In this article we discuss 9 Stocks Poised for Gains as AI Reaches New Heights in 2025.
The equity market has climbed consistently over the past few years on the global economy recovering from the COVID-19-fueled slowdown. On the other hand, artificial intelligence has emerged as a key catalyst pushing the market to new heights. Tech-laden Nasdaq, home to some of the biggest AI investment plays, was up by 29% in 2024, adding to the 43% gain generated in 2023.
The big question at the start of the new year is whether the AI-driven rally is sustainable. Has the market run ahead of itself, as some stocks have increased by more than 200%, resulting in overstretched valuations? If history is anything to go by, investors have nothing to worry about, but be optimistic, as the equity market has always rallied each year after a 28% or more gain the previous year.
According to Wall Street analysts, the artificial intelligence industry is expected to reach its peak in 2025, with a $2 trillion increase in capital expenditures over the following three years. Governments around the globe pushing for friendly regulatory conversations on AI ethics and safety should spur innovation in the sector.
“We believe tech stocks will be robust in 2025 on the shoulders of the AI Revolution and $2 trillion+ of incremental AI Capex (spending) over the next 3 years,” said Wedbush Securities analyst Daniel Ives.
The fact that big tech companies are ramping up their AI investments to gain a competitive edge affirms AI rally sustainability. Wall Street experts expect several businesses to continue growing due to the untapped potential of revolutionary technology. As large-cap tech revises their AI capital expenditures upward, investors should position themselves for opportunities. Analysts at UBS expect AI capital expenditure to reach record highs of $280 billion in 2025, up from about $224 billion in 2024. The increase in AI capital expenditure is expected to result in game-changing innovations and development, which should support and fuel the AI rally. Nevertheless, the analysts have warned that AI revenues are likely to lag capital expenditures.
“Big tech firms will likely make more headway in monetizing their AI spending this year. While AI revenues are likely to again lag behind Capex in 2025, we see evidence that AI monetization is primed to improve sharply in 2025,” UBS said in a research note.
Amid the expected increase in AI capital expenditure, analysts at BNY Mellon Wealth Management believe that “AI’s role in the world will surpass that of other technologies that propelled earlier periods of tidal change.” Its increased roll should also strengthen bullishness in the equity market, broadening the gains, as in 2024.
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).
9. Lumen Technologies Inc. (NYSE:LUMN)
Number of Hedge Fund Holders: 26
Lumen Technologies Inc. (NYSE:LUMN) is a technology and communications company that provides various integrated products and services to business and residential customers. The company’s long-term prospects have received a significant boost due to the need for high-bandwidth infrastructure surging because of the quick development of artificial intelligence (AI). With over $5 billion in AI partnership deals signed and over $7 billion more potentially in the works, the fibre optic cable company’s growth metrics remain intact. On December 19, Citi analyst Michael Rollins echoed reports that Lumen Technologies Inc. (NYSE:LUMN) is working with investment banks to explore a potential sale of fibre assets worth between $7 and $10 billion. According to the analyst, a sale of the asset could help reduce financial leverage and improve business performance.
8. SAP SE (NYSE:SAP)
Number of Hedge Fund Holders: 36
SAP SE (NYSE:SAP) provides applications, technology, and services worldwide. It offers SAP S/4HANA, which includes software capabilities for finance, risk and project management, procurement, manufacturing, supply chain, and asset management. While CFRA analyst Angelo Zino downgraded the stock from a “Buy” to “Hold” on December 18, it is still a solid long-term AI play. SAP SE (NYSE:SAP) is increasingly leveraging AI to enhance its enterprise resource planning solutions. Integration of AI features and solutions in cloud offerings is the catalyst behind the company’s cloud revenue increasing by 26% in Q3 2024, following a 24% increase in Q2. This growth is largely driven by SAP’s cloud ERP suite, which has become integral to customers’ digital transformation strategies, particularly in industries like chemicals and automotive.
