high-margin item for Apple Inc (NASDAQ:AAPL). You know, if you want to spend $129, you can get AirPods for your friend or for your niece or whatever it is, and people are doing so in droves. You know, iPad searches up 26%, AirPods and iPhone up 15-16%. The only real whiff we see on the list is the Apple Inc (NASDAQ:AAPL) Watch.”
Apple Inc (NASDAQ:AAPL) is desperately in need of new catalysts. The company’s revenue in China fell 8% in fiscal year 2024, following a 2% decline the previous year. The Chinese market accounts for about 15% of Apple’s total revenue, so this downtrend cannot be ignored.
Investors had hopes from the Wearables, Home, and Accessories segment, but so far its performance has been weak. Vision Pro faces tough competition from Meta’s $500 Quest and the more affordable Quest 3S, making it hard to justify its $3,500 price tag. The failure of Apple’s HomePod, unable to compete with Amazon’s and Google’s lower-priced offerings, further highlights the challenges in this market.
Apple’s iPhone 16 has not shown promising growth prospects yet and investors are still in a wait-and-see mode on the AI platform.
While the company is projected to achieve 9.5% EPS growth this fiscal year and 12.3% growth in the next, much of this growth is already priced in, as the stock trades at nearly 30 times the expected EPS for the fiscal year ending September 2026.
Parnassus Growth Equity Fund stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q3 2024 investor letter:
“Apple Inc. (NASDAQ:AAPL) shares rose during the quarter, making our underweight position a relative detractor. Investors reacted positively to the new iPhone 16 lineup and its advanced features, including generative artificial intelligence, greater durability and increased processing power.”
3. Alphabet Inc (NASDAQ:GOOG)
Number of Hedge Fund Investors: 160
Jeremy Bryan, Gradient Investments portfolio manager, recently explained during a program on CNBC why he is bullish on Alphabet Inc (NASDAQ:GOOG):
“It’s expected to grow again in the double digits for the next couple of years. Despite almost a 40% return this year, it’s still only trading at about 23 times earnings, so it’s right in line with the market. Because of all the regulatory stuff and other potential overhangs on the stock, we see it as more of an opportunity to continue to buy a stock that’s relatively cheap.”
The market has been ignoring Alphabet Inc (NASDAQ:GOOGL)’s key secondary businesses and the stock remains undervalued despite concerns around AI search and regulatory onslaught.
Alphabet Inc (NASDAQ:GOOGL)’s secondary ventures in AI, autonomous driving, and other areas are making solid progress, especially in the Waymo robotaxi segment. With the 2025 EPS forecast at around $9, Alphabet (NASDAQ:GOOGL) could realistically achieve earnings closer to $10 if it maintains its historical outperformance rate. At a projected $10 EPS, Google’s forward P/E multiple would be approximately 17, a relatively low valuation for a diversified market leader.
What are the key drivers for Alphabet (NASDAQ:GOOGL)?
Alphabet Inc (NASDAQ:GOOGL) remains on track to reach a $100 billion revenue run rate from YouTube Ads and Google Cloud by the end of 2024. In its autonomous driving division, Waymo has shown notable progress, with paid autonomous rides growing 200% quarter-over-quarter to 150,000 weekly rides as of late October, thanks to a fleet of 700 vehicles in service since August.
This growth is significant: Waymo vehicles now average about 30.6 autonomous rides per day—substantially higher than Uber’s average of 4.18 rides per driver daily, based on Uber’s 31 million daily trips and 7.4 million drivers last quarter. This performance underscores Waymo’s competitive edge in autonomous ride volume compared to traditional ride-hailing.
In the third quarter, Alphabet Inc (NASDAQ:GOOGL)’s Search & Other segment saw a 12.2% year-over-year revenue increase, rising from $44.03 billion to $49.39 billion. YouTube advertising also performed well, with revenue up 12.2% to $8.92 billion from $7.95 billion. Meanwhile, Alphabet Inc (NASDAQ:GOOGL)’s subscriptions, platforms, and devices revenue grew even more sharply, surging 27.8% from $8.34 billion to $10.66 billion.
Google Cloud has been expanding steadily, with revenue climbing from $13.06 billion in 2020 to $33.09 billion in 2023. Notably, Google Cloud turned profitable for the first time in 2023, posting $1.72 billion in operating profit—a significant improvement from a $5.61 billion loss in 2020. This segment’s performance continues to strengthen, with the latest quarterly revenue reaching $11.35 billion, up 35% from $8.41 billion in the same period last year.
RiverPark Large Growth Fund stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q3 2024 investor letter:
“Alphabet Inc. (NASDAQ:GOOG): Google was our top detractor in the third quarter despite reporting second quarter results that were generally in line with expectations. The company reported slightly better revenue growth in Search, which grew 14% and continues to be resilient in the face of AI challengers, and Google Cloud, which grew 29% in the quarter. Service operating income margins of 40% and Cloud operating income margins of 11% were also both ahead of investors’ expectations as management’s cost-efficiency efforts drove operating leverage. YouTube revenue growth was slightly below expectations (+13% v. +16%) driven by tougher year-over-year comparisons and some general weakness in the Brand Advertising vertical. Finally, Cap Ex in the quarter of $13.2 billion was more than expected and likely the driver of the weakness in the stock as investors grapple with how much infrastructure investment will be required to achieve Google’s AI goals.
With its high margin business model (44% EBITDA margins last quarter), continued strength across its core Search and YouTube franchises, and continued growth and expanding profitability in its still relatively small Cloud business, we continue to view Alphabet as among the best-positioned secular growth franchises in the market. Additionally, GOOG shares trade at a compelling 19.5x the Street’s 2025 EPS estimate, a discount to the Russell 1000 Growth Index.”
2. Microsoft Corp (NASDAQ:MSFT)
Number of Hedge Fund Investors: 279
Ben Bajarin from Creative Strategies said while talking to Schwab Network in a latest program that it will take time for Microsoft (MSFT) to see traction of its AI products in the enterprise space.
“Microsoft Corp (NASDAQ:MSFT) play is really at the edge; it’s really around co-pilot. You know, you’ve got an Enterprise play for co-pilot, and you’ve got a consumer play that comes with, you know, some with Windows, some as well with a Windows subscription. It’s hard right now when we talk about software and the broader Spectrum for AI adoption. We’re not seeing Enterprises, for example, just deploy at scale yet across their Enterprises. So, you see a range of surveys from any number of CIO and CTO surveys saying that they have plans to roll out co-pilot. Those are still in just project mode. Once they start to roll these things out, we’ll really see if a big portion of that Enterprise starts to add those fees for co-pilot to their Microsoft Corp (NASDAQ:MSFT) 365 subscriptions. You’re going to see that, right? That’s going to come out in numbers. So, I think it’s a wait-and-see but optimistic play.”
RiverPark Large Growth Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q3 2024 investor letter:
“Microsoft Corporation (NASDAQ:MSFT): MSFT was a top detractor in the third quarter following a fiscal fourth quarter earnings report that featured inline operating metrics but mixed guidance. Positively, the company reported strong revenue (+15%) and earnings growth (+10%), powered by Azure (+30%), and operating margins of 43%. Guidance however calls for lower than expected fiscal first quarter Azure revenue as infrastructure constraints limit growth, and higher capital expenditures throughout the company’s fiscal 2025 to alleviate these constraints. The company expects growth to reaccelerate in the back half of fiscal 2025 as more AI capacity comes online.
Cloud-based services have become the company’s largest revenue and earnings producer. The company’s Azure platform alone has the potential to grow to more than $200 billion in annual revenue over the next decade. Overall, we believe that the company will continue to deliver double-digit revenue and EPS growth and generate an enormous amount of free cash flow to return to shareholders and use for acquisitions.”
1. Amazon.com Inc (NASDAQ:AMZN)
Number of Hedge Fund Investors: 286
Jim Lebenthal from Cerity Partners explained his bullish case on Amazon during a latest program on CNBC:
“There’s so many superlatives to say about the stock. If you think retail is going to do well as employment stays strong, interest rates lower, and credit card costs go down, guess what— Amazon.com Inc (NASDAQ:AMZN) going to benefit. If you think that hyperscalers are going to turn to propertization eventually, that’s going to lead to more monetization for Amazon.com Inc (NASDAQ:AMZN) Web Services. You’ve got logistics, you’ve got other moonshots—I know that’s applicable to Alphabet—but really, what are you going to say negative about Amazon? The momentum’s there, the fundamentals are there, and I frankly think the valuation is attractive.”
If Amazon.com Inc (NASDAQ:AMZN) grows its earnings per share (EPS) by an average of 25% annually over the next three years, it could achieve an EPS of around $9.25 by FY 2027 (up from an estimated $4.74 in FY 2024). Applying a 35x P/E ratio in line with Amazon.com Inc’s (NASDAQ:AMZN) historical average suggests a fair stock value of over $300. The primary catalyst for this target would be AWS’s robust operating income growth.
Montaka Global Investments stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q3 2024 investor letter:
“Secondly, in August, we sold some of our holdings in two tactical positions in the tail of Montaka’s portfolio – Advanced Micro Devices (AMD) and Kyndryl Holdings (KD) – to take advantage of a near-20% drawdown in the stock price of Amazon.com, Inc. (NASDAQ:AMZN).
We still see plenty of upside in AMD and KD, but Amazon has more substantial and higher-probability upside that demanded we allocate even more of Montaka’s capital to the online retailer.
Investment opportunities always compete for capital. Through this lens, Montaka’s largest investments act as a kind of ‘benchmark’: Any new investment must be more attractive than these holdings to get included in our portfolio.
Because we believe Montaka’s largest investments remain so attractive, our annualized portfolio turnover has been low for many years now – typically around 25%.
We continually identify quality global businesses with upside potential – but few new investment opportunities have greater upside than Montaka’s existing portfolio investments.
While Montaka is focused on investing over the long term, and most days don’t require any action on our part, paradoxically we need to be agile on a daily basis. That is, we must be ready to act if stock price changes throw up attractive investment opportunities.”
While we acknowledge the potential of Amazon.com Inc (NASDAQ:AMZN), our conviction lies in the belief that under the radar 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 AMZN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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