In 2024, companies poured money into Artificial Intelligence infrastructure in a bid to outpace each other in the AI race. The communication services and information technology sectors led the the large-cap stocks in terms of returns. AI-driven hype was so significant that for the first time since 1998, the S&P’s large-cap index registered two consecutive years of 20%+ gains.
2025 may well be the year of reckoning for AI. Some analysts have questioned the massive AI spending throughout the last year. Their concerns and predictions were dealt a reality check though when Bill Gates‘ tech giant announced it planned to spend $80 billion on AI in fiscal 2025. Consequently, semiconductor stocks rallied, reminding everyone that the AI rally wasn’t over by any means.
We now look at the top 10 hottest stocks for 2025. Not surprisingly, the list is dominated by chipmakers, who we believe will be critical to the market’s returns this year. To come up with the 10 hottest mega-cap stocks of 2025, we considered stocks with at least $75 billion market capitalization.
10. ASML Holding N.V. (NASDAQ:ASML)
Shares of ASML Holdings have been steadily inching up so far this year, despite the stock facing multiple headwinds. It recently received a setback when a class action lawsuit brought by The Gross Law Firm alleged the company had misled investors on the state of the semiconductor industry and consumer demand.
The company also faces export control threats from the US. The China-US rivalry has meant that the company cannot simply sell its latest technology to China. China has bought the company’s deep ultraviolet (DUV) lithography machines in the past. However, the sale of the most advanced extreme ultraviolet (EUV) machines continues to be restricted.
Lithography machines are just like high-quality printers, but they use light to create extremely small patterns on silicon wafers, which become an integral part of modern chips. Despite export restrictions and legal troubles, the company will stay relevant in 2025 as its lithography machines benefit from US investments in the sector, especially in light of the CHIPS ACT.
The stock has received consistent downgrades in the last 3 months, though there is reason to believe that after being down 36% from its all-time highs, the stock is ripe for reversal.
9. Spotify Technology S.A. (NYSE:SPOT)
Spotify would usually make the news for exclusive content deals with artists or competition from other streaming services. But the company kicked off the new year by announcing a new partner program for content creators.
Like many other companies, Spotify is poised to benefit from improving AI technologies. With a low-cost business model, the company is able to spend on AI implementation to improve its offerings. The platform has done a good job improving user engagement and with AI-driven programmatic advertisement tools, it has been able to monetize this user engagement really well. This also helps the company continue to operate with high margins.
Spotify also holds considerable pricing power, something that is going to be a driver of growth heading into 2025. The firm recently hiked prices in over 60 markets, comfortably increasing its average revenue per user (ARPU) by 8.5%. At the same time, it was also able to minimize the loss of customers, proving it can easily improve its cashflows through price increases, if needed.
8. Crowdstrike Holdings, Inc. (NASDAQ:CRWD)
Crowdstrike’s global outage on July 19th, 2024 brought the stock’s 18-month-long bull rally to a screeching halt. After crashing 44% over the subsequent couple of weeks, the stock resumed its upward trajectory and is almost back at the same level as before the outage.
At the turn of the new year, the US government released a report on how the Department of Treasury was hacked, exposing critical documents and workstations to the hackers. Cyber attacks like these are becoming increasingly common in the US. Cybersecurity Ventures, a magazine that covers global cybersecurity issues, estimates the cost of cyber-attacks globally at $10.5 trillion. There is an increasing realization now that with Software forming a core part of national defense, cybersecurity needs to be given priority at the government level.
This improved prospect of government backing makes cybersecurity stocks an interesting play in 2025. Crowdstrike is a major player in the sector and grew its cloud security business by 80% in 2024, despite its fair share of issues.
RBC Capital recently increased its target price on the stock from $365 to $420. This was preceded by Goldman Sachs raising its target from $372 to $415. The analysts are bullish on the stock and so are we.
7. Tesla, Inc. (NASDAQ:TSLA)
2025 is the year Tesla plans to use the first humanoid robot internally. By next year, the company plans to start rolling out these robots to other companies. Robotaxis could also arrive soon. As Tesla’s annual sales decline for the first time in 13 years, this is the perfect time for the company to launch a product for a new income stream. How successful it is in pursuing these ventures will determine the stock’s trajectory in the next 12 months.
Investors will also be keeping a close eye on Elon Musk’s influence on the regulation of autonomous vehicles. The market is expecting positive developments for Tesla once Donald Trump takes oath later this month. However, the stock has run up over 40% since the election, so a lack of immediate positive development may also weigh heavily on the stock.
Bank of America recently maintained its BUY rating on the stock, confirming the importance of the above-mentioned developments. BofA analyst John Murphy released this statement after a recent visit to the Austin, Texas gigafactory.
The trip gave us increased confidence that TSLA is well positioned to grow in 2025+ with its core EV business and launch of its robotaxi offering, and longer-term from its investments in Optimus.
With so much to look forward to this year, we believe Tesla will be one of the hottest, if not the hottest, stocks of the year.
6. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
If the AI revolution continues to dominate like it did last year, then the stock powering this revolution will continue to be a big beneficiary. Taiwan Semiconductor’s advanced packaging technologies enable it to be the backbone of AI development, with companies like Nvidia and Broadcom relying on it for their manufacturing.
The company is on course to becoming one of the key players in the United States semiconductor manufacturing infrastructure. The recent funding of $406 million through the CHIPS ACT also supports this development. This money will go towards setting up manufacturing facilities in Texas and Missouri. The company’s new plant in Japan was also expected to begin production by the start of the year.
The chip manufacturer’s upcoming 2nm technology will cement its place as a leader in chip manufacturing. Its high-performance computing segment accounted for over half of the revenue, and that isn’t expected to slow down anytime soon. The threat of US-China relationships worsening has always weighed on the stock and with Donald Trump’s second term about to begin, this will only increase in the coming year. However, investors can expect significant support for the company from the US, which should help the company financially.
5. Marvell Technology, Inc. (NASDAQ:MRVL)
Marvell Technology Inc. had a superb last quarter, gaining over 63%. The company’s fiscal third quarter(Aug-Oct) saw it almost double its data center revenues, giving it a solid footing to catch some of the AI infrastructure spending by tech companies.
This is a deliberate move by the chipmaker, which recently shifted its focus to custom chips and networking equipment. Some of the major tech companies in the US required powerful custom chips to improve their LLM training processes. Going forward, companies will move from LLM training to inference but they will still require the powerful chips that MRVL makes.
Management expects an increasing demand due to the nature of inference. Inference requires an increasing number of clusters, which are interconnected computing resources that help run the AI tasks. Marvell provides the equipment for this interconnection, and therefore benefits from this shift in focus of the major tech companies. As technologies involving autonomy improve, this demand will increase, making MRVL one of the hottest stocks to look forward to in 2025.
4. Uber Technologies, Inc. (NYSE:UBER)
Uber Technologies, Inc. has had a great start to the year so far. First, it was Goldman Sachs that added the company to its U.S. Conviction List. This is a list of stocks that the bank believes have the highest potential of outperforming the index. Goldman Sachs believes the stock can gain over 50% this year, with a price target of $96.
One of the basis for this conviction is the company’s ability to leverage autonomous vehicles. It signed 5 partnerships last year, including with Google’s Waymo and Avride, the Dutch AI infrastructure player that focuses on AI technologies.
The company has also announced a $1.5 billion accelerated share repurchase agreement, part of a $7 billion share repurchase program. The transaction is expected to be completed in the first quarter, which means the stock has potential for a short term rally. In fact, it is already up 12% so far this year.
3. Nvidia Corporation (NASDAQ:NVDA)
Nvidia is on course to become the most valued company by market cap. While there are multiple ways to determine the financial value of a company, it is hard to determine the impact value that a company like Nvidia commands. Nvidia makes the best GPUs in the world. Its stock tripled in 2024 because of this simple reason.
These GPUs weren’t originally designed for AI tasks though. They served multiple purposes, which also happened to include a vital role in Large Language Models training. This year, Nvidia will roll out its Blackwell line of GPUs. These are extremely powerful GPUs that have been designed to keep AI demands in mind. Being the first of their kind, they’ll determine Nvidia stock’s direction this year.
Much of the impact is already priced into the stock. However, the company is still valued cheaper than its competitors by one metric. Moreover, it could potentially branch out to other sources of revenue, including building its own cloud business and robotics. These possibilities will keep the stock relevant throughout the year, not that its core chip business was any less significant.
Analysts are also bullish on the stock, with Bank of America recently revealing that it was the most widely owned company among US fund managers. Nvidia also attracted record retail investors’ funds in 2024 and was the most sought after stock by this investor group. The story is unlikely to change in 2025.
2. AppLovin Corporation (NASDAQ:APP)
AppLovin stock continues to surge this year. After amassing 800% returns in 2024, one would think the stock was done rallying. However, it only seems to have paused for a month and is now gaining attention again. The stock is up over 10% this year.
AppLovin helps developers manage their development and marketing tasks with ease. The company’s AXON AI engine helps increase the chances of app installs. This AI engine helps drive the success of the comprehensive suite of tools that the company offers to developers to help them expand their reach globally.
The company’s stock narrowly missed inclusion in the S&P 500 in December. However, considering the fact that it is actually using AI to benefit its customers, resulting in revenue, chances are that the strong fundamentals will continue to drive the stock up. The S&P 500 inclusion will therefore be a matter of when, not if. Investors will have their eyes on the next quarterly rebalancing.
The stock will also be driven by the growth of both in-app advertising and in-app purchases. The success of the company this year depends on the development of its AXON AI engine. If that continues to improve as AI technologies get better, the firm should be able to continue generating increasing revenue with ease.
1. Arm Holdings plc (NASDAQ:ARM)
ARM Holdings has taken off this year, gaining 10% in a single day to end the week at a high. The company continues to benefit from a unique business model that is at the heart of chip-making technologies of various semiconductor companies.
ARM spent just 6% of its last quarter’s revenue on CAPEX. It makes money by licensing its chip designs as well as royalties from chip sales. This also allows it to record a stable financial performance through passive recurring revenues. In an industry that is otherwise very capital intensive, ARM’s business model helps it survive downturns while benefiting from the good times.
As these good times are expected to continue in 2025, the company’s strong positioning will continue to make it a solid semiconductor bet. Investors would still want to keep an eye on technological developments though. It faces an existential threat from an open source architecture called RISC-V. Qualcomm, which only last month won a licensing dispute against ARM, is actively pursuing this technology, so volatility is expected as this technology develops.
As expected, the hottest stocks for 2025 are almost all beneficiaries of the Artificial Intelligence revolution. The revolution is only just getting started and investors and analysts alike expect a year of great technological advancements ahead.
While we acknowledge the potential of ARM as a leading AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is as promising as ARM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.