In this article, we will discuss the Top 10 AI Stocks to Watch Ahead of Potential Market Correction.
Has Artificial Intelligence Fuelled a Big Bubble in Tech?
That’s the big question, according to managing partner at Deepwater Asset management Gene Munster. The revolutionary technology has been the catalyst behind two years of blockbuster gains in the equity markets. With major market indices trading near all-time highs, overstretched valuations are increasingly sending jitters in the investment community.
Nothing has been more significant than the emergence of artificial intelligence (AI). Even though the stock market has been driven by various factors, such as Donald Trump’s victory in November, stock-split euphoria, dovish Fed policy, and better-than-expected earnings, AI has triggered eye-watering valuations. Nevertheless, a potential correction from current highs is on the horizon.
“I agree that Nvidia will have a day of reckoning — and the chip stocks, the whole trade. And the question for us isn’t, ‘Will the bubble burst?’ It’s, ‘How high will we go before the bursting of the bubble?’ Munster said.
While the overall market has pulled back significantly since peaking late last year, Munster insists there are another two years of solid gains before a potential bubble burst. According to the tech analyst, the bubble burst could result in a 30% decline in the tech-heavy index NASDAQ on the artificial intelligence hype running out.
Momentum in the equity market has subsided significantly in recent months, particularly among the big five tech stocks, and the market is signaling that the extraordinary growth and gains of 2024 will be difficult to replicate in 2025. Amid these growth concerns, investors should focus on AI plays trading at depressed valuations and companies backed by solid financials and long-term growth opportunities.
Analysts at Bank of America remain optimistic about the US software market outlook despite growth rates slowing down in recent months. While the sector grew by 59% in 2023, attributed to the AI frenzy, the growth rate slowed to 23% in 2024. However, given that multiples are still below expectations, there are still opportunities to unlock.
“Revenue multiples and growth expectations remain below 5-year median and pre-Covid levels,” the bank said in its Jan. 14 report, pointing to the potential of three secular themes for 2025: Agentic AI, growing enterprise IT budgets, and sustained cloud migration.
According to the bank, tech heavyweights spending heavily on AI and expanding on investments in 2025 is one factor that should fuel growth in the software sector. Likewise, the analysts expect sustained migration to the cloud to be a key driver of the software sector.
“Although we remain selective on small caps, we are bullish on the software sector for 2025, particularly in 2H, as accelerating secular tailwinds and easing cyclical headwinds converge,” the firm added.
Our Methodology
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).
Top 10 AI Stocks to Watch Ahead of Potential Market Correction
10. Oklo Inc. (NYSE:OKLO)
Number of Hedge Fund Holders: N/A
Oklo Inc. (NYSE:OKLO) is an energy company that designs and develops fission power plants to provide reliable and commercial-scale energy to customers. On December 19, analysts at Wedbush initiated coverage of the stock with an Outperform rating and a $26 price target buoyed by the company’s prospects amid growing demand for clean energy to power the artificial intelligence revolution.
Oklo Inc. (NYSE:OKLO) has become a major player in meeting data center demands, particularly those related to artificial intelligence applications and growing energy needs, thanks to its modular nuclear reactors. To demonstrate its attractiveness to tech-driven sectors seeking carbon-free power options, Oklo has secured a historic 12-gigawatt power deal with Switch and a 750-megawatt deal with other data center suppliers.
The agreement represents a significant chance to reaffirm its leadership in the rapidly evolving advanced nuclear market. Oklo Inc. (NYSE:OKLO) is pursuing a “full value chain” approach as it continues developing its liquid metal-cooled fast nuclear reactor technology. It plans to start operating the first powerhouse in Idaho in 2027.
9. BigBear.ai Holdings, Inc. (NYSE:BBAI)
Number of Hedge Fund Holders: 7
BigBear.ai Holdings, Inc. (NYSE:BBAI) provides artificial intelligence-powered decision intelligence solutions. It offers national security, supply chain management, and digital identity and biometrics solutions. On January 13, H.C. Wainwright raised its price target for BigBear.ai to $7 and reiterated a Buy rating. The upgrade comes amid growing optimism about the company’s position in AI-driven decision intelligence solutions for industries like defense, supply chain management, and digital identity. The company has been awarded a position on the U.S. General Services Administration’s (GSA) OASIS+.
The award underscores BigBear.ai Holdings, Inc.’s (NYSE:BBAI) proven track record in delivering innovative solutions that merge deep expertise with cutting-edge technology. The award comes on the heels of the company’s strategic collaboration with Proof Labs Inc. to provide an advanced cyber resiliency solution for the Department of the Air Force (DAF). The two are to collaborate to deliver an advanced intrusion detection system utilizing AI of the Air Force Research Laboratory (AFRL) Space Cyber Resiliency program.
8. STMicroelectronics N.V. (NYSE:STM)
Number of Hedge Fund Holders: 18
STMicroelectronics N.V. (NYSE:STM) designs, develops, manufactures, and sells semiconductor products. It offers automotive integrated circuits (ICs), discrete and power transistor products and industrial application-specific integrated circuits (ASICs). On January 13, TD Cowen downgraded the stock to a Hold and cut the price target to $25 from $32. The cut came amid growing concerns about cyclical headwinds in the semiconductor industry.
Amid the cut, STMicroelectronics N.V. (NYSE:STM) has moved to strengthen its long-term prospect by unveiling the STM32N6 microcontroller for enhanced machine learning capabilities. The microcontroller is designed to deliver 600 times more machine-learning performance than current high-end STM32 MCUs, enabling advanced AI applications in consumer and industrial products. While the microcontroller has been available to select customers, it is now ready for high-volume production and use in consumer and industrial sectors.
7. MicroStrategy Incorporated (NASDAQ:MSTR)
Number of Hedge Fund Holders: 25
MicroStrategy Incorporated (NASDAQ:MSTR) provides artificial intelligence-powered enterprise analytics software and services. It offers MicroStrategy ONE, which provides non-technical users with the ability to directly access novel and actionable insights for decision-making. On January 13, Cantor Fitzgerald analyst Brett Knoblauch reiterated a Buy rating on the stock with a $613 price target above an average price target of $513. Renowned for its massive Bitcoin holdings, the company has integrated cutting-edge AI technologies into its financial strategy.
In order to improve MicroStrategy Incorporated’s (NASDAQ:MSTR) strategic moves in the erratic cryptocurrency market, artificial intelligence may play a key role in forecasting market trends, evaluating risks, and even determining the best times to buy or sell assets. MicroStrategy demonstrates its commitment to turning theoretical potentials into practical insights by integrating AI. Data-driven decisions are the way of the future and artificial intelligence (AI) provides a sophisticated road map for negotiating the intricacies of the financial market.
6. Hut 8 Corp. (NASDAQ:HUT)
Number of Hedge Fund Holders: 22
Hut 8 Corp. (NASDAQ:HUT) operates as a vertically integrated operator of energy infrastructure and Bitcoin miners in North America. It also offers managed services for energy infrastructure development, such as site design, procurement, and construction management. On January 13, Needham analyst John Todaro reiterated a Buy rating on the stock with an average price target of $38.00.
The buy rating comes amid reports that Hut 8 Corp. (NASDAQ:HUT) is partnering with social networking giant Meta Platforms to develop a multi-billion artificial intelligence data center. The two are reportedly working on a $12 billion AI data center as part of the tech giant’s push to further data centers in Louisiana. There is growing demand for data centers to handle and process huge troves of data and models amid the artificial intelligence revolution.
5. Upstart Holdings, Inc. (NASDAQ:UPST)
Number of Hedge Fund Holders: 29
Upstart Holdings, Inc. (NASDAQ:UPST) is a financial services company that operates a cloud-based artificial intelligence (AI) lending platform. Its platform includes personal loans, automotive retail and refinance loans and small-dollar loans that connect consumer demand for loans. The company has dropped a game-changing update on its Auto Retail platform, which is expected to shake up the dealership floor. The update comes with faster deal processing, an AI-powered financial module, and a revamped credit dashboard.
Thanks to AI integration, dealerships can close deals much faster and get customers approved for financing. The upgrade comes with the company unveiling an AI-powered algorithm that’s becoming a game changer in the way financial institutions assess potential borrowers, leading to more approvals and fairer interest rates. Upstart Holdings, Inc.’s (NASDAQ:UPST) secret sauce is its AI lending model, which enables banks to approve more loans without increasing defaults.
4. Booz Allen Hamilton Holding Corporation (NYSE:BAH)
Number of Hedge Fund Holders: 32
Booz Allen Hamilton Holding Corporation (NYSE:BAH) provides management and technology consulting, analytics, engineering, and digital solutions. On January 8, TD Cowen analysts reiterated the stock’s buy rating but cut the price target to $155 from $200. The buy rating comes amid growing expectations that the company is poised to benefit from AI-driven solutions. Last year, the company completed a strategic investment in cybersecurity firm Reality Defender, strengthening its AI and cybersecurity portfolio.
The investment paves the way for the company to identify, field, and deploy dual-use technologies for good. The two companies plan to come up with solutions to counter AI-driven threats and secure communications. Since 2022, Booz Allen Hamilton Holding Corporation (NYSE:BAH) has carried out a string of AI-related investments, including Credo AI, HiddenLayer, RAIC Labs and Starfish, as part of its $100 million venture capital.
3. Fortinet, Inc. (NASDAQ:FTNT)
Number of Hedge Fund Holders: 47
Fortinet, Inc. (NASDAQ:FTNT) provides cybersecurity and convergence of networking and security solutions worldwide. It offers secure networking solutions focused on the convergence of networking and security. While it was one of the best-performing cybersecurity stocks in 2024, rallying by 70%, Raymond James downgraded the stock to Market perform from Outperform on January 14.
The downgrade came amid concerns that the firewall super cycle in network security is premature. In contrast, analysts at Pipe Sandler upgraded the stock and believe that the surge in AI spending and cybersecurity will persist. With the introduction of Lacework FortiCNAPP and FortiDLP, representing a new $20 billion market opportunity, Fortinet, Inc.’s (NASDAQ:FTNT) expanded Security Operations portfolio demonstrates its dedication to innovation. With a 32% increase in billings, the company’s AI-driven Security Operations division affirms impressive growth while accounting for just 10.5% of total revenue.
2. Twilio Inc. (NYSE:TWLO)
Number of Hedge Fund Holders: 52
Twilio Inc. (NYSE:TWLO) is a technology company that offers customer engagement platform solutions. It provides various application programming interfaces and software solutions for communications between customers and end users, including messaging voice. On January 8th research firm upgraded the stock to an Outperform and bumped the price target to $140 from $85.
The upgrade comes amid the expectation of improving revenue visibility and operational efficiency. Improved execution of Twilio Inc.’s (NYSE:TWLO) core communications business is evident. New product development and innovations like Voice AI are anticipated to support double-digit revenue growth starting in 2025. As management presents a revised mid-term growth outlook, investor confidence might increase.
1. Snowflake Inc (NYSE:SNOW)
Number of Hedge Fund Holders: 71
Snowflake Inc (NYSE:SNOW) is a technology company providing various organizations with a cloud-based data platform. Its platform offers Data Cloud, which enables customers to consolidate data. On January 13, analysts at Oppenheimer reaffirmed Snowflake as the top stock pick for 2025, owing to strong expectations about the company’s performance and growth initiatives. The analysts raised the price target to $200 from $180, expecting the company’s earnings to rise significantly thanks to the launch of new products and increased AI workloads on the cloud.
One key factor believed to be bolstering Snowflake Inc’s (NYSE:SNOW) long-term prospects is the growing momentum in Cortex and AI. According to Oppenheimer, customers are becoming more motivated to develop apps on Snowflake’s platform by utilizing its strong AI workload handling capabilities as cloud and large language model (LLM) independence gain traction.
While we acknowledge the potential of Snowflake Inc (NYSE:SNOW) 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 SNOW but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
Disclosure: None. This article was originally published at Insider Monkey.
