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.”
4. NVIDIA Corp (NASDAQ:NVDA)
Number of Hedge Fund Investors: 193
Jessica Lessin, The Information founder, editor-in-chief and CEO, recently discussed the state of AI space and her outlook on 2025. She mentioned the rising competition in the industry.
“I think 2025 is going to be the year where all bets are off—or rather, all gloves are off—in AI competition. NVIDIA Corp (NASDAQ:NVDA) will dominate GPUs, but you’re also seeing Broadcom and others partnering with tech companies to diversify. Last week, at The Information, we reported that Broadcom is now working with Apple on an AI chip for inference. While it doesn’t directly compete with NVIDIA Corp (NASDAQ:NVDA), there is significant competition in the space. I believe investors should stay very vigilant and try to understand the dynamics within each tech company. The key question inside these firms is: how can we build, build, build to create more optionality in AI technology?”
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.
Manole Capital Management stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q3 2024 investor letter:
“As of this publication, Nvidia is up roughly 150% year-to-date. NVIDIA Corporation (NASDAQ:NVDA) was the largest gainer in the S&P 500 last year and has more than tripled in value over the last year. It hit an eye-opening market capitalization of $3 trillion in June, less than four months after it eclipsed the $2 trillion mark. Enthusiasm for everything AI-related, especially for the primary chip maker whose products are essential to powering AI technology, continues to fuel the market. Last quarter, and for the fifth consecutive quarter, Nvidia reported sales and profits that blew past Wall Street expectations. The stock rose +37% in the second quarter alone.”
3. Meta Platforms Inc (NASDAQ:META)
Number of Hedge Fund Investors: 235
Ted Weisberg from Seaport Securities said in a recent program on Schwab Network that he believes Alphabet and Meta Platforms Inc (NASDAQ:META) is a “relatively” cheap stock.
“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 Platforms Inc (NASDAQ:META) and Google, by the way, both Meta and Google.”
Meta Platforms (NASDAQ:META) is driving usage and ads revenue by improving its algorithms and user experience thanks to AI. Meta also reported strong adoption of its Llama AI model, attracting over 500 million monthly active users across its platforms. This progress positions Meta well for robust profitability in the next two years as it scales its AI infrastructure.
Meta Platforms (NASDAQ:META)’s advancements in Reels and WhatsApp are helping manage CapEx growth as the company strives to stay competitive in AI.
Meta Platforms (NASDAQ:META)’s clear monetization strategy for its generative AI, especially with Llama3, makes it a strong contender against rivals like OpenAI’s ChatGPT. Meta Platforms (NASDAQ:META)’s substantial user base of 3.3 billion provides a data and distribution edge that could capture a significant share of the GenAI market. Although short-term investors may be concerned about Meta Platforms (NASDAQ:META)’s increased AI spending, its forward P/E ratio of 24x, based on FY 2025 EPS estimates of $24.62, makes it the second-most affordable big tech stock, after Google, within its peer group (Apple, Amazon, Microsoft, and Google).
Hardman Johnston Global Equity stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q3 2024 investor letter:
“During the quarter, we initiated one new position in Meta Platforms, Inc. (NASDAQ:META) and had no liquidations. Management at Meta has effectively addressed concerns about investment efficiency by shifting resources from Reality Labs towards broader AI initiatives with a clearer path to profitability. We believe management has successfully articulated the benefits of this strategy, highlighting how AI is driving user engagement and advertiser productivity. This, in turn, fuels continued revenue momentum and increases the likelihood of positive earnings surprises in the future. Additionally, the parent company of the social media platform, Facebook, has recently taken positive steps to enhance safety, which suggests to us a shift towards a more proactive and responsive approach to addressing important potential challenges and concerns. Weak oversight over data privacy protection was a key reason why we sold the position in the portfolio back in 2021. Removing this governance overhang allows us to feel comfortable to enter back into the stock at a time when we believe it is poised for strong earnings growth going forward.”
2. Microsoft Corp (NASDAQ:MSFT)
Number of Hedge Fund Investors: 279
Francisco Bido, Senior Vice President and Senior Portfolio Manager at F/m Acceleration, LLC, said in a recent program on Schwab Network that Microsoft Corp (NASDAQ:MSFT) needs a catalyst for further growth.
“Microsoft Corp (NASDAQ:MSFT) is a little bit, in my opinion, a little bit of a—they have a disadvantage. They have to come up with some kind of catalyst. I know that they have Co-Pilot, and they invest heavily in ChatGPT and so on, but they need to come up with something that really adds value to their line.
You know, I’ve heard, for example, of some overlay that they do on their software products. For example, if you’re working on a spreadsheet, it’ll do an overlay and indicate with little pointers and arrows what to do, perhaps do a formula that you never tried before—things of that nature. They have to figure out how to monetize that and add to their top line.
If they do that, maybe, you know, that’s a little bit of a catalyst. They’re a little bit, in terms of their price valuation, a little bit close to fairly priced.”
RiverPark Large Growth Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q3 2024 investor letter:
“Microsoft Corporation (NASDAQ:MSFT): MSFT was a top detractor in the third quarter following a fiscal fourth quarter earnings report that featured inline operating metrics but mixed guidance. Positively, the company reported strong revenue (+15%) and earnings growth (+10%), powered by Azure (+30%), and operating margins of 43%. Guidance however calls for lower than expected fiscal first quarter Azure revenue as infrastructure constraints limit growth, and higher capital expenditures throughout the company’s fiscal 2025 to alleviate these constraints. The company expects growth to reaccelerate in the back half of fiscal 2025 as more AI capacity comes online.
Cloud-based services have become the company’s largest revenue and earnings producer. The company’s Azure platform alone has the potential to grow to more than $200 billion in annual revenue over the next decade. Overall, we believe that the company will continue to deliver double-digit revenue and EPS growth and generate an enormous amount of free cash flow to return to shareholders and use for acquisitions.”
1. Amazon.com Inc (NASDAQ:AMZN)
Number of Hedge Fund Investors: 286
Andrew Graham from Jackson Square Capital said in a program on Schwab Network that Amazon is his “number one” pick heading into 2025 in the tech sector.
“Within the MAG 7 names, Amazon.com Inc (NASDAQ:AMZN) our favorite coming out of re:Invent. I think they’ve narrowed the AI gap, and with their own silicon and Tranium 2 and the foundation model they have, Bedrock seems to be working very well and is very popular with a breadth of LLMs and so forth. That’s our number one pick.”
Qualivian Investment Partners stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q3 2024 investor letter:
“Amazon.com, Inc. (NASDAQ:AMZN): Amazon’s Q2 2024 results missed consensus revenue expectations slightly while beating EPS expectations nicely. Revenue grew 10.0%, including continued reacceleration in AWS (Amazon Web Services) which grew 19%; however, North American and International ecommerce revenue growth both showed slight deceleration in their growth rates from prior quarters. Advertising revenues grew 20%, which decelerated a bit from prior quarters as well.
Encouragingly, the company continued its streak of delivering impressive cost efficiencies in Q2 with operating margins jumping 420 bps vs. Q2 2023. Q3 2024 guidance was also a bit lower than consensus expectations sparking some short-term concerns about the strength of the consumer. We remain comfortable with our long-term outlook for Amazon’s ecommerce and AWS businesses, and expect they have new avenues of growth to exploit in scaling their advertising and generative AI business in the years ahead. However, we recognize that there is trepidation about the level of capex spending required to scale their generative AI business.”
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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