In this article, we discuss the 10 AI stocks that could go parabolic according to the financial media.
One of the primary growth drivers in the AI industry over the past few years has been the exponential increase in data generation. The rise of the Internet of Things (IoT), social media, e-commerce, and various digital platforms has led to an unprecedented surge in data production. This vast amount of data serves as the fuel for AI systems, particularly in the development of machine learning models. Clive Humby, a venture capitalist, emphasized the critical role of data in AI development by famously proclaiming that data is the new oil. The ability to collect, process, and analyze large datasets allows AI algorithms to improve accuracy and deliver more sophisticated outputs.
Read more about these developments by accessing 33 Most Important AI Companies You Should Pay Attention To and 20 Industrial Stocks Already Riding the AI Wave.
To understand the AI revolution, it is also important to understand advancements in computing power. Moore’s Law, which predicts the doubling of transistors on a microchip approximately every two years, has played a crucial role in enhancing the processing power available for AI applications – consider companies like Taiwan Semiconductor Manufacturing and their advanced node processing. The advent of Graphics Processing Units (GPUs) and Tensor Processing Units (TPUs) – like the ones made popular by NVIDIA – has further accelerated AI development by enabling faster computation and more complex model training. Ray Dalio, founder of Bridgewater Associates, one of the largest hedge funds globally, says that these improvements in hardware have been a game-changer for AI.
The availability of massive investments in AI research and startups is also a key growth driver. According to a report by PwC, global investments in AI are expected to reach $15.7 trillion by 2030, with the technology contributing $6.6 trillion to GDP from increased productivity and $9.1 trillion from consumption effects. This influx of capital is spurring innovation and the commercialization of AI technologies across various sectors, from healthcare to finance. Prominent hedge fund managers are also taking note. Ken Griffin, the chief of Citadel Investment Group, says that AI is the most transformative technology of our time, and not just another bubble, but a structural shift in the economy.
Read more about these developments by accessing Billionaire Stan Druckenmiller Is Betting On AI Infrastructure, Tobacco and Industrial Stocks and 10 Tech Stocks to Monitor Amid Market Volatility According to Bernstein Analyst..
Our Methodology
For this article, we selected AI stocks that have explosive growth potential according to financial news outlets. 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).
An overhead view of a modern networking technology suite in a data center.
AI Stocks That Could Go Parabolic According to Media
10. Nano-X Imaging Ltd. (NASDAQ:NNOX)
Number of Hedge Fund Holders: 6
Nano-X Imaging Ltd. (NASDAQ:NNOX) develops a commercial-grade tomographic imaging device with a digital X-ray source. The company is a leading innovator in the field of X-ray machines. It has developed an imaging device that is smaller, cheaper, and more efficient than traditional X-ray machines. Management expects the sales of these devices to ramp up in the coming quarters. The firm has also introduced the use of AI in diagnostics. Dubbed NanoxAI, the company has developed FDA-approved uses of AI in reading patient scans, identifying chronic conditions early, and helping patients get to clinical care faster. The firm uses a database containing 30 million patient records, 500 million images, and a ten year patient history for the AI-based health solutions.
Nano-X Imaging Ltd. (NASDAQ:NNOX) is attracting the attention of Wall Street analysts with strides in AI-based health solutions. Alliance Global Partners recently started covering the stock with a Buy rating and $12 price target. In an investor note, the advisory highlighted the potential to expand Nanox.ARC placements and generate per-scan revenue that would drive the company to profitability, while also lauding the AI-based systems of the firm.
9. Riskified Ltd. (NYSE:RSKD)
Number of Hedge Fund Holders: 17
Riskified Ltd. (NYSE:RSKD) develops and offers an e-commerce risk management platform that allows online merchants to create trusted relationships with consumers in the United States, Europe, the Middle East, Africa, the Asia-Pacific, and the Americas. The firm is the only risk management firm on the stock market that offers a broad range of AI-based solutions for ecommerce firms. These include helping businesses reduce operating expenses and improve customer experiences through the use of AI tools. Some of the most prominent customers of the firm include electronics firm Acer and furniture retailer Wayfair.
Riskified Ltd. (NYSE:RSKD) is a small company but has many admirers on Wall Street. Truist analyst Terry Tillman has a Buy rating on the stock with a price target of $7. In a recent investor note, the analyst noted that the Riskified’s business continued to diversify across verticals and geographies, but cautioned that management was forecasting continued macro headwinds and pressure on discretionary spend, leading to a lower revenue outlook for the second half of the year.
8. Rubrik, Inc. (NYSE:RBRK)
Number of Hedge Fund Holders: 28
Rubrik, Inc. (NYSE:RBRK) provides data security solutions to individuals and businesses worldwide. The company offers enterprise data protection, unstructured data protection, cloud data protection, and SaaS data protection solutions. These protections are important across the board because large firms manage their business data through a range of different software offerings. The cybersecurity platform of the firm uses AI and machine learning to monitor for threats and provide sophisticated data recovery. The recent global software outage, caused by problems at CrowdStrike, has increased the spotlight on Rubrik. Microsoft, Atlassian, and Cisco are some of the prominent customers of the firm.
Rubrik, Inc. (NYSE:RBRK) has enormous growth potential and analysts on Wall Street have recognized this. Piper Sandler recently initiated coverage of the stock with an Overweight rating and $42 price target, terming the stock one of the top investment ideas. In an investor note, the advisory noted that next-generation vendors were replacing legacy vendors, and tailwinds like ransomware, artificial intelligence and backup-as-a-service were driving shifts to vendors like Rubrik. The advisory sees the company growing 20% per year sustainably.
7. Palantir Technologies Inc. (NYSE:PLTR)
Number of Hedge Fund Holders: 44
Palantir Technologies Inc. (NYSE:PLTR) builds and deploys software platforms for the intelligence community to assist in counterterrorism investigations and operations. The firm recently beat market expectations on earnings and guidance, as a strategy that focuses on AI and the commercial side of the business appeared to pay off for management. This was evident by the 55% year-on-year growth in US commercial revenue during the second quarter. Palantir customers are flocking towards the software offerings of the firm that have seamless AI integration. The firm closed the quarter with $1 billion in new contracts.
Jordan Berger, an analyst at Third Bridge, lauded Palantir Technologies Inc. (NYSE:PLTR) for their AI initiatives. In a recent investor note, the analyst detailed that Q2 2024 US commercial performance showed that the value proposition for AI and generative AI solutions that the firm markets has continued to resonate with customers despite a crowded and opaque market landscape. The analyst further added that the introduction of AIP and the Bootcamp sales model appeared to be successfully facilitating the transition from Foundry.
6. Cadence Design Systems, Inc. (NASDAQ:CDNS)
Number of Hedge Fund Holders: 64
Cadence Design Systems, Inc. (NASDAQ:CDNS) provides software, hardware, services, and reusable integrated circuit (IC) design blocks worldwide. In the second quarter, the firm delivered 8.7% growth in revenue with $6 billion in backlog, beating the market expectations for both topline and bottom lines. It also guided to 12%-14% growth in revenue and 12%-16% growth in adjusted EPS for this fiscal year. These results are impressive considering the firm has expanded key partnerships in foundry and chip design in recent months. Some of the prominent ones include AI chip design and production with Intel and Samsung, two key players in the smartphone and PC markets globally.
Cadence Design Systems, Inc. (NASDAQ:CDNS) has earned bullish calls from Wall Street as a result. Piper Sandler recently upgraded the stock to Overweight from Neutral with an unchanged price target of $318. In an investor note, the advisory stated that the recent selloff presented an attractive entry point in a premier software asset with an enviable position in the semi industry.
5. ASML Holding N.V. (NASDAQ:ASML)
Number of Hedge Fund Holders: 81
ASML Holding N.V. (NASDAQ:ASML) makes and sells advanced semiconductor equipment systems. ASML is important to the AI world since it provides lithography systems that are needed to produce microchips. These microchips can be found in smartphones, computers, tablets, cars, industrial equipment, and other consumer electronic products. Latest reports indicate that the company has made a new breakthrough with a latest chip-printing machine, developing an EUV scanner that gives customers access to develop their own High NA EUV use cases. The new machine can create some of the smallest logic and memory chips currently in production.
Peter Wennink, the CEO of ASML Holding N.V. (NASDAQ: ASML), said during the second quarter earnings call that there was healthy growth this year for the firm, primarily driven by AI-related demand for both Logic and Memory but also expected from other end markets as inventory levels improved. He added that there were secular growth drivers for the company in the semiconductor end markets, such as energy transition electrification and AI.
4. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 279
Microsoft Corporation (NASDAQ:MSFT) is a Washington-based technology company. The firm has committed to a large capex to fund AI ventures and Wall Street is already starting to see the return on these investments. Evercore ISI analyst Kirk Materne recently noted the solid quarterly results of the tech giant, highlighting the strong commercial bookings and management comments about positive demand signals. The investor note also underlined the expectation that Azure growth would accelerate in the second half of the year as more AI capacity came online. The analyst detailed that the company remained well positioned to deliver durable top-and-bottom-line growth.
Microsoft Corporation (NASDAQ:MSFT) is said to be considering another large investment in AI startup OpenAI. Back in 2023, the tech giant had invested $10 billion in the California-based AI firm. The new funding round is likely to take the valuation of OpenAI to more than $100 billion, with Apple and NVIDIA also considering investments. Reports indicate that Apple could partner with OpenAI to create an offering to rival Google in internet search.
3. Meta Platforms, Inc. (NASDAQ:META)
Number of Hedge Fund Holders: 219
Meta Platforms, Inc. (NASDAQ:META) engages in the development of products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and wearables worldwide. The company is using AI to improve the advertisement side of the business. This strategy appears to be bearing fruit. The tech giant recently beat market expectations on earnings for both the top and bottom lines, and also raised guidance for AI-related capital expenditures. Meta managed to grow twice as fast as rival Google in the ads space in the second quarter, even while reporting an increase in price per ad figures during the earnings call.
This effective AI strategy has caught the attention of market experts on Wall Street. Investment advisory Tigress Financial has a Strong Buy rating on Meta Platforms, Inc. (NASDAQ:META). In a recent investor note, the advisory highlighted that the cash flow of the tech giant was enabling ongoing investments in artificial intelligence initiatives that would drive user engagement, better content, and a more effective advertising experience.
2. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 184
Apple Inc. (NASDAQ:AAPL) is a consumer electronics firm. The company is expected to debut new AI features that will be integrated into the smart devices that it markets, including the iPhone, at an event next month. Wall Street analysts are excited about the integration of new features since they are expected to drive sales of new Apple devices, primarily because the older models will not be able to support the new features. Morgan Stanley analyst Erik Woodring, in an investor note, highlighted that Apple Intelligence remained the key to unlocking pent-up iPhone demand and accelerating replacement cycle. The analyst further forecast that the Apple event in September would heavily feature AI integration on the new iPhone 16, though iPhone pricing and iPhone battery life would also be key details to watch.
At a tech event earlier this year, Apple Inc. (NASDAQ:AAPL) revealed some of the capabilities of the new AI offering, which included massive changes to popular iPhone applications like Siri, Genmoji, and Image Playground. There are rumors that the firm may put advanced features of the AI software behind some kind of a paywall.
1. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 179
NVIDIA Corporation (NASDAQ:NVDA) provides graphics, computing and networking solutions. Even though the company beat market expectations on earnings per share and revenue for the second fiscal quarter, the shares fell following the report. This was because there were concerns around the production ramp for the latest AI chips called Blackwell and a slowdown in data center growth during the second quarter, raising concerns about valuation and future volatility. This selloff happened despite the fact that the firm outlined $50 billion in share buybacks. However, market experts are forecasting a shift to robotics that could be a future growth driver for the tech giant as the AI boom fades away.
Wall Street analysts expect NVIDIA Corporation (NASDAQ:NVDA) to register parabolic growth in the coming months. Truist recently raised the price target on the stock to $148 from $145 and kept a Buy rating, noting that investors should look through the Blackwell fog and recognize that the company beat revenue and EPS expectations for the quarter and in the outlook, while the results and commentary reinforced leadership in AI as strong and persistent.
While we acknowledge the potential of NVIDIA Corporation (NASDAQ:NVDA) 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 NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Michael Burry Is Selling These Stocks and Jim Cramer is Recommending These Stocks.
Disclosure: None. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily e-newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below. You can also look at the 13 High Growth Semiconductor Stocks That Are Profitable in 2024 and the 11 Best AI Penny Stocks to Invest in Now.