According to a recent Reuters report, the U.S. will empower tech giants to act as gatekeepers worldwide in its latest efforts to tighten its grip on global AI chip access. The move aims to effectively tighten restrictions, hindering China’s ability to acquire critical resources for developing its own AI capabilities.
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The scheme, which could be released this month, would require the companies to comply with strict requirements. This involves reporting key information to the US government and blocking Chinese access to AI chips. According to sources, doing so will allow them to offer artificial intelligence capabilities within the cloud overseas without a license.
While the government is keen on making tech giants gatekeepers, news reported by the Financial Times reveals how Blue Whale Capital investment fund has reduced its stakes in major US technology companies amid concerns about the costs of artificial intelligence. Besides one chip-maker tech giant out of the Mag 7, the fund is increasingly less positive on the rest of the Magnificent Seven tech stocks because of spending on AI, as reported by fund manager Stephen Yiu.
Even though tech giants are adamant that their spending is going to pay off in the long run, the move implies how not everyone is easily convinced. Jim Tierney, a growth stock investor at AllianceBernstein, noted how all of these companies, who are reportedly spending huge amounts of money, will have a hit to their profit margins. This hit is going to be even more noticeable in 2025.
In this regard, a report by The New York Times reveals how OpenAI could reportedly see a loss as big as $5 billion. The company’s largest expense comes from the computing power provided by its key partner and major investor, whose cloud services power its products. Analysts have been skeptical of such investments and wonder whether they will be able to garner returns.
Jim Covello, Goldman Sachs’s head of global equity research, stated that to justify a trillion or more dollars of investment, [AI] needs to solve complex problems and enable us to do things we haven’t been able to do before. He further noted that today’s flagship AI models, largely cannot.
Even though generative AI technology has been achieving a lot, such as advancing drug development, generating video clips, and even solving complex problems, making the technology profitable is still a major question. Only time will reveal whether these groundbreaking advancements can justify the immense investments that are pouring into the technology.
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).
New York Wall Street sign.
10. BigBear.ai Holdings, Inc. (NYSE:BBAI)
Number of Hedge Fund Holders: 9
BigBear.ai Holdings, Inc. (NYSE:BBAI) is an artificial intelligence specialist offering AI-powered decision intelligence solutions. On December 16, the company announced that it had entered into a collaboration with Proof Labs Inc to boost cybersecurity for the Department of the Air Force (DAF). The collaboration will deliver an advanced cyber resiliency solution called the Cyber Resilient On-Orbit (CROO) solution to the DAF. Proof Labs was awarded a contract through the AFWERX SBIR to develop the CROO solution, with Big Bear as the sub-contractor. Big Bear.ai’s SpaceCREST technology will be used for the CROO, which is a digital twin system that monitors satellite network cybersecurity.
“This project represents a significant step forward in safeguarding our nation’s space infrastructure. BigBear.ai’s SpaceCREST digital twin capability, further enhanced by custom machine learning and anomaly detection gained through this project, will provide DAF a powerful tool to help combat real-time cyber threats and ensure the resilience of our nation’s critical space assets”.
-Robert Wedertz, Senior Vice President, Federal at BigBear.ai.
9. Bloom Energy Corporation (NYSE:BE)
Number of Hedge Fund Holders: 25
Bloom Energy Corporation (NYSE:BE) develops solid-oxide fuel cell systems for on-site power generation. On December 16, BTIG raised the firm’s price target on Bloom Energy to $30 from $20 and kept a “Buy” rating on the shares. The analyst told investors in a research note that ever since the 1920s, data centers are driving the biggest transformation of the US power grid. Moreover, U.S. data center capacity is expected to grow at 10% annually over the next five years, which is in turn anticipated to drive the U.S. power demand growth by 2% annually. The firm contends that to meet power needs urgently, some companies are paying more for grid access. This situation has the potential to evolve into an opportunity for Bloom Energy considering Bloom’s customers can go behind the meter with the company’s natural gas fuel cell offering.
8. 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 16, Scott Berg from Needham reiterated a Buy rating on Five9 with a price target of $52.00. The buy rating largely stems from Five9’s innovative advancements in AI technology. In particular, the company’s introduction of AI Agents within its AI Genius suite, a comprehensive product suite for tailoring AI applications to a company’s CX needs, signifies a major advancement in its platform.
Leveraging powerful generative AI technologies, the AI agents deliver more natural and effective customer interactions. A key feature that allows the company to stand out is Five9’s integrated platform, offering a comprehensive solution instead of fragmented solutions that fail to manage entire call sessions. The all-rounded approach, along with real-time data access, positions Five9 as a dominant player in the competitive landscape of AI-powered customer service technologies.
7. Keysight Technologies, Inc. (NYSE:KEYS)
Number of Hedge Fund Holders: 36
Keysight Technologies, Inc. (NYSE:KEYS) is a global technology company that provides electronic design and test solutions to various sectors. On December 16, JP Morgan analyst Samik Chatterjee upgraded the electronics test equipment maker to “Overweight” from Neutral and raised its price target to $200 from $170. According to the analyst, the company’s end markets are going to recover in 2025. These markets had been facing challenges throughout the year due to factors such as higher capital costs, slower industry growth, and inventory digestion in certain markets. The analyst noted that customer demand will expand beyond the company’s current AI-related focus and investments in the future.
The company’s AI-driven technologies include its AI data center test platform for validating AI/ML infrastructure performance by simulating realistic, high-scale AI workloads and Eggplant Test Automation which is an AI-driven software test automation solution. Additionally, the recent acquisition of Spirent Communications is also likely to result in “robust” organic incremental margins. The deal is anticipated to be concluded in the first half of Keysight’s fiscal 2025.
“We envision a broadening out of the demand drivers beyond the narrow focus and investment on AI, which when put against the backdrop of lower interest rates is likely to be driven by higher spending appetite from customers that have been cautious over the last year”.
-JP Morgan analyst Samik Chattarjee
6. Ciena Corporation (NYSE:CIEN)
Number of Hedge Fund Holders: 40
Ciena Corporation (NYSE:CIEN) is a leading provider of networking systems and software. It specializes in optical and routing systems, services, and automation software. On December 13, Bank of America upgraded Ciena Corp (NYSE:CIEN) to “Buy” from Neutral, lifting its price target to $95 from $70. The rating was due to stronger long-term growth prospects. The firm cited steady demand from North American service providers as well as increased orders from hyperscalers as the driving force for more advanced networking equipment. The firm anticipates better-than-expected growth for the networking company.
“However, trends are turning out better than we expected, with stabilizing demand at North American Service Providers (SPs), and Hyperscalers’ AI bandwidth needs driving accelerated order momentum”.
5. MongoDB, Inc. (NASDAQ:MDB)
Number of Hedge Fund Holders: 49
MongoDB, Inc. (NASDAQ:MDB) is a database management system (DBMS) that supports operational, unstructured, and AI-related data to streamline building applications. On December 16, Monness Crespi downgraded MongoDB to “Sell” from Neutral with a $220 price target. The analyst is bearish on the stock, citing “unforgivable forces” from which MongoDB cannot escape. In particular, the MongoDB Atlas, the company’s integrated suite of data services centered around a cloud database, is struggling with slow growth and is “void of the powerful tailwind implicit in the industry’s gen AI propaganda”. This implies that the MongoDB Atlas is failing to benefit from the strong momentum in the industry surrounding generative AI. To make matters worse, the company is also struggling with its sales strategy, and the CFO also quit last week.
4. Twilio Inc. (NYSE:TWLO)
Number of Hedge Fund Holders: 52
Twilio Inc. (NYSE:TWLO) is a leading cloud communications platform-as-a-service (CPaaS) company that enables developers to build, scale , and operate real-time communications within software applications. On December 16, Wolfe Research raised the firm’s price target on Twilio (TWLO) to $140 from $95 and kept an “Outperform” rating on the shares. It issued a research note partly titled “2025 Software Year Ahead”, where it said that it hasn’t been this excited and inspired for the sector in “a LONG time”. Many factors make this “an amazing time to not only be alive but also cover software stocks”. These factors include improving fundamentals, easing the regulatory environment, secular AI tailwinds, and active capital markets.
3. Snowflake Inc. (NYSE:SNOW)
Number of Hedge Fund Holders: 71
Snowflake Inc. (NYSE:SNOW) is an enterprise software giant and an artificial intelligence data cloud company. On December 16, Jefferies raised the firm’s price target on Snowflake to $200 from $180 and kept a “Buy” rating on the shares. The firm highlights that Snowflake’s new CEO is focusing on strengthening artificial intelligence products, placing it as an “AI beneficiary” as companies build out data and AI foundations in 2025. The firm believes that Snowflake is headed towards a turning point this new year, driven by strong backlog growth and the dominating role of AI in boosting margins. As such, Jefferies has increased the price as part of a 225-page analysis of the top software AI debates of 2025.
2. Datadog, Inc. (NASDAQ:DDOG)
Number of Hedge Fund Holders: 71
Datadog, Inc. (NASDAQ:DDOG) specializes in cloud computing and AI-powered cybersecurity products. On December 16, Scotiabank raised the firm’s price target on Datadog (DDOG) to $162 from $133 and kept an “Outperform” rating on the shares. The rating, issued after a meeting with the management, reflects Datadog’s potential “nice momentum” in 2025. According to the firm, Datadog is a “clean way to play the themes” of digital transformation and DevOps.
However, the analyst told investors in a research note that the Street’s targets for 23% revenue growth in 2025 are a “bit of an overhang,” especially if artificial intelligence-native companies negotiate larger discounts. Even though the firm isn’t asserting a position on Datadog at the moment, it continues to “love its leadership in cloud-native observability, and end-to-end solution across the three pillars of observability which plays into the trend of market consolidation”.
1. Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holders: 128
Broadcom Inc. (NASDAQ:AVGO) is a technology company offering custom chips and networking assets. One of the biggest analyst calls for December 16 was issued for Broadcom. Goldman Sachs reiterated the company as a “Buy” and raised its price target to $240.00 from $190.00. The firm said it is sticking with the stock after the company’s earnings last week. It also believes that Broadcom is one of the key enablers of AI. Its custom chips and semiconductors, such as ASICs (Application-Specific Integrated Circuits) and networking solutions, play a key role in building and scaling AI systems. In short, they are the “nervous system” that connects different components of an AI infrastructure.
“Bottom line, we reiterate our Buy rating on AVGO with an updated 12-month price target of $240 (up from $190 prior) and continue to view the company as one of the key enablers of Gen AI”.
While we acknowledge the potential of AVGO 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 AVGO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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