Attention is slowly shifting from US chip stocks to what analysts consider as the next big AI play: software. Investor enthusiasm has begun waning for semiconductor stocks due to tariff-driven volatility and the emergence of lower cost AI models from China’s DeepSeek. The AI chips transition is now paving the way for the second stage of the innovation cycle where software companies will begin to monetize AI breakthroughs.
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“The second stage of the innovation cycle is when people start utilizing products and that’s when the software companies start getting paid … we’re now starting to see the ascendancy of the software part of the equation.”
-Keith Weiss, equity analyst at Morgan Stanley.
Previously, software startups such as Harvey were dismissed by Silicon Valley investors. Investors used to take these software firms lightly, stating them as mere wrappers around OpenAI’s models. However, now the narrative is shifting and these AI wrappers are becoming quite popular today.
“The market’s perception of companies like us… was that they’re GPT wrappers, referencing a derisive term used to suggest the repackaging of OpenAI’s models. If investors “were going to put money into something,” he added, “it needed to be into OpenAI or Anthropic.”
-Harvey, Chief Executive Officer Winston Weinberg
Here is what another investor has to say:
“Just like after the iPhone launched, there were millions of new mobile apps,” said Mignano, an investor in the AI notetaking service Granola, which uses technology from OpenAI and Anthropic. “Now with AI and LLMs, there will be millions of new AI products.”
-Michael Mignano, a partner at Lightspeed Venture Partners
DeepSeek has also played its due part in leading the shift from chip stocks to software and similar AI plays.
“Investors are looking for the next three-to-five-year stories … those companies that are going to benefit from what Nvidia has already done.”
David Russell, global head of market strategy at TradeStation.
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. The hedge fund data is 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).
A trader cheers his market gains. Photo by Tima Miroshnichenko on Pexels
10. BigBear.ai Holdings, Inc. (NYSE:BBAI)
Number of Hedge Fund Holders: 13
BigBear.ai Holdings, Inc. (NYSE:BBAI) is an artificial intelligence specialist that provides decision intelligence solutions. On March 7, H.C. Wainwright lowered the firm’s price target on the stock to $6 from $7 and kept a “Buy” rating on the shares. The rating, issued after the company reported its Q4 results, analyzes how the company’s 2025 outlook reflects on a slowly materializing revenue.
Nevertheless, sectors in which BigBear.ai operates such as border security, defense, and critical infrastructure, are expected to receive increased investment. This will benefit the company in the long run. Financial restructuring is also expected to relieve pressure from the stock. Keeping a buy rating, the firm views “enough positives” that would allow any short-term pullback to be seen as an opportunity to buy the shares.
9. Palantir Technologies Inc. (NASDAQ:PLTR)
Number of Hedge Fund Holders: 63
Palantir Technologies Inc. (NASDAQ:PLTR) is a leading provider of artificial intelligence systems. On March 6, Palantir Technologies Spain announced a partnership with EYSA, a leader in comprehensive sustainable mobility solutions, to enhance mobility application development. The agreement was finalized after a successful pilot test through a multi-week Palantir bootcamp, where EYSA confirmed the success of Palantir’s Foundry and AIP platforms in addressing complex questions, planning scenarios, and facilitating and accelerating the development of new mobility applications.
The integration will enable all areas and businesses to work autonomously in a private and highly secure environment that operationalizes data and artificial intelligence. To conclude, the alliance will enable technological transformation in the mobility sector in Spain and beyond.
“Building on the strong Ontology foundation that EYSA has already consolidated in Palantir Foundry, we are thrilled about EYSA’s potential for accelerating the development of sustainable and more efficient urban mobility solutions leveraging the power of Palantir AIP. After just a few months, EYSA is already pioneering new use cases, capturing emerging business opportunities which will reinforce its lead position in creating smarter, safer and more sustainable cities.”
-Javier Fernández Castañón, Head of Commercial at Palantir Spain.
8. CrowdStrike Holdings, Inc. (NASDAQ:CRWD)
Number of Hedge Fund Holders: 77
CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is a leader in AI-driven endpoint and cloud workload protection. On March 6, Goldman Sachs analyst Gabriela Borges lowered the firm’s price target on the stock to $389 from $415 but kept a “Buy” rating on the shares. The analyst told investors in a research note how annual recurring revenue was “solid” but weaker margin led the stock to fall.
The firm further added how CrowdStrike has indicated that their move to Flex has allowed their sales reps to focus on more strategic deals. In turn, customers are consuming their allocated credits faster than anticipated. Falcon Flex offers adaptable licensing to the Falcon platform’s full portfolio of modules, whereas the Falcon platform is CrowdStrike’s AI-native platform built to stop security breaches and improve performance.
7. Marvell Technology, Inc. (NASDAQ:MRVL)
Number of Hedge Fund Holders: 105
Marvell Technology, Inc. (NASDAQ:MRVL) engages in the development and production of semiconductors. On March 6, analyst Vivek Arya from Bank of America Securities reiterated a “Buy” rating on the stock with a $120.00 price target. Highlighting Marvell’s strong positioning in the AI sector, Arya pointed out how the company has secured a significant win with Amazon for the next-generation 3nm AI program, which is likely to drive growth through 2026. In addition, the company’s potential AI custom total addressable market is forecast to exceed $8 billion by 2028, surpassing current consensus estimates.
Marvell’s extensive intellectual property has further enabled it to be recognized as a leading AI vendor, alongside Nvidia and Broadcom. Alongside, forthcoming industry events and Analyst Day are expected to serve as positive catalysts for the stock. The analyst did highlight AI market sentiment risk and gross margin pressures besides these positive catalysts, but Marvell’s growth trajectory with major clients and robust engagement in AI programs seemingly outweigh them.
6. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 126
Tesla, Inc. (NASDAQ:TSLA) is an automotive and clean energy company that leverages advanced artificial intelligence in its autonomous driving technology and robotics initiatives. On March 6, Morgan Stanley analyst Adam Jonas maintained a “Buy” rating on the stock and kept the price target at $430.00. Jones is particularly bullish on Tesla’s ability to capitalize on the rise of electric vehicles which are being driven by advancements in AI and robotics.
Tesla is at the forefront of technological progress that is leading the shift. Tesla is also making huge strides in humanoid robots, which is another area of growing interest. Combining this with the company’s potential to leverage large-scale video data for autonomous systems, the company is well-positioned in the race for AI-driven innovations.
5. Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holders: 161
Broadcom Inc. (NASDAQ:AVGO) is a technology company uniquely positioned in the AI revolution owing to its custom chip offerings and networking assets. On March 6, Piper Sandler analyst Harsh Kumar reiterated a “Buy” rating on the stock with a price target of $250.00. The firm issued the rating after Broadcom’s impressive quarterly results, which surpassed expectations marked by significant revenue from its XPU and AI-related networking segments.
Broadcom has also been collaborating with additional customers on custom ASIC solutions, which has been expanding market opportunities and contributing to revenue growth. The enterprise software segment has further demonstrated robust growth, and the move to subscription licenses has also enhanced its revenue model. Moreover, the company generates substantial free cash flow, representing 40% of its revenue, reflecting upon its financial strength.
4. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 166
Apple Inc. (NASDAQ:AAPL) is a technology company. On March 6, Apple analyst Ming-Chi Kuo of TF International Securities published a note on Wednesday predicting its first foldable iPhone by late 2026, highlighting more details on a foldable iPhone design that he had previously heard about.
The analyst, who focuses on Apple’s supply chain, forecasts that Apple’s foldable iPhone is likely to have a book-style design, a 7.8-inch inner screen, and an “AI-driven” experience. The analyst stated that the iPhone is going to be “top-tier” with a “crease-free inner display” and an expected retail price of over $2000. He further stated how the device could begin mass production in the last quarter of 2026.
“A phone with such a high price point affords Apple a true higher-end luxury offering to balance out the push on lower-priced alternatives like the iPhone 16e.”
-Dipanjan Chatterjee, a Forrester analyst.
3. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 223
NVIDIA Corporation (NASDAQ:NVDA) specializes in AI-driven solutions, offering platforms for data centers, self-driving cars, robotics, and cloud services. On March 6, Bloomberg reported that OpenAI and Oracle are planning to begin filling a massive new data center in Texas with tens of thousands of powerful AI chips from Nvidia Corp. The move would mark the establishment of the first facility for the $100 billion Stargate infrastructure.
The site is anticipated to house 64,000 of Nvidia’s coveted GB200 semiconductors by the end of 2026, adding them to several halls of the data center in phases. These powerful GB200 microchips cost between $60,000 and $70,000 each. According to an OpenAI spokesperson, the startup is working together with Oracle on the design and delivery of the Abilene data center, while Oracle is going to be in charge of the supercomputer.
2. Meta Platforms, Inc. (NASDAQ:META)
Number of Hedge Fund Investors: 262
Meta Platforms, Inc. (NASDAQ:META) is a global technology company. On March 7, The Financial Times reported that Meta is building up the voice capabilities of Meta’s artificial intelligence this year. The company intends to introduce improved voice features into its latest open-source large language model, Llama 4, which is expected to be released in a few weeks.
The sources claim that Meta is working hard to enable conversations that are similar to a two-way natural dialogue, allowing interruptions from the user. Meta’s chief product officer Chris Cox recently highlighted some of its plans for Llama 4, stating that it would be an “omni model” whereby speech would “be native . . . rather than translating voice into text, sending text to the LLM, getting text out, and turning that back into speech”.
“I believe it’s a huge deal for the interface product, the idea that you can talk to the internet and just ask it anything. I think we are still wrapping our heads around how powerful that is.”
-Chris Cox at the Morgan Stanley technology, media & telecom conference.
1. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 339
Amazon.com Inc. (NASDAQ:AMZN) is an American technology company offering e-commerce, cloud computing, and other services, including digital streaming and artificial intelligence solutions. On March 6, Evercore ISI named Amazon a “Top Pick”, stating that it is very bullish on Amazon Web Services. Analyst Mark Mahaney said that investors are underestimating the AI boost Amazon is going to get moving forward. He stated that the shares are attractively valued right now following a nearly 15% pullback over the past month. Currently, he has a “Buy” rating on the stock with a $270 price target.
“Shares traded off on the Q4 print, but we viewed that as an Expectations Correction and not a Fundamentals correction.”
While we acknowledge the potential of AMZN as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. 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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