In this article, we will take a detailed look at the Top 10 AI News You Shouldn’t Miss.
All everyone could talk about in the technical AI landscape these days is DeepSeek-R1, a Chinese open-source LLM that analysts believe can give major American AI companies a run for their money. Why is DeepSeek making waves and why is it called a breakthrough in the AI race?
DeepSeek AI model is several times cheaper to use for professional purposes when compared to its American counterparts including OpenAI’s o1 model. Media reports also suggest the model beat almost all key AI models in the industry by significant margins.
CNBC’s Deirdre Bosa explained what makes these Chinese models a challenge for US tech companies:
“The cost, I mean, these models coming out of China are just built at a fraction of the price when you think about OpenAI. That’s spending $5 billion a year, burning through billions of dollars a year. These models, the DeepSeek for example, they say they built it for less than $6 million. ByteDance as well, you know, shows that it was built and you can access it at much, much lower prices. So, this really turns on sort of this truth that we have thought about generative AI for the last few years—that you need hundreds of millions of dollars to develop bigger and better models. What the Chinese labs and companies are doing is they’re going straight to the frontier. They’re building with sort of infrastructure and outputs that are already out there, built in many cases by American companies and startups, and they’re improving on it, they’re innovating on it, and producing models that are just as good, in some cases, at a fraction of the cost.”
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For this article, we picked 10 AI stocks currently in the news. With each company 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. Palantir Technologies Inc (NASDAQ:PLTR)
Number of Hedge Fund Investors: 43
Jim Cramer in a recent program on CNBC praised Palantir Technologies Inc (NASDAQ:PLTR) and its management and said the stock may turn out to be undervalued in the long term because of its growth.
“I have growing respect for what the company’s trying to do, and I think that even though it seems 100 times earnings, it may turn out to be much less in terms of the multiple. It is the highest—got the highest so-called rule of 40 about its growth and margins of any company. My hats off to these guys. If you go back and read the last couple of analyst reports, it really is the exciting AI company of our era.”
Cramer also appreciated Palantir Technologies Inc (NASDAQ:PLTR) CEO Alex Karp:
“I think what really is, this is a very, very high-growth company, and we really don’t know how to value it. We don’t know how to value it because Alex Karp, the CEO, is basically saying, “Listen, our valuation is confused. We’re the fastest growing, but we’re not really going to tell you everything that we do.” I am a believer in Alex Karp. I ordered his book, I’ve read a lot, I’ve seen his videos, and I think that what he’s got here is something that is much more special.”
ClearBridge Growth Strategy stated the following regarding Palantir Technologies Inc. (NASDAQ:PLTR) in its Q4 2024 investor letter:
“To promote balance, manage risk and augment the portfolio’s growth characteristics, we continued to take profits in some of our more established, larger holdings to seed new purchases. We believe that the arms race and value unlock from AI will provide a multiyear tailwind to a number of companies in our coverage. To maintain exposure to this theme, we used some of our profit taking in Broadcom to initiate new positions in AI-levered names AppLovin and Palantir Technologies Inc. (NASDAQ:PLTR).
Palantir is a software-as-a-service provider with an AI-powered operating system that connects data to existing customer applications. Palantir’s platform acts as a hub to improve business outcomes across government and commercial end markets, allowing users to synthesize diverse data sources into actionable insights in real time. The company is highly profitable and growing rapidly at scale with 80%+ gross margins. Given the stock’s more elevated valuation we are being mindful of position size.”
9. Cloudflare Inc (NYSE:NET)
Number of Hedge Fund Investors: 44
Cloudflare Inc (NYSE:NET) recently gained after Goldman Sachs upgraded the stock from Sell to Buy.
The investment firm projects a 28% upside, setting its new 12-month price target at $140.
Goldman Sachs identified two key factors driving Cloudflare Inc (NYSE:NET) potential in 2025: “an improving sales and marketing productivity cycle after two years of evolution to better address platform sales in the enterprise, and traction with Act III products for developer services, as Cloudflare Inc (NYSE:NET) applies its core edge network architectural advantages (being able to run software workloads on all commodity servers, points of presence across telcos) to new AI inferencing use cases,” said Goldman Sachs analysts, led by Gabriela Borges, in an in-depth investor note on U.S. cybersecurity stocks.
Goldman Sachs also noted that chief information officers view platform investment as a top priority for cybersecurity.
Parnassus Mid Cap Fund stated the following regarding Cloudflare, Inc. (NYSE:NET) in its Q3 2024 investor letter:
“In Software, we added Autodesk and Cloudflare, Inc. (NYSE:NET) while exiting Bill.com. Cloudflare has built its own internet network, providing its customers with lower latency and better security. Cloudflare allows companies to access the internet faster and with greater security. The company is building new offerings on top of its network, allowing it to widen its competitive moat with high incremental margins. Cloudflare has a large addressable market that we believe provides a long runway for growth.”
8. Oracle Corp (NYSE:ORCL)
Number of Hedge Fund Investors: 91
Charlie Bobrinskoy, Ariel Investments vice chairman, recently said on CNBC that Oracle Corp (NYSE:ORCL) is one of his favorite digital stocks.
“I think value stocks can do okay in that environment with the productivity improvements that come from digital and AI. And of course, I’m going to point you to my favorite digital stock, which is Oracle Corp (NYSE:ORCL), still trading at a sub-20 P/E and the dominant player in data software, which is going to do very well in an AI world. But you’re absolutely right—small companies and value stocks are not going to be the dominant players in AI.”
Parnassus Value Equity Fund stated the following regarding Oracle Corporation (NYSE:ORCL) in its Q3 2024 investor letter:
“Oracle Corporation (NYSE:ORCL) announced second-quarter results that exceeded consensus expectations, driven by growth in its cloud infrastructure business, which is benefiting from demand for AI applications. Investor sentiment was further bolstered by the company’s announcement of a new partnership with Amazon.”
7. Tesla Inc (NASDAQ:TSLA)
Number of Hedge Fund Investors: 99
David Nicholson from The Futurum Group said while talking to Schwab Network in a latest program that Tesla Inc (NASDAQ:TSLA) is facing headwinds from multiple fronts and the only thing that can help the company’s fundamentals is the possible launch of a sub-$30,000 EV.
“I think Tesla Inc (NASDAQ:TSLA) faces headwinds from all fronts. Domestically, you have Elon’s support of an administration that is probably not popular among the core audience for EVs in the U.S. Then you have China with its dominance in the sub-$30,000 U.S. EV range. That’s more of a global threat. We’ll see what happens with the looming China-U.S. kind of economic Cold War that’s underway.
You have an administration that, generally speaking, does not want to support EV subsidies in the U.S., so all of those things are negatives from a fundamental perspective. But the one thing that doesn’t get reported on a lot—and I think people are afraid to say it publicly, but it’s a really big deal for a lot of folks looking at EVs—is that, yes, there are alternatives, but they just don’t like Elon Musk’s public persona. And so that’s a hit.”
The only thing they have working in their favor is the whole vision around what they claim to be delivering. So, we’ll see if they deliver a sub-$30,000 vehicle in the next six months. That would be just about the only thing that I can imagine helping the fundamentals.”
Delaware Ivy Core Equity Fund stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its Q3 2024 investor letter:
“Tesla, Inc. (NASDAQ:TSLA) – Though it isn’t a holding within the portfolio, Tesla continues to be a cult-like stock with weak fundamentals dependent on highly speculative development of autonomous driving technology. The company’s share price moved higher during the quarter after weakness in the year-to-date period.”
6. Micron Technology Inc (NASDAQ:MU)
Number of Hedge Fund Investors: 107
Evercore ISI analysts recently updated their “AI Enablers, Adopters, and Adapters” stock list.
Micron Technology Inc (NASDAQ:MU) was part of the list.
These stocks, selected from the Russell 3000 (IWV), have a market cap exceeding $3B and have mentioned artificial intelligence more frequently in their third-quarter 2024 earnings calls than the average Russell 3000 stock over the past year. Additionally, they saw a positive reaction after their earnings reports.
The stocks are trading at a 2025 P/E discount compared to their five-year average forward P/E and are expected to see an EPS growth of over 9.6%, according to Evercore ISI analysts.
“These companies have started to build a ‘competitive moat’ around their business by either enabling AI in others, adopting the technology, or adapting to the changing nature of business, information, and labor force composition better than their peers,” wrote Julian Emanuel, head of the Equity, Derivatives & Quantitative Strategy team at Evercore ISI.
Delaware Ivy Core Equity Fund stated the following regarding Micron Technology, Inc. (NASDAQ:MU) in its Q3 2024 investor letter:
Micron Technology, Inc. (NASDAQ:MU) – Fundamentals here also appear solid though concern about global demand for handsets and PCs drove the shares down during the quarter. We expect Micron to be a significant beneficiary of growth in AI demand as investment in new data centers is extremely memory (semiconductor) intensive.”
5. Salesforce Inc (NYSE:CRM)
Number of Hedge Fund Investors: 116
Evercore ISI analysts recently updated their “AI Enablers, Adopters, and Adapters” stock list.
Salesforce Inc (NYSE:CRM) was part of the list.
These stocks, selected from the Russell 3000 (IWV), have a market cap exceeding $3B and have mentioned artificial intelligence more frequently in their third-quarter 2024 earnings calls than the average Russell 3000 stock over the past year. Additionally, they saw a positive reaction after their earnings reports.
The stocks are trading at a 2025 P/E discount compared to their five-year average forward P/E and are expected to see an EPS growth of over 9.6%, according to Evercore ISI analysts.
“These companies have started to build a ‘competitive moat’ around their business by either enabling AI in others, adopting the technology, or adapting to the changing nature of business, information, and labor force composition better than their peers,” wrote Julian Emanuel, head of the Equity, Derivatives & Quantitative Strategy team at Evercore ISI.
Polen Focus Growth Strategy stated the following regarding Salesforce, Inc. (NYSE:CRM) in its Q3 2024 investor letter:
“In the third quarter, we purchased new positions in Apple and Oracle and eliminated our small positions in Nike and Salesforce, Inc. (NYSE:CRM). We exited our position in Salesforce to fund better opportunities in Shopify and MSCI. Salesforce is seeing slower revenue growth than we would have expected, given the weakening macroeconomic environment. Furthermore, since its core end markets in customer relationship management (“CRM”) and Service are fairly mature, a lower growth level versus our expectations could persist for some time.”
4. Broadcom Inc (NASDAQ:AVGO)
Number of Hedge Fund Investors: 128
Evercore ISI recently said the market is expected to experience more of what it saw in 2024, with the investment firm expressing a positive outlook for Information Technology in 2025, calling it “Fill IT up again.”
The firm emphasized that “the bull market in the S&P remains strong” and expects “another 22% upside to 7,200 in 2025.” Currently, the benchmark index stands at 5,940 as the new year begins.
Backing its optimistic view is the Information Technology sector, with Evercore ISI predicting tech will once again lead the market higher. Within the sector, both semiconductors and software were highlighted.
On semiconductors, the firm stated, “semis are coiled for a major move higher,” pointing to high-conviction positions including Broadcom Inc (NASDAQ:AVGO).
Broadcom Inc (NASDAQ:AVGO) continues to be a leader in the AI ASCI and networking chips market. Broadcom Inc (NASDAQ:AVGO) has 3nm AI ASIC chip deals with Alphabet and Meta in addition to many other tech giants aiming massive spending for AI hyperscaling.
However, the stock could face the impact of what Nvidia is facing today: too high expectations.
In the latest quarterly results, Broadcom Inc (NASDAQ:AVGO) revenue was largely in line with estimates. The company has narrowly exceeded revenue expectations by less than 5% in most cases. Some analysts suggest Broadcom’s growth rates will moderate to below 20% CAGR starting the first quarter of 2025. In fiscal Q4, it was +50% topline growth. The market won’t be kind to the stock when the revenue growth rate slows. Broadcom has about $58 billion in net debt, which is relatively high.
Columbia Threadneedle Global Technology Growth Strategy stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its Q3 2024 investor letter:
“Similar to the earnings results for Nvidia, shares of Broadcom Inc. (NASDAQ:AVGO) initially sold off after the company reported solid earnings that fell light of elevated market expectations, but the stock did recover from its drawdown in the matter of a few weeks. With an enticing combination of custom chip offerings as well as networking assets, Broadcom remains one of the best positioned companies as part of the AI revolution. Broadcom outlined a path to derive a majority of its revenue from the AI end market within a couple of years, and the non-AI part of the business has stabilized after a deep correction. The company’s dominant market position in its end markets, along with durable growth, strong margins and best-in-class capital allocation, presents an opportunity to compound capital over time.”
3. Apple Inc (NASDAQ:AAPL)
Number of Hedge Fund Investors: 158
Bonawyn Eison, Chief Investment Officer and Managing Partner, Wynsource Partners, recently said on CNBC that he does not believe AI would be a strong enough driver for Apple Inc. (NASDAQ:AAPL) to take the company to the next level.
“I just don’t understand what the real drivers of the super cycle are, and if AI is the catalyst behind it, I can understand that. They don’t have the same cashback spend as some of the other MAGs, so there’s a floor there. But in terms of what’s going to take what is already a fully valued company to the next level and lead to, either for me, P/E expansion, I don’t think AI is a story yet, or I don’t see it.”
Apple Inc (NASDAQ:AAPL) is desperately in need of new catalysts. The company’s revenue in China fell 8% in fiscal year 2024, following a 2% decline the previous year. The Chinese market accounts for about 15% of Apple’s total revenue, so this downtrend cannot be ignored.
Investors had hopes from the Wearables, Home, and Accessories segment, but so far its performance has been weak. Vision Pro faces tough competition from Meta’s $500 Quest and the more affordable Quest 3S, making it hard to justify its $3,500 price tag. The failure of Apple’s HomePod, unable to compete with Amazon’s and Google’s lower-priced offerings, further highlights the challenges in this market.
Apple’s iPhone 16 has not shown promising growth prospects yet and investors are still in a wait-and-see mode on the AI platform.
CDT Capital Management stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q4 2024 investor letter:
“The crowd. While this evolution in AI is going to change the world, market expectations for the technology have become unhinged. The crowd, which is more like an exuberant mob, anointed the Mag 7 with spectacular, nonsensical valuations based on the premise that AI will be an amazing, money-printing growth engine for these companies – and the truth is it likely will be. The problem is that the math just isn’t mathing.
Let me explain what I mean by picking on the world’s most valuable stock, Apple Inc. (NASDAQ:AAPL). For background, Apple does not have a robust homegrown AI platform, nor does it have a plan to meaningfully monetize AI from Apple users. Right now, from our perspective, Apple’s, Apple Intelligence strategy of implementing third-party AI tools to stay competitive will likely be more of a cost of doing business than an avenue for sales and yet in 2024, the stock soared +33% based on the AI dream as exemplified by the quote below.
2. Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM)
Number of Hedge Fund Investors: 158
Evercore ISI recently said the market is expected to experience more of what it saw in 2024, with the investment firm expressing a positive outlook for Information Technology in 2025, calling it “Fill IT up again.”
The firm emphasized that “the bull market in the S&P remains strong” and expects “another 22% upside to 7,200 in 2025.” Currently, the benchmark index stands at 5,940 as the new year begins.
Backing its optimistic view is the Information Technology sector, with Evercore ISI predicting tech will once again lead the market higher. Within the sector, both semiconductors and software were highlighted.
On Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), the firm stated, “semis are coiled for a major move higher,” pointing to high-conviction positions including Broadcom.
ClearBridge All Cap Growth Strategy stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q3 2024 investor letter:
“While the Strategy continues to have a significant position in Nvidia, we are underweight semiconductors versus the benchmark. We added to our semiconductor positioning during the quarter with the purchase of Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM). TSM, an out-of-benchmark name, is the world’s fabrication production provider of choice. The criticality and sophistication of its manufacturing footprint powers all of the leading edge fabless global semiconductor companies, including Apple, Nvidia, Qualcomm, AMD and Broadcom. While AI has driven upside in data centers, PCs and handsets are at cycle lows, positioning half of the company’s business for a recovery.”
1. Alphabet Inc (NASDAQ:GOOG)
Number of Hedge Fund Investors: 160
Joe Tigay from Equity Armor Investments said in a latest program on Schwab Network that Alphabet Inc (NASDAQ:GOOG) is one of the best AI stocks because of the data the company has.
“They have the most data, in my opinion. They have the best stores of data, and they are going to be putting it to good use. That is the name of the game for AI. They will be profiting off of this data because they have the search component, which is their core business.
So, for me, I think they are best positioned to utilize this new revolution. And I think it’s attractively priced here to do so.”
The market has been ignoring Alphabet Inc (NASDAQ:GOOGL)’s key secondary businesses and the stock remains undervalued despite concerns around AI search and regulatory onslaught.
Alphabet Inc (NASDAQ:GOOGL)’s secondary ventures in AI, autonomous driving, and other areas are making solid progress, especially in the Waymo robotaxi segment. With the 2025 EPS forecast at around $9, Alphabet (NASDAQ:GOOGL) could realistically achieve earnings closer to $10 if it maintains its historical outperformance rate. At a projected $10 EPS, Google’s forward P/E multiple would be approximately 17, a relatively low valuation for a diversified market leader.
What are the key drivers for Alphabet (NASDAQ:GOOGL)?
Alphabet Inc (NASDAQ:GOOGL) remains on track to reach a $100 billion revenue run rate from YouTube Ads and Google Cloud by the end of 2024. In its autonomous driving division, Waymo has shown notable progress, with paid autonomous rides growing 200% quarter-over-quarter to 150,000 weekly rides as of late October, thanks to a fleet of 700 vehicles in service since August.
This growth is significant: Waymo vehicles now average about 30.6 autonomous rides per day—substantially higher than Uber’s average of 4.18 rides per driver daily, based on Uber’s 31 million daily trips and 7.4 million drivers last quarter. This performance underscores Waymo’s competitive edge in autonomous ride volume compared to traditional ride-hailing.
Google Cloud has been expanding steadily, with revenue climbing from $13.06 billion in 2020 to $33.09 billion in 2023. Notably, Google Cloud turned profitable for the first time in 2023, posting $1.72 billion in operating profit—a significant improvement from a $5.61 billion loss in 2020. This segment’s performance continues to strengthen, with the latest quarterly revenue reaching $11.35 billion, up 35% from $8.41 billion in the same period last year.
RiverPark Large Growth Fund stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q3 2024 investor letter:
“Alphabet Inc. (NASDAQ:GOOG): Google was our top detractor in the third quarter despite reporting second quarter results that were generally in line with expectations. The company reported slightly better revenue growth in Search, which grew 14% and continues to be resilient in the face of AI challengers, and Google Cloud, which grew 29% in the quarter. Service operating income margins of 40% and Cloud operating income margins of 11% were also both ahead of investors’ expectations as management’s cost-efficiency efforts drove operating leverage. YouTube revenue growth was slightly below expectations (+13% v. +16%) driven by tougher year-over-year comparisons and some general weakness in the Brand Advertising vertical. Finally, Cap Ex in the quarter of $13.2 billion was more than expected and likely the driver of the weakness in the stock as investors grapple with how much infrastructure investment will be required to achieve Google’s AI goals.
With its high margin business model (44% EBITDA margins last quarter), continued strength across its core Search and YouTube franchises, and continued growth and expanding profitability in its still relatively small Cloud business, we continue to view Alphabet as among the best-positioned secular growth franchises in the market. Additionally, GOOG shares trade at a compelling 19.5x the Street’s 2025 EPS estimate, a discount to the Russell 1000 Growth Index.”
While we acknowledge the potential of Alphabet Inc. (NASDAQ:GOOG), 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 GOOG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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