Earlier this month, the president of Potomac Wealth Advisors, Mark Avallone, discussed the tech sector’s investment potential. We talked about his sentiment in more detail in one of our other articles, 12 Best NASDAQ Stocks To Buy in 2025. Here’s an excerpt from it:
“He noted that market rates have surged to all-time highs, with a significant increase of 1,800 points since October 2023. Avallone emphasizes that tech stocks, particularly cash-flowing mega-cap and large-cap companies, have shown resilience against rising rates, attributing this to improved operational efficiencies and ongoing technology spending even in a slowing economy.”
Just like Avallone, several analysts hold a positive outlook for tech stocks as we go into 2025. Daniel Ives, Global Head of Technology Research at Wedbush Securities, thinks that the AI revolution is driving this strength in tech. On January 13, he appeared on CNBC and discussed the tech sector in light of rising interest rates and a strengthening dollar. He noted that the 10-year Treasury yield is currently at 4.75%, which is exerting pressure on tech stocks. Despite this, Ives expressed optimism about the sector’s potential for growth and suggested that the current environment presents opportunities to invest in leading companies. He emphasized that capital expenditures are robust on the consumer side and indicate stronger-than-expected earnings ahead. Ives believes that we are only halfway through the bull market, which he views as a positive sign for tech stocks moving forward.
Ives discussed Palantir Technologies, which has faced selling pressure despite being a top S&P 500 performer last year. He warned that overlooking it due to high valuation could mean missing key market opportunities, similar to Oracle and Salesforce, especially with $2 trillion in expected AI capital expenditures. Ives also highlighted the impact of a rising dollar on tech, particularly Apple’s vulnerability, while remaining bullish on the sector. He emphasized the need for diversification, citing Microsoft and NVIDIA as indicators for AI growth.
His optimism about the tech sector highlights opportunities as investors navigate this landscape. Hence, we’re here with a list of the 8 best machine learning stocks to buy according to hedge funds.
Methodology
We first sifted through ETFs, online rankings, and internet lists to compile a list of the top ML stocks. We then selected the 8 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q3 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers.
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).
8 Best Machine Learning Stocks to Buy According to Hedge Funds
8. Micron Technology Inc. (NASDAQ:MU)
Number of Hedge Fund Holders: 107
Micron Technology Inc. (NASDAQ:MU) makes memory and storage solutions. It serves many markets, ranging from data centers to mobile devices. It designs, manufactures, and sells a portfolio of products, including DRAM, NAND, and NOR flash memory, under the Micron and Crucial brands, and through private labels as well.
The company is benefitting from the surging AI market demand. J.P. Morgan reiterated its Overweight rating and $180 price target in mid-December 2024, expecting a recovery in the memory market by late 2025. This will be driven by strong AI server demand and tight DRAM supply. The analyst expects the stock to perform well in H1 2025 as investors anticipate a market rebound.
In FQ1 2025, management highlighted that AI server demand is driving data center SSD growth. Its market share exceeded $1 billion in quarterly revenue. This is fueled by the advancements in AI, particularly in areas like machine learning and deep learning, which require high-performance storage solutions to handle massive datasets. Additionally, despite near-term headwinds, Micron Technology Inc. (NASDAQ:MU) expects to maintain its market share in both DRAM and NAND.
It anticipates a gradual increase in HBM (High-Bandwidth Memory) revenue as it ramps up production and transitions to taller stacks of HBM chips (12-high). Therefore, the company is constructing a $7 billion HBM advanced packaging facility in Singapore. This facility will begin operations in 2026 and reach full capacity by 2027. While the full impact of this investment will be seen in the future, it supports the anticipated memory market recovery driven by AI.
7. Advanced Micro Devices Inc. (NASDAQ:AMD)
Number of Hedge Fund Holders: 107
Advanced Micro Devices Inc. (NASDAQ:AMD) is a semiconductor company that provides a range of high-performance computing and graphics solutions. Its product portfolio includes CPUs, GPUs, FPGAs, and adaptive SoCs. It serves a diverse customer base across various industries, including data centers, gaming, and embedded systems.
Northland Capital rated the company Outperform with a $175 price target, projecting market share gains in AI GPUs (MI325X), server CPUs (Turin vs. Granite Rapids), and PCs. AI revenue is expected to surge from $5.2 billion in 2024 to $9.5 billion in 2025, while non-AI data center revenue is projected at $8.5 billion. This growth is driven by the increasing demand for powerful hardware for advanced machine-learning models. The company’s competitive edge comes from strong product roadmaps, TCO (Total Cost of Ownership) advantages, and anticipated PC refresh driven by Windows 10 end-of-support.
It reported a record Q3 2024 revenue of $6.8 billion, which was driven by a 122% surge in Data Center revenue to $3.5 billion. This growth was fueled by the strong performance of its EPYC CPUs and Instinct GPUs. EPYC CPUs are critical for powering AI workloads, such as training LLMs and running complex ML inference tasks. They power critical services for companies like Microsoft, Meta, Google, and AWS.
This performance highlights the impact of AI-driven demand on Advanced Micro Devices Inc.’s (NASDAQ:AMD) Data Center business. As AI applications continue to grow, the demand for high-performance computing solutions is expected to further accelerate, driving growth for the company.
6. Alibaba Group Holding (NYSE:BABA)
Number of Hedge Fund Holders: 115
Alibaba Group Holding (NYSE:BABA) is a Chinese tech giant that runs a vast e-commerce empire. This includes marketplaces like Taobao, Tmall, and AliExpress. It also offers cloud computing, logistics, and digital media services.
In FQ2 2025, the company’s revenue rose 7% year-over-year, driven by double-digit growth in public cloud services. Notably, AI-related product revenue maintained its impressive triple-digit growth for the fifth consecutive quarter, which solidified its position as a key growth engine for Alibaba Cloud. Alibaba Cloud is driving significant AI growth in Asia. The success is evident in collaborations with companies like Japan’s Lightblue, Malaysia’s Pictureworks, Singapore’s Atlas, and China’s Drunk Elephant. They demonstrate the applications of Alibaba Cloud’s AI technologies across various industries.
In December 2024, Selina Yuan, President of International Business at Alibaba Cloud Intelligence stated the following:
“We are thrilled to witness our robust cloud infrastructure and AI offerings empowering organizations across a diverse range of industries to further drive transformation in 2024 with our partners together. As the leading cloud service provider in Asia, we remain committed to helping our customers enhance their operations and deepen their connections with consumers, while collaborating with our ecosystem partners to unlock the full potential of AI and cloud technologies for businesses of all sizes.”
This shows Alibaba Group Holding’s (NYSE:BABA) commitment to using AI to drive its growth through strategic innovations.
5. NVIDIA Corp. (NASDAQ:NVDA)
Number of Hedge Fund Holders: 193
NVIDIA Corp. (NASDAQ:NVDA) is a technology company that designs and manufactures graphics processing units (GPUs) for the gaming and professional markets. It also develops AI platforms, high-performance computing solutions, and self-driving car technologies, and powers industries like gaming, data centers, and automotive.
In Q3 2024, the company reported a record revenue of $35.1 billion, which marked a 94% year-over-year increase. The data center segment alone surged 112% to $30.8 billion. Its GPU revenue has surged 67% annually over the past three years, driven by the demand for computing power due to AI and ML advancements. The company holds a dominant 90% market share as a supplier of computing power.
Bank of America recently highlighted NVIDIA Corp.’s (NASDAQ:NVDA) popularity among both institutional and retail investors. It maintains a $190 price target, which suggests a 27% upside. The release of Blackwell GPUs, with 12 months of orders already secured, is a key driver of this optimism. At CES 2025, the company also unveiled Project DIGITS, which is a personal AI supercomputer powered by the new GB10 Grace Blackwell Superchip.
This compact system delivers a petaflop of AI performance using a standard electrical outlet. It enables researchers, data scientists, and students to develop and run large AI models locally. Project DIGITS features 128GB of memory and up to 4TB of storage, which allows users to handle demanding AI workloads.
Manole Capital Management highlighted that NVIDIA Corporation (NASDAQ:NVDA) more than tripled in value over the past year, driven by strong AI-related demand and continued revenue growth that exceeds market expectations. It stated the following in its Q3 2024 investor letter:
“As of this publication, Nvidia is up roughly 150% year-to-date. NVIDIA Corporation (NASDAQ:NVDA) was the largest gainer in the S&P 500 last year and has more than tripled in value over the last year. It hit an eye-opening market capitalization of $3 trillion in June, less than four months after it eclipsed the $2 trillion mark. Enthusiasm for everything AI-related, especially for the primary chip maker whose products are essential to powering AI technology, continues to fuel the market. Last quarter, and for the fifth consecutive quarter, Nvidia reported sales and profits that blew past Wall Street expectations. The stock rose +37% in the second quarter alone.”
4. Alphabet Inc. (NASDAQ:GOOGL)
Number of Hedge Fund Holders: 202
Alphabet Inc. (NASDAQ:GOOGL) is a technology conglomerate and the parent company of Google. Its core businesses include search, advertising, cloud computing, and a diverse portfolio of “Other Bets,” such as self-driving cars and life sciences. It’s known for its innovative culture and focus on AI.
Stifel recently raised its target to $225, predicting a 17% upside, due to the company’s dominance in search, online video, and strong AI potential. Wells Fargo, while acknowledging its AI advancements, maintained an Equal-Weight rating with a $190 price target. This indicates a slight downside. Wells Fargo expressed concerns about the potential impact of AI on Google Search and predicted a decline in search revenue as AI agents become more prevalent. Alphabet Inc. (NASDAQ:GOOGL) shares also declined 1.3% on Monday, following a broader market downturn in the tech sector.
However, the company’s Gemini AI model is deeply integrated into Google Search, which enhances user experience and expands search capabilities. Features like AI Overviews and Circle to Search allow users to ask more complex questions and interact with search in new ways. This increased user engagement drives more search queries, benefiting both users and advertisers. In Q3 2024, Google Services revenue increased 13%, driven by strong performance in Google Search and other advertising revenue, which grew 12%.
Here’s what Qualivian Investment Partners said regarding Alphabet Inc. (NASDAQ:GOOGL) in its Q3 2024 investor letter, highlighting the company’s strong second-quarter results:
“Alphabet Inc. (NASDAQ:GOOGL): Q2 2024 revenues and EPS beat expectations, with total revenues growing 14%, Search ad revenues growing 14%, YouTube ads growing 13%, and Google Cloud revenues growing 29%. Revenue growth in the quarter constituted a continued sequential improvement from earlier quarters in the year, suggesting a continued rebound in Alphabet’s core business except for YouTube ad revenues, which missed expectations and showed deceleration in the growth rate as compared to Q1 when it grew 21%. Operating margins improved by 310 bps vs. the same quarter last year.
Management continued to highlight developments with their generative AI program, which is seen as a foundational platform with opportunities across their businesses but particularly in search and cloud. However, this comes with material capex investment well ahead of the expected economic benefits from Gen AI, and the level of spending is leading investors to worry about the ROI on that spend for Alphabet, as well as the other hyperscalers (Microsoft and Amazon). We continue to have confidence in Alphabet’s ability to generate strong revenue, earnings, and cash flow growth well above the S&P 500’s in the years to come and view it as a core holding for the long term.”
3. Meta Platforms Inc. (NASDAQ:META)
Number of Hedge Fund Holders: 235
Meta Platforms Inc. (NASDAQ:META) is a social media and technology giant known for its popular apps like Facebook, Instagram, WhatsApp, and Messenger. It is also heavily investing in the development of augmented and virtual reality technologies as part of its metaverse vision.
As December 2024 ended, Rosenblatt Securities designated this company as a top stock pick for H1 2025, due to its impressive and durable AI-driven growth. This is evident as the company’s revenue surged 22% in the first nine months of the year. This was driven by AI-powered advancements across advertising, user engagement, and campaign effectiveness.
Meta Platforms Inc.’s (NASDAQ:META) stock soared 72% in 2024, driven by AI initiatives. An instance includes the Andromeda ML model and Advantage+ platform. They enhance ad targeting, personalize user experiences, and automate campaign management, which leads to improved advertising revenue. The company’s Llama AI model is also driving growth. This GenAI model is known for its human-like text understanding and generation. The company plans to release multiple versions of Llama 4 in 2025, which will feature improved reasoning and voice interaction.
Hardman Johnston Global Equity recently initiated a new position in Meta Platforms, Inc. (NASDAQ:META) due to its strong AI-driven growth prospects. It stated the following regarding the company in its Q3 2024 investor letter:
“During the quarter, we initiated one new position in Meta Platforms, Inc. (NASDAQ:META) and had no liquidations. Management at Meta has effectively addressed concerns about investment efficiency by shifting resources from Reality Labs towards broader AI initiatives with a clearer path to profitability. We believe management has successfully articulated the benefits of this strategy, highlighting how AI is driving user engagement and advertiser productivity. This, in turn, fuels continued revenue momentum and increases the likelihood of positive earnings surprises in the future. Additionally, the parent company of the social media platform, Facebook, has recently taken positive steps to enhance safety, which suggests to us a shift towards a more proactive and responsive approach to addressing important potential challenges and concerns. Weak oversight over data privacy protection was a key reason why we sold the position in the portfolio back in 2021. Removing this governance overhang allows us to feel comfortable to enter back into the stock at a time when we believe it is poised for strong earnings growth going forward.”
2. Microsoft Corp. (NASDAQ:MSFT)
Number of Hedge Fund Holders: 279
Microsoft Corp. (NASDAQ:MSFT) is a technology company that develops and supports a range of software, services, and devices. Its key offerings include the Windows operating system, Office productivity suite, Azure cloud computing platform, and Xbox gaming consoles.
Loop Capital analyst Yun Kim raised the stock’s price target from $500 to $550, maintaining a Buy rating. The revised estimates for some software companies, along with Microsoft Corp.’s (NASDAQ:MSFT) investments in AI, suggest that the current market expectations may be too low. Loop Capital believes that Microsoft Corp. (NASDAQ:MSFT) deserves a higher valuation due to its strong market position and promising future growth.
The company is diversifying its AI model ecosystem within Microsoft 365 through Copilot, which is an AI-powered assistant integrated into Microsoft 365. It uses a mix of internal models (like Phi-4) and third-party options alongside OpenAI. This multi-model approach allows for customized AI features (like improved editing in Word) while also managing costs and performance. While initial adoption faced some hurdles, Copilot is gaining popularity, with 70% of Fortune 500 companies already using it.
Creative Strategies’ Ben Bajarin believes that the company’s enterprise AI traction, particularly with Copilot, will take time to materialize. Although many companies plan to use Copilot, it’s uncertain how much money Microsoft Corp. (NASDAQ:MSFT) will make from it. The company also plans to invest ~$80 billion in AI-enabled data centers by FY2025, with over half of this investment allocated within the US. This shows its commitment to developing and deploying AI and ML applications.
1. Amazon.com Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 286
Amazon.com Inc. (NASDAQ:AMZN) is a retail and cloud computing giant that offers a vast selection of products through its online and physical stores. It’s also a leader in cloud services through its Amazon Web Services (AWS) platform and develops its own line of devices like Kindle and Echo.
Cantor Fitzgerald analyst Deepak Mathivanan raised the stock’s price target from $240 to $270 while maintaining an Overweight rating. He anticipates a positive outlook for internet stocks in 2025, with growth in areas like digital advertising, online shopping, and mobility. He emphasized the accelerating pace of advancements in AI, robotics, and other technologies. Amazon.com Inc. (NASDAQ:AMZN) was a top pick due to its strong position in AI development.
At CES 2025, Amazon Ads unveiled an AI-powered SQL generator, which streamlines audience creation within its Marketing Cloud. This tool allows advertisers to define their target audience using natural language, which reduces query development time. Amazon Ads continues to use AI and ML to drive growth. The company has introduced tools like a GenAI-powered video generator, which enables advertisers to create compelling video ads using a single product image. These AI tools should drive advertiser growth and improve ROI for Amazon Ads.
Alphyn Capital Management recently highlighted that strong execution, efficiency gains, and AI investment are driving revenue growth and profitability for Amazon.com, Inc. (NASDAQ:AMZN). It stated the following regarding the company in its Q4 2024 investor letter:
“Amazon.com, Inc. (NASDAQ:AMZN) continues to demonstrate how a massive balance sheet, combined with a relentless focus on customer satisfaction and first-principles thinking, can drive sustainable cash flow growth. Recent earnings highlight strong execution across multiple fronts. At its core, Amazon pursues what customers value most: faster, cheaper delivery. This quarter, 40 million users enjoyed free same-day shipping, reflecting management’s sizable investments in regional logistics. These moves have reduced service costs, supported margin expansion, and set the stage for continued improvements with further robotics integration.
Amazon has now achieved margin gains in its international operations, making that segment profitable. By emphasizing improvements on the “intake” side of the supply chain and leveraging regional logistics, the company is laying the groundwork for more efficiencies ahead. Meanwhile, Amazon’s advertising business saw $14.3 billion in revenue, up 19% year-over-year, a clear example of the company’s success in forging new, high-margin revenue streams. Amazon Web Services and AI-related offerings also grew 19%, pushing quarterly revenues near $30 billion. Management spent $75 billion in capex this year, mainly for AI infrastructure, which will increase to $90 billion next year. While those numbers look daunting, I have confidence in the company’s ability to balance aggressive growth with disciplined returns, given Amazon’s decades-long track record of smart capital allocation. Amazon has a ruthless focus on “what works,” for example, while shutting down its project (with JP Morgan and Berkshire) to change healthcare service proved too complex, it pivoted to high-velocity pharmacy deliveries, leveraging its logistics expertise.
Of course, AI is all the rage right now, and we will eventually find out how much of this is hype. For now, Amazon’s AI initiatives are already producing multibillion-dollar revenues and growing at triple the rate of AWS when it was at a similar stage.”
While we acknowledge the growth potential of Amazon.com Inc. (NASDAQ:AMZN), our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AMZN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
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