Hugh Gimber, global market strategist at J.P. Morgan Asset Management, joined CNBC’s Squawk Box Europe to discuss the sectors poised to benefit from the artificial intelligence boom as the dominance of the “Magnificent 7” fades.
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Gimber anticipates a broadening across sectors in 2025, stating that the current gap between Mag7 and the rest doesn’t make sense. This is because it is unrealistic to have a handful of stocks priced as if they are going to unlock new productivity across the economy alone, while other sectors don’t witness any major earnings upgrades.
He further stated that he believes the story for next year is to see some of those earnings benefits coming through in sectors such as financials, manufacturing, and healthcare, particularly, as these sectors start to reap the rewards of the capital expenditures already initiated by tech giants.
As the gap between mega caps and the rest starts to close, it is going to set the stage for a healthy market and more opportunity under the surface. As such, attention turns to how quickly certain stocks respond and what unfolds as the market acknowledges the increasing number of AI-related opportunities heading into the year.
For instance, some utility names could emerge as critical players, and healthcare stands out as a particularly strong candidate for growth. There are going to be plenty of examples that are showing up over the next few quarters, and some of the biggest gains might come from names that aren’t yet on the radar.
As of today, artificial intelligence stocks are still the hottest in the market, even though the Magnificent Seven has delivered mixed results lately due to concerns over escalating expenditures and valuation pressures.
In a notable shift, Barron’s reports that investor sentiment may be shifting from AI infrastructure providers, such as those focusing on hardware and cloud-based resources, toward software-centric players. These software companies are now being recognized for their potential to deliver higher margins, scalability, and faster adoption cycles as AI applications permeate industries ranging from healthcare to finance and beyond.
Moreover, the upcoming inflation report, seen as a key to future interest rates, is also causing investor skepticism. While AI stocks are poised for long-term growth as the technology continues to revolutionize multiple sectors, short-term fluctuations remain tied to macroeconomic concerns.
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).
An overhead view of the stock floor, the traders keeping an eye on the performance.
10. C3.ai, Inc. (NYSE:AI)
Number of Hedge Fund Holders: 17
C3.ai, Inc. (NYSE:AI) is an enterprise artificial intelligence (AI) software company that builds and operates enterprise-scale AI applications. On December 10, the company announced that it would accomplish a task order from the U.S. Army’s Program Manager for Intelligence Systems & Analytics (PM IS&A) in partnership with ECS, an IT systems integrator focused on data and AI, cybersecurity, and enterprise transformation solutions. The task involves modernizing information collection management processes for Army Intelligence using the AI-powered C3 AI Decision Advantage application. Both companies will leverage their expertise to streamline workflows, offer expeditionary toolsets, and reduce the workload on soldiers.
“Delivering timely, actionable intelligence to decision makers in the field is critical for strategic operations, and C3 AI Decision Advantage is designed to do precisely that. By integrating and optimizing information collection assets across the U.S. Army, we’re enabling a new era of efficiency and readiness. This solution, built on years of innovation with the Department of Defense and Intelligence Community, will significantly enhance the Army’s ability to support Combined Joint All-Domain Command and Control, ultimately advancing mission success on the modern battlefield.”
-Thomas M. Siebel, CEO, C3 AI.
9. Five9, Inc. (NASDAQ:FIVN)
Number of Hedge Fund Holders: 29
Five9, Inc. (NASDAQ:FIVN) is a cloud contact center solutions provider for contact centers. It offers the Five9 Intelligent CX Platform, an AI-driven cloud-based contact center platform, which offers a suite of solutions to power AI-elevated customer experiences. On December 10, the company announced the latest release of the Microsoft Teams UC Integration featuring bidirectional presence. The new feature will enable both Five9 agents and Microsoft Teams users to view each other’s real-time presence, empowering them to click-to-call, conference, or transfer calls with confidence. Viewing each other’s real-time presence will enable better timing for calls and support, enhance employee connections, and boost contact center efficiency. Moreover, it will enable agent-expert communication as well as speed up resolutions for complex customer requests.
“Five9’s partnership with Microsoft revolves around offering customers best-in-class solutions that integrate seamlessly. With this enhancement, organizations can transform the way they deliver customer experience. We’re proud to be the first in the market to deliver a pre-built bi-directional presence feature with Microsoft Teams. Our joint customers can now enjoy a complete connection between the contact center and back-office subject matter experts.”
-Jim Hickey, Senior Vice President of Products, Five9.
8. UiPath Inc. (NYSE:PATH)
Number of Hedge Fund Holders: 29
UiPath Inc. (NYSE:PATH) is a well-known software as a service (SaaS) enterprise that develops AI-powered automation platforms to help businesses transform their operations. On December 6, Mizuho Securities analyst Siti Panigrahi reiterated their neutral stance on PATH stock, giving a “Hold” rating. One factor Panigrahi credits the hold rating to is UiPath’s potential to exceed revenue expectations in the third fiscal quarter amid a challenging macroeconomic environment. Even though the company has announced that it anticipates stabilization in its annual recurring revenue and an accelerated growth rate in its free cash flow, potential disruptions from artificial intelligence advancements are likely to impact demand for its robotic processes.
Moreover, investor apprehensions still exist about the AI disruption risk. This is despite the company achieving major achievements in product innovation and strategic partnerships, such as the SAP SolEx partnership. Ongoing investments, such as the traction of its Agent Builder, a tool for building, evaluating, and publishing AI agents, demonstrate potential. Nevertheless, the concerns about AI disruptions still exist. The company faces concerns that AI advancements could reduce demand for traditional RPA (robotic process automation) by offering more sophisticated automation solutions. Thus, the hold rating is a reflection of both positive and negative aspects.
7. SAP SE (NYSE:SAP)
Number of Hedge Fund Holders: 36
SAP SE (NYSE:SAP), a leader in ERP software, leverages artificial intelligence to enhance its enterprise resource planning (ERP) solutions. On December 9, the SAP News Center revealed that the company is integrating the AI copilot Joule into its popular SAP Mobile Start app, facilitating users with smartphones or tablets to interact with SAP applications in natural language. This is the ultimate combination of native mobile experience and generative AI for Apple or Android-based systems. Users can interact with the AI copilot using their own words to work on approval or maintenance activities. The feature will allow users to operate SAP “with your fingertips”, using natural conservation that is potentially going to be hands-free in the future. This is because certain tasks, such as working on machines at heights, make it difficult or even dangerous to operate apps.
“Consider SAP Mobile Start as the future beginning and center for a fully AI-enabled mobile app suite. It’s exciting to see our vision becoming a reality now. The power of business AI and the latest mobile technology transform the way people engage with our applications, making it more natural and just better for all of us.”
– Markus Kopf, VP and head of Mobile Experience and Engineering at SAP
6. SentinelOne, Inc. (NYSE:S)
Number of Hedge Fund Holders: 37
SentinelOne, Inc. (NYSE:S) is one of the leading artificial intelligence-powered cybersecurity providers. Firms such as TD Cowen are extremely bullish on the stock, indicating a strong potential for growth. On December 5, TD Cowen analyst Shaul Eyal reiterated their bullish stance on SentinelOne, giving a “Buy” rating.
The analyst said in a research note that SentinelOne is all set to disrupt the $7 billion legacy antivirus market driven by rising win rates and positive momentum in acquiring new customers, which is in turn anticipated to drive reacceleration in annual recurring revenue (ARR) and revenue growth for the fiscal year 2026. The note further said that the company is recognized as a leader in Gartner’s Magic Quadrant for Endpoint Detection and Response (EDR) and a strong performer in MITRE ATT&CK evaluations, underscoring its competitive advantage.
Additionally, even though a partnership with Lenovo is going to enhance the company brand, it is not going to have a significant near-term impact. All in all, even though SentinelOne’s growth trajectory is an “exciting cocktail”, investors should be looking at the management’s revenue outlook for FY26 and Q1 closely, as they are going to be pivotal catalysts.
5. ON Semiconductor Corporation (NASDAQ:ON)
Number of Hedge Fund Holders: 45
ON Semiconductor Corporation (NASDAQ:ON), or onsemi, is a semiconductor manufacturing company that provides intelligent sensing and power solutions. On December 9, the company announced that it has agreed to acquire the Silicon Carbide Junction Field-Effect Transistor (SiC JFET) technology business from Qorvo for $115 million in cash. The acquisition, including the United Silicon Carbide subsidiary, will be a valuable addition to Onsemi’s extensive EliteSiC power portfolio, the company’s line of high-performance power semiconductor devices based on Silicon Carbide (SiC) technology. The move will enable it to meet the growing needs for energy and power density for AI data centers. It will also help the company excel in emerging markets such as EV battery disconnects and solid-state circuit breakers (SSCBs).
“As AI workloads become more complex and energy-intensive, the importance of reliable SiC JFETs that deliver high energy efficiency and are able to handle high voltages will continue to increase. With the addition of Qorvo’s industry leading SiC JFET technology, our intelligent power portfolio offers our customers yet another solution to optimize energy consumption and increase power density.”
-Simon Keeton, group president and general manager of the Power Solutions Group, onsemi.
4. Coherent Corp. (NYSE:COHR)
Number of Hedge Fund Holders: 51
Coherent Corp. (NYSE:COHR) is a leader in optoelectronic devices and technology. In particular, its Datacom transceivers have been valuable for data-center connectivity. The company has recently announced signing a preliminary memorandum of terms (PMT) with the U.S. Department of Commerce under the CHIPS and Science Act for a proposed investment of up to $33 million that will allow it to modernize and expand its Texas facility. The agreement will allow the expansion of the world’s first 150 mm indium phosphide (InP) manufacturing line by adding advanced wafer fabrication equipment to produce InP devices at scale. InP optoelectronic devices are extensively used in applications such as datacom and telecom transceivers for AI infrastructure applications. Increasing the production of these devices will allow the U.S. to advance supply chain resiliency and technological leadership, creating 70 direct jobs in the process.
“This proposed investment allows Coherent to accelerate our industry leadership in InP technology and manufacturing. We are very excited to partner with the U.S. Department of Commerce, Senator John Cornyn, the state of Texas, and the Sherman Economic Development Corporation as we expand our efforts to deliver world-class optoelectronic products as part of the AI infrastructure build out, as well as for advanced sensing applications.”
-Dr. Giovanni Barbarossa, Chief Strategy Officer and President, Materials Segment, for Coherent.
3. Hewlett Packard Enterprise Company (NYSE:HPE)
Number of Hedge Fund Holders: 64
Hewlett Packard Enterprise Company (NYSE:HPE) is a technology company that provides high-performance computing (HPC) systems, software, and data storage solutions for processing artificial intelligence workloads. On December 10, View Systems announced that it has joined the Hewlett Packard Enterprise (HPE) Technology Partner Program as a Silver Partner. The company also shared the launch of View AI, an industry-leading XAI platform that simplifies building interpretable models and explaining black-box models using natural language. View AI has been developed using Oracle Cloud Infrastructure (OCI) Ampere AI Compute and HPE ProLiant RL300 Gen 11 servers.
“As part of HPE’s commitment to Smart Business Outcomes and Sustainability, we support partners and solutions that deliver beneficial outcomes for HPE customers. We are pleased to support a highly energy efficient, low-cost Arm-based edge solution created by our Silver Partner View Systems. The solution provides Smart Analytics natively on the HPE ProLiant RL300 Gen11 Server, as an on-prem alternative to public cloud deployments”.
–Carl Siemianowski, mainstream compute product manager, HPE.
2. CrowdStrike Holdings, Inc. (NASDAQ:CRWD)
Number of Hedge Fund Holders: 74
CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is a leader in the cybersecurity industry that leverages its AI-powered Falcon platform for protecting endpoints, cloud workloads, as well as identity and data. On December 10, the company announced a key government certification, highlighting that it has achieved strict security standards set by the German Federal Office for Information Security (BSI) for cloud service providers. Achieving C5 compliance in Germany, a C5 (Cloud Computing Compliance Criteria Catalogue) certification, demonstrates CrowdStrike’s commitment to support customers through government-led security standards. Moreover, the milestone reinforces Crowdstrike’s efforts to expand access and accelerate the adoption of its AI-native CrowdStrike Falcon® Platform.
“Achieving C5 certification is an important milestone for CrowdStrike as we work with public sector customers in Germany to stop breaches. We have tremendous momentum in the region and are committed to providing organizations of all sizes, across sectors, with the world’s most advanced AI-native cybersecurity”.
-Michael Sentonas, president of CrowdStrike.
1. Oracle Corporation (NYSE:ORCL)
Number of Hedge Fund Holders: 91
Oracle Corporation (NYSE:ORCL) is a database management and cloud service provider hosting data for AI applications. The enterprise tech giant is one of Wall Street’s favorite stocks benefiting from generative AI. On December 10, Mizuho raised the firm’s price target on Oracle Corporation (NYSE:ORCL) to $210 from $185 and kept an “Outperform” rating on the shares post the fiscal Q2 report.
The analyst told investors in a research note that Oracle’s cloud infrastructure business remains strong. Moreover, its broad portfolio of infrastructure and application products, comprising a wide range of offerings across software, hardware, and cloud services, multi-cloud strategy through hyperscaler partnerships, and “unprecedented AI demand” position it well to reaccelerate growth.
Oracle has been collaborating with big names such as Microsoft, Amazon, and Google to provide customers access to Oracle’s database services across cloud platforms. Moreover, the growing demand for artificial intelligence has positioned the company strategically, where Oracle’s AI capabilities are helping develop advanced AI models. Overall, the firm sees the current share weakness as a buying opportunity.
While we acknowledge the potential of ORCL 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 timeframe. If you are looking for an AI stock that is more promising than ORCL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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