LinkedIn co-founder Reid Hoffman said in a latest program on CNBC that the DeepSeek breakthrough was not “news” for him and many tech insiders as he believed sooner or later more efficient models would be launched. However, he sees China’s rise in the AI race as surprising:
“I do think that the thing that is news is, well, look, as we’ve been saying, China is in the game. This is actually, in fact, a game-on competition, and it was resoundingly demonstrated that way. There is good, useful work that comes out of it.”
The tech investor believes efficiency will lead to more use cases and usage:
“Say, for example, you can train a model on a thousand GPUs, but you can make it much better on 10,000 GPUs. You will, in a lot of cases, always spend for the 10,000 GPUs or the 100,000 GPUs because if your coding model is even 20% better with that and you think that there are billions of people who could be using and engaging with that around the world, that’s actually worth it at that kind of cost. So, the fact that you’re trying to do efficiency — that’s a good thing. All of the American companies will also get to points where they’re focusing on efficiency. I think there are things that we can learn from some of the stuff the Chinese are doing.”
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For this article, we picked 10 AI stocks currently making moves on the back of the latest news. With each stock, we have mentioned the number of hedge fund investors. 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).
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10. Nebius Group NV (NASDAQ:NBIS)
Number of Hedge Fund Investors: N/A
Alger’s Ankur Crawford in a latest program on CNBC talked about what she believes is an under-the-radar AI data center stock. Here is how she made the case for the Dutch technology company Nebius Group NV (NASDAQ:NBIS):
“Nebius Group NV (NASDAQ:NBIS) is a really interesting under-the-radar play. I call it under the radar because it actually has almost no coverage on the street. It used to be the former management of Yandex, which was the Google of Russia. They’ve basically corralled them and started a new company called Nebius. Nebius Group NV (NASDAQ:NBIS) is an AI data center play. In November of last year, NASDAQ called them and said, “We’re basically listing you in three days,” so they never actually got the chance to do an IPO roadshow and are now kind of meeting with investors. What I love about this is that it’s effectively a public CoreWeave. There is no other way to play an enterprise-type data center. They have a global footprint, expanding rapidly in the U.S. with some of the best engineers in the world.”
9. Palantir Technologies Inc (NASDAQ:PLTR)
Number of Hedge Fund Investors: 43
Brent Thill of Jefferies said in a latest program on CNBC that Palantir Technologies Inc (NASDAQ:PLTR) valuation is too high and at some point in the long term he sees a “trigger” that could cause a selloff around the stock. However, he believes Palantir Technologies Inc (NASDAQ:PLTR) fundamentals are strong and the company is doing very well compared to peers.
“I mean, we’re at a point right now where the stock is in la-la land on multiple. There’s nothing anywhere remotely close to this. Our team has been advocating there are better ways, safer ways for investors to own these themes around AI, whether it’s security in CrowdStrike or Cloudflare. You look at other stories, but when you start to look at this market cap, it’s the market cap of Palantir Technologies Inc (NASDAQ:PLTR), Adobe, and Snowflake combined. I mean, again, we’ve never seen a multiple like this. And I can just give you history—when Snowflake, Datadog, and others hit this multiple back during COVID, they didn’t hold that multiple, and it was not a good story on the other side of this mountain. They all imploded,”
Palantir Technologies Inc (NASDAQ:PLTR) valuation is concerning for many. The company’s revenue growth is expected to slow over the next two years, with estimates suggesting a 22% YoY growth rate, potentially bringing revenues to around $4 billion by fiscal 2026. If Palantir Technologies Inc (NASDAQ:PLTR) can improve margins by 100 basis points annually, it would be able to generate about $1.5 billion in adjusted operating income by FY26, with a present value of $1.3 billion when discounted at 8%. Applying an S&P 500-like growth multiple of 2.5 to 2.75 times earnings, Palantir Technologies Inc (NASDAQ:PLTR) would have a P/E of 46, translating to a price target of $27, significantly down from its current price.
Alger Mid Cap Focus Fund stated the following regarding Palantir Technologies Inc. (NASDAQ:PLTR) in its Q4 2024 investor letter:
“Palantir Technologies Inc. (NASDAQ:PLTR) builds advanced platforms for data integration, management, and security, enabling interactive, AI-assisted analysis for its users. Its core offerings include Palantir Gotham, designed for government clients, and Palantir Foundry, tailored for commercial customers. Originally focused on U.S. intelligence agencies, Palantir has expanded into defense contracts with western governments and entered the commercial market in 2016. During the quarter, shares contributed to performance after the company reported better-than-expected fiscal third quarter operating results, along with management raising its full year 2024 revenue guidance. Management noted that the recent launch of its AI platform (AIP), which leverages generative AI to optimize business operations, has driven significant growth and investor interest. Additionally, we believe Palantir could be a key partner for the U.S. government’s new Department of Government Efficiency (DOGE), as its AI-driven platforms are ideally suited to help identify inefficiencies, allocate resources effectively, and achieve cost reductions.”
8. Reddit Inc (NYSE:RDDT)
Number of Hedge Fund Investors: 52
Joshua Brown, co-founder and CEO of Ritholtz Wealth Management, said in a latest program on CNBC that he’s still bullish on Reddit Inc (NYSE:RDDT) despite a higher valuation.
“I am staying long Reddit Inc (NYSE:RDDT), rolling up my stop higher. Valuation is now higher than when I got in, but it’s a better business.”
7. Dell Technologies Inc (NYSE:DELL)
Number of Hedge Fund Investors: 60
Bryn Talkington, Managing Partner of Requisite Capital Management, said in a latest program on CNBC that she is bullish on Dell Technologies Inc (NYSE:DELL) ahead of the company’s earnings.
“Dell Technologies Inc (NYSE:DELL) earnings come out on February 25th. Their Infrastructure Solutions Group is on fire—it’s the heart of the data centers. I like the stock going into earnings.”
In the last quarter, Dell Tech Inc (NYSE:DELL) experienced a shift in AI server demand toward the next-generation Blackwell architecture. Dell Tech Inc (NYSE:DELL)’s management highlighted that there was a dramatic shift in orders toward Nvidia’s (NVDA) Blackwell-based systems during Q3, which impacted short-term shipments as these products ramp up production. This shift shows Dell Tech Inc (NYSE:DELL)’s competitive position, as customers are willing to wait for the latest tech solutions. Dell secured $3.6 billion in AI server orders this quarter, an 11% increase from the previous quarter. Dell Tech Inc (NYSE:DELL) also signed over 2,000 enterprise customers for their AI solutions.
Carillon Scout Mid Cap Fund stated the following regarding Dell Technologies Inc. (NYSE:DELL) in its Q2 2024 investor letter:
“Dell Technologies Inc. (NYSE:DELL) was a top contributor despite reporting disappointing first-quarter earnings results, because investors looked through the near-term disappointment and expected strong growth from AI-related servers and personal computers. We expect Dell to participate in the growth of artificial intelligence hardware, especially as enterprises invest more aggressively. We like the company’s depth and breadth of products and services, as well as its focus on keeping costs low.”
6. Qualcomm Inc (NASDAQ:QCOM)
Number of Hedge Fund Investors: 74
Ben Bajarin, Creative Strategies CEO, said in a latest program on CNBC that following the launch of DeepSeek, we are expected to see new apps and this cycle could benefit smartphone equipment makers.
“I think having these reasoning models being shown they can run at the edge, which have particularly been compute constrained, is a positive. I think the key now is what developers do with that. I think we’re on the cusp of a developer frontier to start to develop these apps, which is going to again benefit everybody. The names we’re talking about here— Qualcomm Inc (NASDAQ:QCOM) and Arm—will benefit from that as well.”
Fidelity Dividend Growth Fund stated the following regarding QUALCOMM Incorporated (NASDAQ:QCOM) in its Q3 2024 investor letter:
“At the stock level, QUALCOMM Incorporated (NASDAQ:QCOM) was a major detractor, returning about -14% the past three months. The firm develops and manufactures semiconductors, software and services used in mobile phones, and other wireless technologies. On July 31, the company reported second-quarter results, and issued guidance for Q3, both of which solidly exceeded expectations. The stock slid, however, on concerns about a slow recovery for smartphones. Additionally, shares dipped this quarter in step with other semiconductor-related names.”
5. Tesla Inc (NASDAQ:TSLA)
Number of Hedge Fund Investors: 99
Eric Jackson, EMJ Capital founder, was recently asked on CNBC why he sold Tesla Inc (NASDAQ:TSLA) shares a few weeks back. The analyst said they sold the stock amid tariff-related concerns, among other reasons.
“Two reasons really—an incredible run since the election, I mean, it’s straight up basically. So I just felt like it was time to consolidate some of those gains. But obviously, I knew there was this potential for looming China tariffs, which has played out just in the last day or so. And obviously, out of the MAG stocks, Apple and Tesla Inc (NASDAQ:TSLA) are going to be the two names that get hurt the most on fears about that going on for a long time. I don’t think it will. I think what we’ve learned this week is that President Trump wants deals, he wants to log wins. He sees Mexico and Canada as wins. I think he wants to log a deal with China. And I think what was probably most promising on that front is the reaction of the Chinese to the tariffs and what they counter-proposed in terms of retaliatory tariffs. It could have gone much stronger, much steeper—they didn’t. That signals to me that they want a deal as well.”
However, the analyst said in the same program that he believes Tesla Inc (NASDAQ:TSLA) shares can “track up” this year.
Aristotle Atlantic Large Cap Growth Strategy stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its Q4 2024 investor letter:
“Tesla, Inc. (NASDAQ:TSLA) detracted from performance in the fourth quarter of 2024. The stock had a strong performance in the fourth quarter, and our portfolio has an underweight position relative to the benchmark weight. Tesla reported better-than-expected third quarter earnings in late October. Given the CEO of Tesla’s position as an advisor to President-elect Trump, performance in the shares accelerated following the U.S. presidential election. There are expectations that regulation for autonomous driving will be centralized with the federal government. There have been reports in the press that tax incentives for electric vehicles will be eliminated or reduced, which could have a negative impact on Tesla’s subscale competitors.”
4. Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM)
Number of Hedge Fund Investors: 158
Stephen Weiss, the Chief Investment Officer and Managing Partner of Short Hills Capital Partners, said in a latest program on CNBC that tech companies’ recent announcements of higher Capex plans will bode well for Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM).
“All these capex announcements are great for Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM).”
TSMC’s high-performance computing (HPC) revenue exceeded 50% for the full year of 2024, with HPC sales reaching 53% of total revenue in the fourth quarter. Smartphones contributed 35% in Q4, underscoring AI as the key growth driver for TSMC in the coming years.
At a forward EBITDA multiple of 11.2x, the stock does not seem overpriced. Compared to the tech sector median, TSM’s forward non-GAAP PEG ratio of 0.75 is significantly lower—about 60% below the peer average of 1.9.
Wedgewood Partners stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q4 2024 investor letter:
“Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) was another top contributor to performance during the quarter and for the year. The Company’s earnings growth dramatically accelerated compared to last year as the Company’s wafer fabrication and packaging volumes soared in 2024. In addition, the Company customer prices rebounded in the face of more normalized capital expenditures. The Company maintains a near-monopoly in the fabrication of nearly every new AI accelerator brought to market over the past two years. They continue investing tens of billions to build and 7ill future capacity with orders for what seems to be insatiable hyperscale demand for accelerated computing. The stock ended the year trading at a consensus forward earnings multiple that is several points lower than large cap growth benchmarks, despite the Company’s dominant position in the most important industry that is driving one of the largest technological shifts in a generation.”
3. NVIDIA Corp (NASDAQ:NVDA)
Number of Hedge Fund Investors: 193
Eric Jackson, EMJ Capital founder, explained on CNBC why he believes NVIDIA Corp (NASDAQ:NVDA) will not be impacted negatively due to DeepSeek.
“NVIDIA Corp (NASDAQ:NVDA) is such a poster child for AI in general… So it was just such a shocker that it really took it down. I stuck with it because I believed it was overdone. And despite the fact that we have to work smarter at how we build these models, I don’t think there’s anybody who’s going to pass on the opportunity to get their hands on some Blackwell chips or Rubin chips next year if they have the opportunity. So I think the order book for NVIDIA Corp (NASDAQ:NVDA) is going to show to be really strong. I expect NVIDIA Corp (NASDAQ:NVDA) to be just fine.”
Simply beating earnings estimates is not enough for NVIDIA Corporation (NASDAQ:NVDA) anymore, and the impact of high expectations will continue to weigh on the stock as growth cools.
Nvidia’s forward P/E ratio for the fiscal year ending January 2026 is around 31. An EPS surprise of 8.5% was not able to help the stock. A similar trend occurred following the second-quarter earnings after a 5.6% EPS surprise. It’s difficult to see Nvidia maintaining a mid-70s gross margin by the end of 2026. Over the last two quarters, Nvidia has already reported a drop in its gross margin from 78% to 74.5%.
Then there’s competition. Amazon (AMZN) recently disclosed its Trainium 3 chip, which is set to be released by the end of 2025. The chip is expected to be twice as fast with 40% more power efficiency than the previous generation, manufactured on TSMC’s (TSM) cutting-edge N3 technology. Reportedly, technology giant Apple (AAPL) will be a consumer of Amazon’s new silicon.
Alger Spectra Fund stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q4 2024 investor letter:
“NVIDIA Corporation (NASDAQ:NVDA) is a leading supplier of graphics processing units (GPUs) for a variety of end markets, such as gaming, PCs, data centers, virtual reality, and high-performance computing. The company is leading in most secular growth categories in computing, and especially artificial intelligence and super-computing parallel processing techniques for solving complex computational problems. In our view, Nvidia’s computational power is a critical enabler of AI and therefore essential to AI adoption. Shares contributed to performance during the quarter, driven by strong demand for its data center products, especially the Hopper H200 chips, which generated double-digit billions in revenue, marking the fastest product ramp in the company’s history. Management provided fiscal fourth-quarter revenue guidance above analyst estimates, along with resilient operating margins supported by robust demand and limited competition. In our view, Nvidia’s leadership in scaling AI infrastructure, including advancements in inference and test-time scaling (i.e., reasoning during inference), is driving adoption among enterprises and startups, providing continued demand for its high-performance chips and software solutions. As older-generation chips are repurposed for inference and new clusters are deployed, we believe Nvidia is well-positioned to capitalize on growing compute needs across AI applications.”
2. Alphabet Inc (NASDAQ:GOOG)
Number of Hedge Fund Investors: 160
Mark Mahaney, Evercore ISI head of internet research, said in a latest program on CNBC that Meta is always better than Alphabet when it comes to PR and giving clarity on guidance and expectations. However, the analyst believes Alphabet is a “black box” when it comes to guidance and forecasts. Nonetheless, Mahaney says he’d prefer Alphabet Inc (NASDAQ:GOOG) as an investment over Meta Platforms.
“Google is always consistently a black box. I give them credit for giving us their capex guidance for the full year, but that was an outlier, and therefore, the street was caught disappointed and by surprise. Also, the cloud numbers were a little disappointing too. But I do think part of it is that Meta actually does a great job of communicating to investors what its investments are going to be, and it’s giving you great revenue growth—2x that of Google. All that said, right here, I probably would prefer Google. I just think there’s more room for the narrative to change, more room for the multiple to go up. I like both assets, but I have a slight preference for Google.”
Alphabet Inc (NASDAQ:GOOG) shares slipped following the company’s latest quarterly results. The market was spooked by the massive $75 billion Capex guidance for 2025. However, GOOG bulls believe these investments will pay off in the long term. The company needs to spend to maintain its dominance in search. Its Gemini model has an edge over competitors because of the huge ecosystem Alphabet Inc (NASDAQ:GOOG) already has. For the end user, it’s easier to switch from traditional search to Gemini instead of moving to a completely new app like ChatGPT or Perplexity. So far AI competition hasn’t dented the company’s search revenue.
In the fourth quarter, Alphabet Inc (NASDAQ:GOOG) operating margin rose 32%. YouTube ad revenue jumped 14% and Cloud revenue skyrocketed by 30.1%. Google raked in $12.8 billion in FCF, marking a roughly 215% growth compared to the same period last year, despite heavy investments in AI. The stock has a forward (2026) P/E ratio of 20.8x, which makes it about 22% cheaper than the average company in its sector.
Merion Road Capital Management stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q4 2024 investor letter:
“Alphabet Inc. (NASDAQ:GOOG): We have held GOOG for a long time (since 2018) on the basis of its immense business quality paired with an undemanding valuation, improving treatment of minority shareholders, and multiple options for value creation. Recently we have seen Alphabet bashed for losing the AI race to now heralded for its progress. I remain excited about their prospects with several near-term, mid-term, and long-term tailwinds. Near-term, Google Cloud continues its rapid growth and their latest large language model, Gemini 2.0, appears to have made significant progress to better serve consumer needs and improve GOOG’s other product offerings. Mid-term, Waymo is on the cusp of becoming a real value driver for the company; there are abundant articles discussing Waymo stealing share from the ride-share economy and launching in new geographies. Long-term, GOOG’s recently announced quantum computing chip positions it well for a future (many, many years away) where computing process are fundamentally different than today. All of these options are embedded in a company that already has an established and dominant earnings stream.”
1. Amazon.com Inc (NASDAQ:AMZN)
Number of Hedge Fund Investors: 286
Gil Luria, DA Davidson head of technology research, said in a latest program on CNBC that Amazon.com Inc (NASDAQ:AMZN) shares came under pressure after the company’s latest quarterly results because of guidance. He said the company has taken its retail business to “another level” and maintained its Cloud business growth.
“If you were to focus on the two key numbers here, AWS growing 19%, which is the same as last quarter, means Amazon.com Inc (NASDAQ:AMZN) has regained the leadership in AI. Both Microsoft Azure and Google Cloud decelerated in the quarter, in fact, significantly decelerated in Google’s case, while Amazon has been able to maintain the same growth while expanding margins. And then on the retail side, 8% margins in North America is unprecedented. It’s by far the highest they’ve ever had, and it means they’ve taken that retail business to another level in terms of profitability. So those things are great.”
Despite weak guidance, Amazon.com Inc (NASDAQ:AMZN) could easily surpass $100 billion in operating income within the next two years because of its AWS growth engine. In the latest quarter, Amazon Web Services sales jumped 19% and operating profit for the segment jumped 62% in 2024 on an annual basis.
The market is currently forecasting $6.27 per share in profits this year (a 13% YoY growth) and $7.59 per share next year (a 21% YoY growth). Amazon.com Inc (NASDAQ:AMZN) stock is priced at a profit multiple of 30.2x. This valuation might look rich, but when we incorporate AWS growth, the stock seems to have more upside potential.
Alger Spectra Fund stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q4 2024 investor letter:
“Amazon.com, Inc. (NASDAQ:AMZN) is a renowned online retailer and leader in cloud computing. The company’s Amazon Web Services (AWS) division offers utility-scale cloud solutions that support corporate America’s digital transition. During the quarter, Amazon’s shares contributed to performance as the company reported better-than-expected fiscal third-quarter results, with revenues and earnings beating analyst estimates. Operating margins expanded to 11%, driven by efficiency gains in logistics and robust AWS performance. Notably, AWS revenue growth accelerated during the quarter, along with recording its highest-ever operating margin of 38.1%, driven by easing cloud cost optimizations, renewed workload migrations, and an increasing contribution from AI workloads. On their earnings call, management highlighted plans to increase capital expenditures to enhance their technology infrastructure, catering to the surging demand for AI-driven computing.”
While we acknowledge the potential of Amazon.com Inc (NASDAQ:AMZN), our conviction lies in the belief that under the radar 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 AMZN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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