We recently compiled a list of the 10 Hot Growth Stocks to Invest in According to Analysts. In this article, we are going to take a look at where Tesla, Inc. (NASDAQ:TSLA) stands against the other hot growth stocks.
The big rally in the broader stock market might have ceased, but there are a lot of things to focus on under the surface, says Morningstar. Notably, technology stocks, which were the leading contributors to the big bull market in 2023 and 2024, have seen strong declines in 2025. Elsewhere, other sectors including financial services, basic materials, and healthcare continue to see new investor interest.
Morningstar, while highlighting the comment from Michael Arone (chief investment strategist at State Street Global Advisors), mentioned that non-US markets including China, the UK, and Germany have seen strong rallies. Notably, the market strategists continue to see a subtle transition in leadership. The broader markets have been struggling to find focus due to the uncertainties related to the future. The US Fed rate cuts are not guaranteed this year, while inflation remains sticky. Also, the potential impact of Trump’s economic policy proposals is unknown yet.
Is a Market Rotation on the Horizon?
To provide a brief perspective, when a rotation occurs, the market investors tend to shift their focus from stocks that were critical to a strong trend to other parts of the broader equity market that have not seen much movement. Morningstar believes that there is plenty of evidence that a rotation is underway. Technology stocks, which have seen an increase of over 36% in 2024, are down in 2025. The NASDAQ-100 Technology Sector has seen a decline of ~0.74% on a YTD basis.
The basic materials sector was the worst performing sector in 2024. However, so far in 2025, related stocks have managed to deliver decent gains. Dow Jones U.S. Basic Materials Index increased by over ~6% on the YTD basis. Also, healthcare stocks have grabbed investors’ attention after they returned ~2.7% in 2024, says Morningstar. Dow Jones U.S. Health Care Index returned over 7% on a YTD basis. As per Dan Kemp, Morningstar chief research and investment officer, there seems to be a rotation in terms of valuations.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
UBS Remains Optimistic About S&P 500 in 2025 Despite Challenges
UBS has reiterated the importance of portfolio diversification and hedging in a bid to navigate the market volatility moving forward. Investors are required to consider capital preservation strategies so that they can limit the portfolio losses. Investors looking to build up long-term AI exposure can use structured strategies or “buy the dip” strategy in certain quality AI stocks.
UBS expects 2025 capex from the Big 4 US tech firms to increase by 35% to reach US$302 billion, with the firm seeing strong demand for frontier models. Due to the AI adoption trends fueling monetization, it projects mid-teens returns for global AI stocks this year.
Our Methodology
To list the 10 Hot Growth Stocks to Invest in According to Analysts, we used a screener to shortlist stocks that have gained at least 30% over the past 6 months and that analysts see at least 20% upside to over the next 12 months. Next, we ranked the stocks in ascending order of their average upside potential, as of March 5. We also mentioned the hedge fund sentiments around each stock, as of Q4 2024.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Tesla, Inc. (NASDAQ:TSLA)
% Gain Over 6-Month Period: ~32.4%
Average Upside Potential: ~43.4%
Number of Hedge Fund Investors: 126
Tesla, Inc. (NASDAQ:TSLA) is engaged in designing, developing, manufacturing, leasing, and selling EVs, and energy generation and storage systems. Morningstar believes that the company’s strong brand cachet as a luxury automaker commands premium pricing. At the same time, its EV manufacturing expertise enables it to make vehicles cheaper than its competitors. Tesla, Inc. (NASDAQ:TSLA) is well-placed to disrupt the broader automotive and power generation industries with the help of its technology for EVs, AVs, batteries, and solar generation systems. Furthermore, the company’s full self-driving software is expected to help it achieve profit growth over the coming years with the improvement in technology, resulting in higher adoption by Tesla drivers as well as licensing from several other auto manufacturers.
Furthermore, Tesla, Inc. (NASDAQ:TSLA)’s investments in Al and autonomous driving technology are expected to create significant value over and above its core automotive business. The Robotaxi service is expected to revolutionize urban transportation and offer the company a lucrative new business model. Apart from this, with the world transitioning to renewable energy sources, the demand for efficient energy storage solutions can significantly grow. Tesla, Inc. (NASDAQ:TSLA)’s Powerwall and Megapack products place it well to capitalize on these evolving trends in both residential and utility-scale markets.
Baron Funds, an investment management company, released its Q4 2024 investor letter. Here is what the fund said:
“Tesla, Inc. (NASDAQ:TSLA) designs, manufactures, and sells electric vehicles, related software and components, and solar and energy storage products. Shares rose on growth in the energy segment, the promise of new model launches in 2025, and increasing investor confidence in Tesla’s AI initiatives. Despite macroeconomic challenges, delivery data in major markets like China have shown considerable improvement. The energy and automotive segments demonstrated stronger-than-expected profitability. Tesla also expanded its advanced computing center in Texas, released improved version of its software-enhanced driving solution, and is set to launch new mass market vehicles years after the initial rollouts of Models 3 and Y. Expectations of deregulation under the incoming administration point to the potential acceleration of new technology rollouts, which could enhance Tesla’s leadership position in real world AI and bolster investor confidence that Tesla will benefit from these large and attractive growth opportunities.”
Overall TSLA ranks 4th on our list of the hot growth stocks to invest in according to analysts. While we acknowledge the potential of TSLA as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued AI stock that is more promising than TSLA 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 is originally published at Insider Monkey.
