In this article, we will take a detailed look at 10 AI Stocks on Wall Street’s Radar After DeepSeek Breakthrough.
AI investors are desperately trying to find clues on the real impact of DeepSeek on chip demand in the future and gauge how the breakthrough in China would impact US companies. Tae Kim, senior technology writer at Barron’s, said in a latest program on CNBC that DeepSeek has been able to significantly reduce the AI costs but that would increase more use cases of the technology:
“Over time, computing history has shown when you get more computing power and put that into the hands of developers, they figure out new applications, new workloads to use it. I mean, there’s that saying, “Oh, you only need 640k of memory,” and then obviously that proved false. So over time, like researchers, I mean, we have healthcare, drug discovery, trillions of proteins that need to be simulated, robotics. There are these three mega trends that are happening this year right now: multimodal, where you analyze audio and video, there’s AI agents, all these things are happening that are going to require more computing power.”
The question, however, everyone would be focusing on in the coming days is what if a hardware breakthrough happens in China and the country comes up with its own AI chips performing at par with its US counterparts.
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For this article, we picked 10 AI stocks currently trending on the latest news. With each stock, 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. F5 Inc (NASDAQ:FFIV)
Number of Hedge Fund Investors: 31
F5 Inc (NASDAQ:FFIV) recently jumped after strong quarterly results that showed AI could be a catalyst for the company.
“First, F5 Inc is benefiting from a more stable IT spending environment, improved technology refresh, and competitive wins,” said Goldman Sachs analyst Michael Ng, in an investor note. “Second, F5 Inc continues to demonstrate AI demand momentum. The majority of its AI deals are for delivering and securing data for model training and inference. Third, F5 Inc competitive position within ADC and security is being reinforced with evidence of expansion deals and share gains.”
F5 Inc (NASDAQ:FFIV) raised its fiscal year revenue growth expectations from 4-5% to 6-7% after exceeding first-quarter forecasts and projecting second-quarter revenue between $705 million and $725 million (approximately 5% growth at the midpoint).
“The company highlighted three areas of early AI opportunity: delivering and securing data for model training, security for inferencing, and AI factory load balancing,” said Barclays analysts Tim Long and Emma Cho, in an investor note. “Though the partnership with Nvidia (NVDA) is still in its early stages, F5 Inc (NASDAQ:FFIV) mentioned growing momentum. Demand for systems was positive and given the price increases implemented Jan 1st and the healthy pipeline we think it can carry into the rest of FY25.”
Hotchkis & Wiley Mid-Cap Value Fund stated the following regarding F5, Inc. (NASDAQ:FFIV) in its Q3 2024 investor letter:
“F5, Inc. (NASDAQ:FFIV) sells application networking and security software, as well as data center appliances. The company’s stock price rebounded sharply in Q3 after reporting a growing pipeline and better close rates in subscription software sales. F5 has no debt, trades at an attractive valuation, and is benefiting from an improving gross margin and lower operating expenses.”
9. Palo Alto Networks Inc (NASDAQ:PANW)
Number of Hedge Fund Investors: 64
Morgan Stanley said in a recent note that the latest dip in Palo Alto Networks Inc (NASDAQ:PANW) shares is a buying opportunity.
“We see an increasingly attractive entry point in PANW and believe the stock could double in 4-5 years, driven by larger platform deals and market share gains across various security categories,” Morgan Stanley analysts, led by Hamza Fodderwala, said in a note to investors.
“As Palo Alto Networks Inc (NASDAQ:PANW) approaches becoming the first pure-play security company to hit $10B in annualized revenue, the key investor concern is whether the company can sustain organic growth above the overall market at a much larger revenue scale,” Fodderwala added. “We remain optimistic and see a strong growth trajectory, with share gains driving 15%+ revenue growth, resulting in a doubling of revenue, free cash flow, and stock price by FY30.”
Morgan Stanley has maintained its Overweight rating on Palo Alto Networks Inc (NASDAQ:PANW) and slightly raised its price target to $230 from $223.
Parnassus Growth Equity Fund stated the following regarding Palo Alto Networks, Inc. (NASDAQ:PANW) in its Q2 2024 investor letter:
“Palo Alto Networks, Inc. (NASDAQ:PANW) has been a profitable position for the portfolio. Given its elevated valuation, we decided to sell it to fund the purchase of Workday, where we see greater opportunity and a clearer story of margin expansion potential.”
8. Oracle Corp (NYSE:ORCL)
Number of Hedge Fund Investors: 91
Bank of America recently said that the DeepSeek breakthrough could impact Oracle Corp (NYSE:ORCL) negatively.
“According to our channel checks, the main driver of Oracle Corp (NYSE:ORCL) Cloud Infrastructure (OCI) growth has been the migration of on-premise Oracle database instances to OCI, which is unaffected by the DeepSeek breakthrough,” the bank’s analyst wrote.
“However, with Oracle Corp (NYSE:ORCL) access to GPUs through its Nvidia partnership and a broader industry-wide GPU shortage, some OCI growth has been driven by GPU rentals. Easing capacity constraints could dampen demand for these rentals and affect Oracle Corp (NYSE:ORCL) current remaining performance obligations growth.”
Parnassus Value Equity Fund stated the following regarding Oracle Corporation (NYSE:ORCL) in its Q3 2024 investor letter:
“Oracle Corporation (NYSE:ORCL) announced second-quarter results that exceeded consensus expectations, driven by growth in its cloud infrastructure business, which is benefiting from demand for AI applications. Investor sentiment was further bolstered by the company’s announcement of a new partnership with Amazon.”
7. Tesla Inc (NASDAQ:TSLA)
Number of Hedge Fund Investors: 99
Tim Higgins, Wall Street Journal business columnist, said in a latest program on CNBC that investors would be looking to see if Elon Musk is able to bring Tesla Inc (NASDAQ:TSLA) back to its growth trajectory amid his busy schedule in the new US government.
“I think what they’re probably looking for is what they’re always looking for, is kind of the tone of his excitement for the months ahead. Is he optimistic that Tesla Inc (NASDAQ:TSLA) can return to growth, that kind of growth that has fueled that stock price for so many years, or is he cautious and worried about the months ahead, which would be very negative, likely on the stock? Remember, this is a growth story, this is a growth stock, and Tesla Inc (NASDAQ:TSLA) has not been growing. Last year, deliveries fell for the first time, and that is unnerving for a lot of folks.”
Analysts are still trying to look beyond Elon Musk’s claims and find out the specifics of the company’s EV and robo-taxi plans.
Tesla Inc’s (NASDAQ:TSLA) product lineup is showing signs of stagnation, with over 95% of sales still coming from the Model 3 and Model Y. Meanwhile, competitors are rolling out more advanced models. Even Rivian’s CEO suggested Tesla Inc (NASDAQ:TSLA) could be nearing market saturation for these models. According to Reuters, Tesla’s market share in Europe is slipping as legacy automakers like BMW post stronger sales. Chinese competitor BYD is also gaining ground in Europe, despite talk of tariffs.
Infuse Asset Management stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its Q4 2024 investor letter:
“I’ve been very patient with Tesla, Inc. (NASDAQ:TSLA). Frankly, I’m a big believer in Elon but I also hate investing in companies where the narrative far outweighs any financial evidence. I do see a path to Tesla being one of the world’s largest companies but slight growth in a cyclical industry with very little pricing power is not a recipe for strong forward returns. Though the AI/robotics narrative is strong, I’m not adding at current prices since we haven’t seen much of the narrative translate into the earnings yet. This cognitive dissonance can be an uncomfortable tension but I’m trying to look at the big picture here. So while I fully admit that Tesla may be overvalued in the short run, the long-term destination of the company should not be underestimated.”
6. Alibaba Group Holding Ltd (NYSE:BABA)
Number of Hedge Fund Investors: 115
Alibaba Group Holding (NYSE:BABA) is trending on the back of the company’s new AI model and Citron Research’s bullish comments on the stock.
“Citron has been ahead of the curve on Alibaba Group and Qwen for the past six months,” the investment firm wrote in a post on X. “But what’s even more critical (and still overlooked) is Qwen’s enterprise applications. China lags the U.S. by decades in business software, and the catch-up will be rapid. This is bullish for China overall and strengthens the long China trade.”
Alibaba Group Holding (NYSE:BABA) Cloud’s Qwen team recently released a new family of AI models, Qwen2.5-VL, capable of performing a variety of text and image analysis tasks. The new Qwen2.5-VL range can parse files, analyze videos, count objects in images, and control computers, similar to OpenAI’s new Operator model.
Alibaba Group Holding (NYSE:BABA) published benchmark scores showing the Qwen 2.5 Max version of its large language model outperformed Meta Platforms’ (META) Llama and DeepSeek’s V3 model.
Conventum – Alluvium Global Fund stated the following regarding Alibaba Group Holding Limited (NYSE:BABA) in its Q3 2024 investor letter:
“On 24 September the People’s Bank of China unveiled a massive three part stimulus package involving: (1) slashing the amount of cash banks need to hold in reserve and lowering the main policy interest rate; (2) cutting mortgage rates on existing home loans by 0.5% and reducing down payment requirements for second homes from 25% to 15%; and (3) supporting equity markets by a USD 114b lending pool to encourage companies to buy back shares and non-bank financial institutions to buy local equities (which may be expanded by the same amount two more times)5 . We are flabbergasted. But we shouldn’t be. After all, these types of arrangements have been all too common over the last 15 years. The local equity markets responded with gusto, and for the last week of the quarter the CSI 300 Index (Shanghai and Shenzen listed companies) was up 25.1%. Alibaba Group Holding Limited (NYSE:BABA) was not lost in all this, and returned 26.8% over that one week period. But Alibaba had already performed well so during the whole September quarter it was up a staggering 56.0%. As a result, Alibaba is no longer the cheap stock it once was. It now trades at a premium to our valuation – a valuation which admittedly had been progressively reduced over our holding period as a result of deteriorating business fundamentals. As a result of Alibaba’s significant outperformance, by the end of the quarter it had reached 3.7% of the Fund. We are weighing up our options here, considering the relative risk.”
5. Salesforce Inc (NYSE:CRM)
Number of Hedge Fund Investors: 116
Earlier in January, Salesforce Inc (NYSE:CRM) was downgraded to Sell from Neutral by Guggenheim while the firm set a $247 price target for the stock. The stock has surged about 30% over the past four months since Salesforce Inc (NYSE:CRM) unveiled Agentforce during its August conference call, Guggenheim analyst John DiFucci noted in a client report. However, DiFucci added that Salesforce Inc (NYSE:CRM) is unlikely to “meaningfully” monetize Agentforce unless it acquires several companies already offering similar services.
DiFucci also pointed out that Salesforce Inc (NYSE:CRM) has lacked significant organic innovation recently, and many enterprise sales staff left following executive changes in 2022. The analyst believes the company could see growth of 5% to 7%, with 9% to 10% growth appearing unlikely.
Vulcan Value Partners stated the following regarding Salesforce, Inc. (NYSE:CRM) in its Q4 2024 investor letter:
“There were five material contributors to performance: Amazon.com Inc., Salesforce, Inc. (NYSE:CRM), Live Nation Entertainment Inc., Carlyle Group Inc., and Alphabet Inc. There were no material detractors. Salesforce is the world’s leading SaaS vendor for customer relationship management (CRM) and salesforce automation (SFA) software. Salesforce offers many other products including software for marketing automation, customer service automation, analytics, application integration, and enterprise collaboration among others. Salesforce is deeply entrenched within its customer base, has high retention, high recurring revenue, and is a scalable business with high free cash flow and margin potential. Salesforce reported solid earnings and provided several positive data points around its AI strategy.”
