Advancements in AI have revolutionized many industries, from healthcare and education to finance and entertainment, offering unparalleled efficiency, precision, and the ability to handle complex tasks at a scale previously unimaginable.
On the positive side, AI can streamline operations, improve decision-making, and even solve pressing global issues like climate change by analyzing large datasets. However, these advancements also come with significant risks. The rapid growth of AI technology has raised concerns about privacy, job displacement, and the potential misuse of AI systems in surveillance and defense.
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OpenAI’s Push into Defense Raises Concerns Among Employees
OpenAI is teaming up with Anduril Industries to enhance anti-drone systems using its AI technology, as per Bloomberg. This partnership aims to improve the detection and response to unmanned aerial threats. OpenAI is also expanding its role in the defense sector, including collaborations with the U.S. Air Force and hiring former Pentagon officials. The deal reflects the growing U.S.-China competition in military AI development, with Anduril seeing it as vital for addressing global air defense gaps. The partnership also signals increasing AI involvement in defense, following similar moves by other tech companies.
However, OpenAI employees have raised concerns about the company’s partnership with Anduril Industries, seeking more transparency from leadership. Internal messages viewed by The Washington Post revealed worries that the AI technology could be used beyond defensive applications against drone attacks, potentially targeting human-piloted aircraft or being deployed for other military purposes. Some employees expressed discomfort with collaborating with a weapons manufacturer, fearing damage to OpenAI’s reputation. Others noted that even defensive uses of AI could contribute to its militarization, drawing parallels to the fictional Skynet system from The Terminator, which was originally designed for defense.
Apart from OpenAI, there are several other startups that are working in the military and defense sectors. One of them includes DEFCON AI, a company focused on next-generation modeling, simulation, and analysis (MS&A) for military logistics. The company focuses on creating efficient, reliable systems that help address disruptions in logistics and supply chains, ensuring timely delivery of personnel, equipment, and cargo during critical situations.
Its approach combines AI-driven intelligent agents and advanced modeling to help leaders test and prepare for contested logistics scenarios. In August, DEFCON raised $44 million in seed funding. The round was led by Bessemer Venture Partners, with participation from Fifth Growth Fund and Red Cell Partners. With its strong leadership team, including retired military officials, the company is set to address the growing need for intelligent military technology in the face of increasing global competition.
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.
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11. Super Micro Computer, Inc. (NASDAQ:SMCI)
Number of Hedge Fund Holders: 33
Super Micro Computer, Inc. (NASDAQ:SMCI) designs high-performance server and storage solutions optimized for AI workloads. Its offerings include modular server systems, AI-focused computing platforms, and server management software, catering to enterprise data centers and cloud AI applications.
On December 6, Super Micro (NASDAQ:SMCI) announced it has received an exception from Nasdaq to delay filing its fiscal year 2024 annual report and Q1 2025 quarterly report until February 25, 2025. During this period, its stock will remain listed on the Nasdaq Global Select Market, provided the company meets all listing requirements. Super Micro expects to complete the required filings by the given deadline. The company shares were up around 9% at market open on December 9, compared to market close on December 6.
10. DocuSign, Inc. (NASDAQ:DOCU)
Number of Hedge Fund Holders: 42
DocuSign, Inc. (NASDAQ:DOCU) provides electronic signature solutions globally, including AI-powered features like advanced analytics and signer verification. Its Intelligent Agreement Management (IAM) platform is a collection of applications that help organizations create, manage, and commit to agreements and uses AI to speed up contract creation, improve negotiations, and provide strategic insights.
On December 6, The Fly reported that Piper Sandler raised its price target for DocuSign (NASDAQ:DOCU) to $90 from $60, maintaining a Neutral rating after the company surpassed Q3 expectations. While the firm is encouraged by the continued stabilization of DocuSign’s performance, it remains cautious and is waiting for more evidence of a significant shift in growth. The firm also seeks clarity on how DocuSign’s new IAM platform will contribute to its broader potential, as it believes it is still early in the development of this opportunity.
9. Reddit, Inc. (NYSE:RDDT)
Number of Hedge Fund Holders: 52
Reddit, Inc. (NYSE:RDDT) operates a platform that hosts over 100,000 active communities where users engage in discussions, voting, and sharing content based on their interests. It utilizes AI to improve its search capabilities and improve user experiences by surfacing relevant discussions and content across its forums. It also announced a partnership with OpenAI in May for training of AI models.
Reddit (NYSE:RDDT) is launching an AI chatbot, Reddit Answers, for the betterment of user engagement by assisting with information searches, recommendations, and discussion highlights across its forums, as per Bloomberg. The move supports Reddit’s push to improve search features and counter AI tools that summarize its content without driving traffic back to the site.
To protect its data, Reddit has blocked certain search engines and secured $203 million in licensing deals with Google and OpenAI. Reddit Answers, powered by AI models from Reddit, OpenAI, and Google, is rolling out to select U.S. users on the web and iOS, with plans to expand globally.
8. Hewlett Packard Enterprise Company (NYSE:HPE)
Number of Hedge Fund Holders: 64
Hewlett Packard Enterprise Company (NYSE:HPE) offers data-driven solutions globally across six segments, including HPC & AI. The company provides advanced AI infrastructure and workload-optimized servers, along with tools for AI integration and management.
On December 9, Loop Capital increased its price target for Hewlett Packard Enterprise Company (NYSE:HPE) from $18 to $24 while maintaining a Hold rating, as per The Fly. The firm noted that HPE missed a re-rating from an 8x to 10x P/E multiple but highlighted that durable growth in its generative AI capabilities could mark the start of further stock gains. HPE’s expertise in design, tuning, and integration is essential for OEM customers due to the complexity of servers and clusters, according to the analyst.
7. QUALCOMM Incorporated (NASDAQ:QCOM)
Number of Hedge Fund Holders: 74
QUALCOMM Incorporated (NASDAQ:QCOM) focuses on wireless technology and operates globally. Its AI initiatives are driven by investments in emerging technologies and companies, along with developing AI-powered solutions for mobile devices, automotive systems, and IoT applications.
Melius Research began coverage of QUALCOMM (NASDAQ:QCOM) with a Hold rating and a $180 price target, as reported by The Fly on December 9. While acknowledging Qualcomm’s innovation in chipsets and favorable valuation, the firm anticipates challenges over the next few years. It noted that growing demand for powerful chips in smartphones, PCs, and autos driven by AI applications may take time to offset the impact of losing Apple as a major customer and broader smartphone market weakness.
6. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Number of Hedge Fund Holders: 107
Advanced Micro Devices, Inc. (NASDAQ:AMD) is a semiconductor company that leverages AI through its advanced processors and GPUs. Its products support AI workloads, data processing, and adaptive computing for sectors like cloud services and data centers.
On December 6, Business Insider reported that AWS has not yet made AMD’s AI chips available on its cloud platform, citing low customer demand. Although AMD’s MI300 series was under consideration last year, AWS has not publicly committed to offering them. According to Gadi Hutt of Amazon’s Annapurna Labs, AWS would deploy the chips if there were stronger customer interest, but that demand hasn’t materialized.
AWS already provides access to Nvidia’s GPUs and recently launched servers with Nvidia’s Blackwell GPUs. While AWS and AMD maintain a partnership for CPU chips, AMD’s AI chips are still being evaluated, according to the report.
5. Adobe Inc. (NASDAQ:ADBE)
Number of Hedge Fund Holders: 123
Adobe Inc. (NASDAQ:ADBE) is a global software company with a focus on AI-driven solutions. It offers AI-powered tools for content creation, customer experience management, and data analytics, improving workflows for various professionals and businesses.
On December 9, Citi reduced its price target for Adobe (NASDAQ:ADBE) from $616 to $590 while maintaining a Neutral rating ahead of its earnings. The firm noted mixed sentiment ahead of Adobe’s fiscal Q4, following a weaker-than-expected Q3 outlook that suggested ongoing revenue challenges due to macroeconomic factors and competition, as per The Fly. Despite this, Citi believes investor expectations for Adobe’s fiscal 2025 annual recurring revenue are relatively modest, and it anticipates guidance that aligns with these lower expectations.
4. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Number of Hedge Fund Holders: 158
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) produces advanced semiconductors used in AI applications across industries like high-performance computing, IoT, and automotive. The company also invests in technology startups and develops cutting-edge processes for integrated circuits to support AI advancements globally.
According to a Reuters report, TSMC founder, Morris Chang said that Intel should have focused on AI amid a leadership shakeup. Chang commented on Intel’s recent leadership change, suggesting the company should have prioritized AI over its efforts to become a contract chipmaker. Speaking at an event for his autobiography launch, Chang said he was unsure why former CEO Pat Gelsinger left but noted Intel appears to lack both a clear strategy and a new CEO. Chang criticized Gelsinger for being “a bit rude” in past dealings and suggested Intel might have fared better focusing on AI.
3. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 193
NVIDIA Corporation (NASDAQ:NVDA) focuses heavily on AI through its Data Center and Compute and Networking segments. Its products also support AI applications in gaming, professional visualization, and robotics.
Bloomberg reported on December 9 that China is investigating Nvidia for possible anti-monopoly violations related to its 2020 Mellanox acquisition. Beijing approved the $7 billion deal with conditions to ensure fair treatment of Chinese firms and competitors. This follows escalating US-China tech tensions, including US chip export restrictions and China’s retaliation against American companies. The US has limited Nvidia’s sales of advanced chips to China while urging allies to take similar actions. In response, China has implemented its own measures, including banning certain tech-related exports and scrutinizing companies like Micron Technology.
2. Meta Platforms, Inc. (NASDAQ:META)
Number of Hedge Fund Holders: 235
Meta Platforms, Inc. (NASDAQ:META) integrates AI into its products, enhancing user experiences across apps like Facebook, Instagram, WhatsApp, and Messenger, and also has its own language models. Its Reality Labs segment uses AI for advancements in augmented and virtual reality, supporting immersive connectivity and innovation.
Meta (NASDAQ:META) unveiled Llama 3.3, its newest large language model on December 6. Llama 3.3 is a multilingual large language model with 70 billion parameters, designed for text-based input and output. It is optimized for multilingual dialogue and outperforms several other models in industry benchmarks. The model uses an auto-regressive architecture with Grouped-Query Attention for better scalability. It is fine-tuned using supervised learning and reinforcement learning with human feedback to enhance safety and usefulness. Llama 3.3 supports languages such as English, Spanish, German, and Hindi, among others.
Meta’s Gen AI VP, Ahmad Al-Dahle posted the following on X:
“Introducing Llama 3.3 – a new 70B model that delivers the performance of our 405B model but is easier & more cost-efficient to run. By leveraging the latest advancements in post-training techniques including online preference optimization, this model improves core performance at a significantly lower cost, making it even more accessible to the entire open source community.”
1. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 279
Microsoft Corporation (NASDAQ:MSFT) offers AI-driven solutions through its Intelligent Cloud segment, including Azure cloud services, Nuance’s AI technologies, and GitHub. It also integrates AI across its productivity tools, such as Microsoft 365 Copilot, and Dynamics 365 for business applications.
On December 7, Axios reported that the U.S. has approved exporting advanced AI chips to a Microsoft (NASDAQ:MSFT) facility in the UAE, part of Microsoft’s collaboration with Emirati AI firm G42. This partnership aims to counter China’s influence in the UAE’s tech sector and expand U.S. AI technology globally. However, concerns have been raised about potential Chinese access to the technology, given G42’s past ties to Chinese firms.
G42, chaired by UAE national security adviser Sheikh Tahnoon bin Zayed al-Nahyan, has worked to ease U.S. concerns by removing Huawei hardware and divesting from Chinese investments, though some assets remain linked to Sheikh Tahnoon’s parent company. Restrictions on the export license prohibit the use of the chips by individuals or entities from nations under U.S. arms embargoes, including China, the report stated.
While we acknowledge the potential of Microsoft Corporation (NASDAQ:MSFT) as an investment, our conviction lies in the belief that 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 MSFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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