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.
7. Fortinet, Inc. (NASDAQ:FTNT)
Number of Hedge Fund Holders: 47
Fortinet, Inc. (NASDAQ:FTNT) provides cybersecurity and convergence of networking and security solutions worldwide. It offers various endpoint security services for on-premises, cloud-based, and Internet of Things (IoT) devices. As technology gets integrated into every aspect of the digital world, the demand for cybersecurity protection also grows. Thanks to a robust pipeline and lineup of firewall and security offerings, Fortinet has emerged as a leader in cybersecurity. According to research firm Piper Sandler, increased focus on cybersecurity amid geopolitical tensions and the rise in generative AI threats presents tremendous opportunities for Fortinet, Inc. (NASDAQ:FTNT). Consequently, the firm upgraded the stock to an “Overweight” on January 6 with a $120 price target, touting the strong prospects of a firewall refresh cycle.
6. Palo Alto Networks, Inc. (NASDAQ:PANW)
Number of Hedge Fund Holders: 64
Palo Alto Networks, Inc. (NASDAQ:PANW) is a technology company that provides cybersecurity solutions. Its security platforms include Prisma Access, a security services edge (SSE) solution, and Strata Cloud Manager, a network security management solution. On December 26, investment firm Citi reiterated a “Buy” rating on the stock with an adjusted price target of $216. According to the firm, Palo Alto Networks, Inc. (NASDAQ:PANW) is well positioned to benefit from increasing demand for cybersecurity solutions as rogue nations and individuals leverage AI to make threats more sophisticated. The company already boasts a massive customer base exceeding 80,000 enterprise customers. Its competitive edge stems from leveraging AI to come up with Precisions AI that uses data from cloud endpoints and networks to scale and automate cyber defense.
5. Snowflake Inc. (NYSE:SNOW)
Number of Hedge Fund Holders: 71
Snowflake Inc. (NYSE:SNOW) is a technology company that offers Data Cloud, which enables customers to consolidate data into a single source of truth to drive meaningful business insights and build data-driven applications. While the stock underperformed in 2024, going down by about 16%, Doug Clinton from Deepwater Asset Management believes it could be a good emerging AI story in 2025. Wedbush analyst Daniel Ives shares similar sentiments. He expects Snowflake Inc. (NYSE:SNOW) to lead the AI charge. The company’s long-term prospects remain intact as a leading provider of cloud data platforms used for data analytics. In addition to collaborating with major cloud providers such as Google, Amazon (AMZN), and Microsoft (MSFT), the company’s innovations, Snowflake Cortex and Snowpark, demonstrate its strategic stance in the fields of artificial intelligence and data interoperability.
4. Workday, Inc. (NASDAQ:WDAY)
Number of Hedge Fund Holders: 84
Workday, Inc. (NASDAQ:WDAY) is a software company that provides enterprise cloud applications that help customers plan, execute, analyze and manage their business and operations. It is one of the companies well poised to benefit from the artificial intelligence revolution amid the expected increase in IT spending. Consequently, it expects its subscription revenue to grow by around 15% and adjusted operating margins to grow by around 30%. The company is increasingly looking for acquisitions to bolster growth while also leveraging AI to improve internal processes. Wolfe Research analyst Alex Zukin has since reiterated an “outperform” rating on the stock while raising the average price target to $320. According to the research firm, improving business fundamentals, a relaxed regulatory environment, and the growth of AI will be the catalysts to propel Workday, Inc. (NASDAQ:WDAY) to new heights.
3. Oracle Corp. (NYSE:ORCL)
Number of Hedge Fund Holders: 91
Oracle Corp. (NYSE:ORCL) is a technology company that offers products and services that address enterprise information technology environments. Its Oracle cloud software as a service offering includes various cloud software applications, including Oracle Fusion cloud enterprise resource planning (ERP) and Oracle Fusion cloud enterprise performance management. While the stock was up by more than 50% in 2024, Wedbush analyst Daniel Ives insists it has room for additional growth. The analyst expects Oracle Corp. (NYSE:ORCL) to benefit from the fast adoption of generative AI and large language models. Being a major player in the AI software sector, Oracle is able to generate significant free cash flow to distribute a $0.40 dividend per share, with a yield that is 1% above the industry average.
2. Salesforce Inc. (NYSE:CRM)
Number of Hedge Fund Holders: 116
Salesforce Inc. (NYSE:CRM) provides Customer Relationship Management (CRM) technology that brings companies and customers together worldwide. On January 3, research and analyst firm Raymond James reiterated that Salesforce is well positioned for robust growth by introducing generative AI solutions alongside other software providers. While the AI story has changed, the company has shown the capacity to keep pace in the changing software industry. Consequently, it remains the firm’s number one enterprise software stock on predicting a 10% subscription revenue growth on a $30 billion basis. Salesforce Inc. (NYSE:CRM) is in the process of hiring 2,000 people in the form of sales reps tasked with selling artificial intelligence software. The hiring spree comes ahead of the company’s second-generation Agentforce technology launch, which can tackle questions in Salesforce’s Slack communications app. It has embedded AI agents into its homepage to enhance user interaction.
1. Adobe Inc. (NASDAQ:ADBE)
Number of Hedge Fund Holders: 123
Adobe Inc. (NASDAQ:ADBE) is a technology company that offers products and services that help individuals and teams create, publish and promote content. The stock was under pressure in 2024, going down by 25%. Consequently, UBS analyst Karl Keirstead lowered the firm’s price target to $475 from $525 on January 4, 2024. Nevertheless, the stock commands a moderate “Buy” rating on Wall Street with a $582.96 price target. The positive outlook stems from Adobe Inc. (NASDAQ:ADBE) taking steps to improve AI-powered features and expand their use across its suite of design and marketing software. Its focus on commercial-safe generative AI strengthens its competitive edge on helping marketers create and optimize advertising across various media.
While we acknowledge the potential of ADBE 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 ADBE 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.
