In this article, we will take a detailed look at the Top 10 AI Stocks That Should Be On Your Watchlist for 2025.
Investors are looking for new growth horizons in the AI industry to gauge whether the current market rally can continue for the years to come. Chetan Puttagunta, Benchmark general partner, said he’s noticed a lot of innovation in the past few weeks focused on improving the efficiency of algorithms.
“In the last six to eight weeks, we’ve seen a tremendous amount of innovation, especially at the model layer, and then for the last two years at the application layer, taking advantage of all the advances in the AI models. Specifically, what’s happening at the model layer is, as we move into an inference-time or test-time compute paradigm, you’re seeing a lot more advantage to entrepreneurs and technical founders that are able to push to the frontier with algorithmic innovation.”
To explain how AI is now actually improving workflows, Puttagunta gave the example of Sierra, a conversational AI startup making customer service solutions.
“So think of this Sierra AI agent, if you will, delivering the best customer service agent experience every time, replicated an infinite number of times. And that’s an experience that was previously not possible without AI.”
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For this article, we picked 10 AI stocks that are making moves amid the latest news. With each stock, we have mentioned its hedge fund sentiment. 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).
10. Applied Digital Corp (NASDAQ:APLD)
Number of Hedge Fund Investors: 26
Applied Digital (NASDAQ:APLD) received an Overweight rating from Cantor Fitzgerald. The firm sees the company becoming a major operator of high-performance computing (HPC) data centers in the U.S. It set a $15 price target on the stock.
Applied Digital Corp (NASDAQ:APLD) is building an HPC data center in Ellendale, N.D., and recently energized its on-site main substation transformer. This milestone paves the way for commissioning equipment at the site.
“This achievement will allow the Company to initiate equipment commissioning activities, bringing us closer to delivering the infrastructure we believe will define the future of AI and digital transformation in Ellendale and beyond,” said Todd Gale, Chief Development Officer at Applied Digital Corp (NASDAQ:APLD).
Cantor Fitzgerald analyst Brett Knoblauch noted that Applied Digital Corp (NASDAQ:APLD) is adopting a “build it and they will come” strategy, with ongoing lease negotiations involving “Hyperscaler 1.” Knoblauch estimates an 80% probability that the lease will be finalized by the end of January. If the deal falls through, securing a lease with another hyperscaler could take an additional two to three months.
9. Palantir Technologies Inc (NASDAQ:PLTR)
Number of Hedge Fund Investors: 43
George Tsilis, Senior Markets Contributor at TD Ameritrade, said while talking to Schwab Network that Palantir Technologies Inc (NASDAQ:PLTR) stock is expensive but it keeps going higher amid business strengths and the market is “dictating” its price.
“If you do look at the elements of price action relative to those numbers, just to give you some context here, the earnings estimates that the company is expected to earn on an adjusted basis for the full year of 2024—which is going to be ending in the next couple of weeks or so—is about 38 cents per share. So it’s right now trading at 200 times this year’s earnings and next year’s earnings around 160 times. Sales in the last four quarters for Palantir Technologies Inc (NASDAQ:PLTR), cumulative sales, were around 2.6 billion and change. So right now, it’s trading around 67 times sales.
So you have to ask yourself, is that expensive? One would say, you know, if Palantir Technologies Inc (NASDAQ:PLTR) was operating in a vacuum, unencumbered or uninfluenced by outside forces, perhaps, you know, favorable government contracts or anything else—yeah, it’s expensive. But you know, it’s still been moving higher.”
The analyst said it does not matter what value investors think about the stock anymore.
“The market is dictating the price, and the price has been moving higher.”
Palantir’s valuation has concerned 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 (NYSE: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 (NYSE:PLTR) would have a P/E of 46, translating to a price target of $27, significantly down from its current price.
Fidelity Growth Strategies Fund stated the following regarding Palantir Technologies Inc. (NASDAQ:PLTR) in its Q3 2024 investor letter:
“Untimely ownership of Palantir Technologies Inc. (NASDAQ:PLTR) (+47%) also hurt the fund’s relative result. This software and services firm, which operates in both government and commercial segments, saw strong growth during the quarter, largely driven by its “AIP” – or Artificial Intelligence Platform – offering. In early August, the company reported Q2 financial results that mostly met somewhat lofty expectations. We established a sizable holding in Palantir Technologies during the quarter, and at quarter end it was the second-largest position and a slight overweight.”
8. Crowdstrike Holdings Inc (NASDAQ:CRWD)
Number of Hedge Fund Investors: 74
Joseph Gallo from Jefferies said in a recent program on Schwab Network that despite a premium valuation and headwinds related to the July tech, Crowdstrike Holdings Inc (NASDAQ:CRWD) remains a strong pick for the long term.
“Valuation remains a premium, but as you look out over the next three to five years, it’s tough to find a vendor that’s better positioned to take advantage of that platform approach, right? You know, customers were upset in the moment, but customers remain massive fans of Crowdstrike Holdings Inc (NASDAQ:CRWD) long term, and we haven’t really seen a change in the competitive landscape.”
Despite the tech outage incident in July, the fundamental story of Crowdstrike Holdings Inc (NASDAQ:CRWD) remains unchanged. Wedbush Securities earlier this year said less than 5% of CrowdStrike’s customers might switch providers, potentially impacting revenue by $150 million out of the projected $3 billion in sales for fiscal year 2024. This would lower the company’s forward revenue growth from 30.6% to 25.6%, but even at this adjusted rate, Crowdstrike Holdings Inc (NASDAQ:CRWD) would remain well above the IT sector median.
Fidelity Growth Strategies Fund stated the following regarding CrowdStrike Holdings, Inc. (NASDAQ:CRWD) in its Q3 2024 investor letter:
“A non-benchmark stake in CrowdStrike Holdings, Inc. (NASDAQ:CRWD) (-40%) was the biggest detractor among individual stocks. The shares of this cybersecurity platform provider fell precipitously in July, after a glitch in a CrowdStrike software update led to a global outage for many of its customers that, among other impacts, caused the mass cancellation of flights around the world. After bottoming out in early August, the stock made a partial rebound by quarter end, but we exited the fund’s holding during the summer.”
7. Vertiv Holdings Co (NYSE:VRT)
Number of Hedge Fund Investors: 91
Tech analyst and investor Michael Robinson said in a recent program on Schwab Network that he sees Vertiv Holdings Co (NYSE:VRT) as a favorable play heading into 2025 as he sees a market shift happening from bigger to smaller players.
“I try not to trade anything based on what’s happening in the headlines that day or one particular earnings report. I’m always looking at the trend. I do see a shift in the market already taking place for next year. It’s happening at the end of this year, which is movement to more smaller-cap names…. Vertiv Holdings Co (NYSE:VRT) …. They’re partnering with Nvidia. They do— they’re involved in liquid cooling for AI data centers at scale, and they’ve just been tearing the cover off the ball.”
Baron Small Cap Fund stated the following regarding Vertiv Holdings Co (NYSE:VRT) in its Q3 2024 investor letter:
“Vertiv Holdings Co (NYSE:VRT) is a leader in data center equipment, with significant share in both power and cooling applications. The stock rebounded off recent weakness, as investors gained confidence that a massive build out of AI data centers globally was on the horizon. Vertiv’s strong relationship with chip manufacturers and involvement in the necessary technology roadmap for solutions as the energy density of server racks increases were catalysts. Vertiv’s orders were up 57% year-over-year in the second quarter, backlog was $7 billion, a record, and 2024 operating profit margin and EPS guidance was raised.”
6. Tesla Inc (NASDAQ:TSLA)
Number of Hedge Fund Investors: 99
Karl Braue from iSeeCars said while talking to Schwab Network in a latest program that Tesla Inc (NASDAQ:TSLA) is positioned well to benefit in the Trump administration despite an expected tough environment for the EV industry.
“The Trump administration is going to roll back both the CO2 standards and likely the $7,500 credit for electric vehicles. I think downgrades to Rivian because of these likely scenarios coming soon make sense. I think that’s what a lot of electric car makers are going to be facing.
The next question is, well, then why is Tesla Inc (NASDAQ:TSLA) doing so well? Anytime you get in an environment where it’s a tougher world or tougher market for a large number of companies, the largest company, the dominant company, is the one that usually does the best because some of these smaller second-tier players get taken out.
Between Tesla Inc (NASDAQ:TSLA) current market share in the U.S. and what looks like continued record sales in China, even with this executive leading, it looks like they’re positioned to benefit actually from what is going to otherwise be a tough electric vehicle environment in the U.S.”
Looking beyond the recent spike in Tesla shares amid Donald Trump’s victory, Tesla’s fundamentals are challenged. Tesla Inc’s (NASDAQ:TSLA) product lineup is showing signs of stagnation, with over 95% of sales still coming from the Model 3 and Model Y. Meanwhile, competitors are rolling out more advanced models. Tesla’s market share in Europe is slipping as legacy automakers like BMW post stronger sales. Chinese competitor BYD is also gaining ground in Europe, despite talk of tariffs.
Polen Focus Growth Strategy stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its Q3 2024 investor letter:
“The largest relative detractors during the quarter were Apple, Airbnb, and Tesla (not owned). We’ve spoken at length about our rationale for not owning Tesla, Inc. (NASDAQ:TSLA). In short, the market seems to be pricing in a lot of positive optionality for this company in the near-to-intermediate term (and particularly a fully autonomous fleet of electric vehicles in the medium term). What exists today is an automobile manufacturer limited to the higher-income segment that is increasingly challenged to sell vehicles when interest rates are not zero. We continue to question the company’s long-term growth profile and governance.”
5. Alphabet Inc (NASDAQ:GOOG)
Number of Hedge Fund Investors: 160
Ted Weisberg from Seaport Securities said in a recent program on Schwab Network that he believes Alphabet Inc (NASDAQ:GOOG) and Meta are “relatively” cheap stocks.
“I feel like I’m beating the dead horse when I talk about Meta, but I still think Meta is a relatively cheap stock. Meta and Google, by the way, both Meta and Google.”
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. Currently, Alphabet Inc (NASDAQ:GOOGL)’s stock trades below 20 times forward earnings, offering potential upside as EPS and other financial metrics strengthen in coming years. For next year, the consensus EPS estimate sits around $9. However, Alphabet Inc (NASDAQ:GOOGL) has consistently beaten projections, delivering $7.54 in trailing twelve-month EPS compared to the expected $6.79—a roughly 11% outperformance.
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.
In the third quarter, Alphabet Inc (NASDAQ:GOOGL)’s Search & Other segment saw a 12.2% year-over-year revenue increase, rising from $44.03 billion to $49.39 billion. YouTube advertising also performed well, with revenue up 12.2% to $8.92 billion from $7.95 billion. Meanwhile, Alphabet Inc (NASDAQ:GOOGL)’s subscriptions, platforms, and devices revenue grew even more sharply, surging 27.8% from $8.34 billion to $10.66 billion.
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, Alphabet Inc. (NASDAQ:GOOG) shares trade at a compelling 19.5x the Street’s 2025 EPS estimate, a discount to the Russell 1000 Growth Index.”
