In this article, we will take a detailed look at Top 10 Stocks to Watch as Investors Brace for a Potential Recession.
President Donald Trump’s new reciprocal tariff announcement is hammering stock markets around the world as countries face a new reality and trade dynamics. The rising volatility has increased recession risks. Goldman Sachs recently said that it sees a 35% chance of a recession in the next 12 months, up from 20% previously. The bank also cut its 2025 GDP forecast to just 1% and raised its year-end unemployment rate outlook by 0.3 percentage points to 4.5%.
China and key European countries are beginning to respond to the latest tariffs and will likely impose retaliatory tariffs on US products, causing a further downturn in consumer sentiment. Kara Reynolds, an economist at American University, told ABC News that a pullback in spending from consumers and businesses due to these uncertainties can tip the US into a recession.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In
For this article, we picked 10 stocks currently on Wall Street’s radar. With each stock, we have mentioned the number of hedge fund investors. 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).
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10. Super Micro Computer Inc (NASDAQ:SMCI)
Number of Hedge Fund Investors: 33
Jeff Pierce from Charles Schwab said in a recent program on Schwab Network that Super Micro Computer Inc (NASDAQ:SMCI)’s SEC filing issues are now “behind” us and the company is inching towards growth. The analyst also mentioned a couple of bullish reports on the stock from notable Wall Street firms.
“I do think it is piling on to the acknowledgment that maybe some of the issues, especially around the SEC filings, are now behind us. We’re very far away from those 100-plus per share prices we saw this time last year, but they are inching up year to date. JPMorgan, as you pointed out, upgraded them to neutral from underweight, with a price target of 45, up from 35. They said the company has cycled past the uncertainty around those SEC filings and is on the cusp of benefiting from the ramp in Blackwell-based server shipments, which already show materially higher demand than prior generations. However, the firm did say they are raising their revenue forecast for the next 12 months, given the positive data points in recent weeks related to a better supply ramp from Nvidia. That balances the upcoming strong revenue progression with potential concerns about some of their margin trajectory, especially in a competitive landscape that’s been getting tighter. It’s similar to what we’ve seen from some other analysts. Last week, Rosenblatt reinstated their coverage of Super Micro Computer Inc (NASDAQ:SMCI) with a buy rating and a $60 price target. They seem to feel positive about the AI systems and gross margin upside. They also noted that there is still room for the company’s price-to-earnings multiple to move higher if they start to hit those revenue and gross margin targets.”
9. Intel Corp (NASDAQ:INTC)
Number of Hedge Fund Investors: 68
Kim Forrest from Bokeh Capital said in a latest program on Schwab Network that she’s still holding on to Intel Corp (NASDAQ:INTC). Here’s why:
“I continue to hold it because its drubbing at the end of last year just made me think, you know, look, there’s more value in this name than anybody is recognizing at this point. And maybe, maybe just maybe, Pat Gelsinger saying, “Hey, we’re going to be a foundry,” made people look and say, “Look at all those foundry assets that they have.” And he was not able to turn this company around in the time and the way he wanted, but I think it is a vestige of his past that now, of all places, TSMC is looking, going, “Hey, maybe we can make something out of this company by adding their expertise to the foundries.” And I think that is the most exciting thing, and I’ve been waiting for somebody on the board or the next CEO to think out of the box to try to get some shareholder value back in this name.”
Intel’s turnaround will take a while. In the first quarter, the company sees revenue of $12.2 billion at the midpoint of its guidance, reflecting an 11-18% decline quarter-over-quarter. The company has also scrapped its plans to launch Falcon Shores, its next-generation AI GPUs. A few months back it was a key catalyst expected to debut in late 2025. Intel’s Clearwater Forest AI data center server CPUs, which were set to use its 18A chip (similar to TSMC’s 3nm nodes), have had their launch delayed from FY2025 to FY2026. These setbacks are likely to affect Intel’s already struggling Data Center & AI business segment. Consensus expectations suggest the company won’t see positive free cash flow for at least the next three years.
Invesco Growth and Income Fund stated the following regarding Intel Corporation (NASDAQ:INTC) in its Q3 2024 investor letter:
“Intel Corporation (NASDAQ:INTC): The chipmaker reported weaker-than-expected quarterly results as revenues declined and earnings were below expectations. Management also provided weaker guidance going forward; the stock fell on the news. We sold the position during the quarter.
The chipmaker’s quarterly earnings report was weaker than anticipated as revenues declined and earnings were below expectations. Management also provided weaker guidance going forward. Given that a potential recovery appears to be further in the future than we originally anticipated, we sold the position.”
8. TransDigm Group Inc (NYSE:TDG)
Number of Hedge Fund Investors: 71
Jed Ellerbroek from Argent Capital said in a latest program that he’s bullish on TransDigm Group Inc (NYSE:TDG). Here is how he explained his bullish thesis for the aerospace company:
“One of our favorites is the Aerospace aftermarket, and so we own a company called TransDigm. There are smaller-cap companies that we own in our midcap and small-cap strategies. Those businesses cater to airplane aftermarket demand, so they’re selling replacement aircraft products to airlines and SS. That business is growing rapidly today—it’s always growing, but it’s growing especially well these days because Boeing has had trouble delivering new airplanes to clients.”
Mar Vista Strategic Growth Strategy stated the following regarding TransDigm Group Incorporated (NYSE:TDG) in its Q3 2024 investor letter:
“TransDigm Group Incorporated (NYSE:TDG) reported another earnings beat-and-raise during its fiscal third quarter as it continues to benefit from a surge in global travel, surpassing pre-pandemic levels. The airlines posted no significant change in aircraft order or delivery patterns despite overcapacity issues. Both Boeing and Airbus remain in a holding pattern on producing and delivering new units due to manufacturing quality and labor issues (strike) in the case of Boeing and supply chain challenges in the case of Airbus. This plays directly into the hands of TransDigm’s most profitable business, commercial aerospace aftermarket, as load factors remain high, and take-offs and landings continue to grow beyond pre-pandemic levels. Moreover, the company announced a significant special dividend to be paid in October 2024. Even with this payment, TransDigm has over $5.5 billion of capital to execute its acquisition strategy in what should be a robust M&A market in 2025.”
7. Progressive Corp (NYSE:PGR)
Number of Hedge Fund Investors: 95
Jed Ellerbroek from Argent Capital explained in a latest program on Schwab Network why he likes Progressive Corp (NYSE:PGR).
“Progressive is our favorite defensive growth business. When I say defensive, I mean not economically sensitive—we’re all buying auto insurance whether the stock market is up or down, whether the economy is growing rapidly or in recession. We all have to have that auto insurance, so that stable demand is a good thing. You want some of that in your portfolio. Progressive pairs that with pretty impressive growth, and that growth is largely coming through market share gains, where they are outgrowing and outcompeting their peers like State Farm, Geico, Allstate, etc.”
Artisan Mid Cap Value Fund stated the following regarding The Progressive Corporation (NYSE:PGR) in its Q4 2024 investor letter:
” On the positive side, our financials holdings delivered strong absolute and relative returns in 2024, and each of our biggest contributors—First Citizens, M&T Bank and Progressive—was in the financials sector. We exited The Progressive Corporation (NYSE:PGR), one of the largest personal auto insurers in the US, this quarter after a long holding period that began in 2007. As a long-time holding, Progressive is an example of how we put our process into motion. We were able to purchase it at an attractive price, but most of our holding period return came from the value created by the business itself. We recognized the strength of its business model demonstrated by consistent free cash flow generation and above average returns on equity and had a high regard for management, which had a proven track record of pricing discipline through the cycle and prudent capital allocation. Due to its success, Progressive’s market capitalization now exceeds the upper limit of our mid-cap investment universe.”
6. Bank of America Corp (NYSE:BAC)
Number of Hedge Fund Investors: 98
Steve Weiss, Founder and Managing Partner of Short Hills Capital Partners, said in a recent program on CNBC that he’s bullish on Bank of America (NYSE:BAC) and buying more of the bank’s shares.
“Look, Bank of America Corp (NYSE:BAC) has been a relatively small position for me for a while. I’ve owned it for a long time, but I look — I look at deregulation as definitely going to impact the financials and the banks. So, I’m not looking for them, as I said before, to lower their underwriting standards, and I’m not looking for the loan book to grow. I’m actually looking for it to shrink a little bit. However, I do believe that they are so well capitalized that they will buy back more shares and that these stocks are cheap and could essentially be a safe haven. You know, because all the big risks are in the private credit portfolios — they’re not sitting on the major bank balance sheets.”
Hardman Johnston Global Equity Strategy stated the following regarding Bank of America Corporation (NYSE:BAC) in its Q4 2024 investor letter:
“Bank of America Corporation (NYSE:BAC) is the second largest bank in the developed world and operates the third largest branch network in the US. With 86% of revenues coming from the US, the bank is a clear beneficiary of the lower regulatory environment expected from the incoming administration. The company’s business is highly diversified across retail, commercial, wealth management, and investment banking, with significant scale across all verticals. Management believes there is a big opportunity going forward in growing and monetizing its mass retail client base. Wealth is another huge opportunity, with the Merrill Lynch platform enabling customers to make more transactions and purchase additional products. Lastly, Bank of America has an opportunity to increase efficiency through cost reduction and online banking. Our expectation is for the bank’s ROE to move significantly higher, driving EPS growth and higher multiples.”
5. Tesla Inc (NASDAQ:TSLA)
Number of Hedge Fund Investors: 99
Wall Street Journal’s Tim Higgins said in a latest program on CNBC that Tesla Inc (NASDAQ:TSLA) market value remains high when compared with peers but the company is facing headwinds amid Elon Musk’s “antics.”
“The value of the company is still dramatically higher than any other automaker out there. There’s still a lot of people out there who believe in this vision that Musk has created, the vision of the future for the car, the vision of the future of the company being in robotics. That’s still a huge gamble. But it seems like the brand is having perhaps its Bud Light moment among Democrats, being turned off by some of his antics. And that’s kind of the question: can he make the bridge to the future while in the inter term really turning some customers off to the idea of buying the sheet metal of today?”
Tesla’s EV sales are falling all over the world as the company faces challenges from competitors. For example, in California, the largest U.S. market for electric vehicle adoption and sales, Tesla sales fell about 12% year over year in 2024, causing its market share to drop from 60.1% in 2023 to 52.5% in 2024. Was it because Californians are buying fewer EVs? No. Californians purchased more than 2 million electric cars during the year, almost double when compared to the past two years.
Things aren’t looking good for Tesla in Europe, either. For example, in Germany, Tesla delivered just 1,429 new cars in February, down 76% from the same month last year. In contrast, battery-electric vehicle (BEV) registrations surged 30.8% during the month.
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. According to Reuters, 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 Q4 2024 investor letter:
“The largest relative detractors in the quarter were Tesla, Inc. (NASDAQ:TSLA) (not owned), Thermo Fisher Scientific, and Broadcom (not owned). We’ve spoken at length about our rationale for not owning Tesla. The stock enjoyed a 54% return during the quarter, with effectively all of the share price performance strength coming in the post-election period, as the market expressed a positive view on Elon Musk’s prominent role in the incoming Trump administration and its potential implications for Tesla. While we agree this development should be a net positive for Tesla and recognize the company’s interesting future prospects for autonomous driving and humanoid robots, its current valuation demands that shareholders pay primarily for potential innovations that have yet to materialize, with uncertain risks and timelines, presenting a different type of risk profile than we are comfortable with. Today, Tesla is an automobile manufacturer limited to the higher-income segment and is increasingly challenged to sell vehicles when interest rates are not zero. As such, we continue to question the company’s long-term growth profile, its ability to scale a large robotaxi service (which seems to be the source of euphoria in Tesla shares), and its corporate governance.”
4. Micron Technology Inc (NASDAQ:MU)
Number of Hedge Fund Investors: 107
Jim Cramer in a program on CNBC said ahead of Micron Technology Inc (NASDAQ:MU) latest earnings that the company has been conservative in its guidance and warned investors to wait for a pullback that was likely to come on earnings.
“Micron, they report tonight. Sanjay Mehrotra. has, in the last three quarters, been saying a lot of very positive things about the previous quarter, and then he’s been very cautious. I have to imagine that in a world with tariffs, he’s going to be cautious again. So, if you’re trading it, if you’re stupid enough to be trading it, what I would tell you is do not take what the first number is, that’s not going to matter. It’s what he says in the guidance because if he says, “Well, tariffs and we’re worried,” you’re going to wish you didn’t pay 105.”
Cramer was right. Micron Technology Inc (NASDAQ:MU) stock fell sharply after the earnings and currently trades at $88, as of April 3. Cramer is bullish on the stock for the long term.
Micron Technology Inc (NASDAQ:MU) is one of the leaders in the High Bandwidth Memory (HBM) market and has been making strides in the smartphone market. The integration of Micron’s LPDDR5X memory and UFS 4.0 storage in the Samsung Galaxy S25 series signifies a major endorsement of its technological advancements and power-efficient memory solutions. Micron Technology Inc (NASDAQ:MU) focus on HBM, a critical component for AI-driven GPUs, was highlighted in Q2 results, showing a 38% YoY revenue increase to $8.05 billion, with DRAM sales, especially HBM, exceeding $1 billion for the first time. Micron Technology Inc (NASDAQ:MU) is strategically investing CapEx to expand HBM capacity, in line with the projected 70% YoY growth in HBM demand.
3. NVIDIA Corp (NASDAQ:NVDA)
Number of Hedge Fund Investors: 193
Sarah Kunst, Cleo Capital managing director, said in a latest program on CNBC that NVIDIA Corp (NASDAQ:NVDA) has become a victim of its own success amid high expectations of investors. The analyst believes DeepSeek will not hurt NVIDIA Corp (NASDAQ:NVDA) demand because when something becomes cheaper, consumers tend to use more of that.
“DeepSeek is fascinating because it was sort of the most successful psyop we’ve seen in a while. It’s a good program, and there are other good similar programs coming out of China, and they will continue to. They’ll come out of anywhere we have smart engineers all over the world. But for some reason, that really hit Nvidia hard because people don’t understand that when something is cheaper and more plentiful, you know, we tend to use more of it, which is funny because as Americans, we certainly know that to be true. Gas gets cheaper, people buy bigger cars that require more gas, and so we know that sort of in our day-to-day life. But these analysts, I think, continue to miss that when it comes to Nvidia, and they’re just having a really hard time kind of keeping the faith.”
Guinness Global Innovators stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q4 2024 investor letter:
“For a second year running, NVIDIA Corporation (NASDAQ:NVDA) was the Fund’s top performing stock, delivering a stellar return of +177.7% over the year. Since the beginning of last year, Nvidia’s ‘Hopper’ GPUs have been at the centre of exploding demand for chips powerful and efficient enough to facilitate the energy intensive requirements of AI processes within datacentres. Initially possessing over 95% of market share in these types of chips, Nvidia have been quick to entrench their position as the technological leader in the space, launching the successor to the current ‘Hopper’ GPU in March, Blackwell, inhibiting the likes of AMD and Intel making meaningful inroads in taking share of the fast-growing market. Compared to the previous iteration (Hopper) which is continuing to fuel Nvidia’s extreme revenue growth, the Blackwell chip is twice as powerful for training AI models and has 5 times the capability when it comes to “inference” (the speed at which AI models respond to queries). Throughout the year, Nvidia’s financial performance has remained resilient. Quarterly revenues hit $35.1 billion in their most recent quarter, beating consensus expectations by 6% and representing a +94% year-over-year increase. Additionally, Nvidia’s data centre segment, driven by the Hopper (H100) chip, grew fivefold over the past year, underscoring the sustained demand for advanced AI infrastructure. The H100 chip, priced at around $40,000, continues to see significant adoption due to its ability to enhance AI model training efficiency while lowering overall costs. This growth is expected to continue as companies invest in upgrading existing data centres and building new ones, with Nvidia well-positioned to capture a significant share of the estimated $2 trillion market opportunity over the next five years. There have been some concerns over Blackwell production delays causing share price volatility however, Nvidia has recovered swiftly, driven by positive earnings results through the year and assurances from management regarding future supply. Additionally, the release of the H200 chip promises to extend Nvidia’s technological leadership, ensuring continued momentum into 2025. While Nvidia’s valuation remains a topic of debate, the stock is not at a significant premium to history, and it still appears reasonable given its dominant market position, innovative prowess, and exposure to long-term secular growth trends in AI, cloud computing, and data infrastructure. As a result, Nvidia remains well-positioned to deliver sustained outperformance over the long term, making it a cornerstone of growth-oriented portfolios.”
2. Microsoft Corp (NASDAQ:MSFT)
Number of Hedge Fund Investors: 279
Scotiabank recently started covering Microsoft Corp (NASDAQ:MSFT) with a Sector Outperform rating and highlighted the company’s strong position in the race to develop artificial intelligence.
“Based on our fieldwork, 2025 will be a paradigm-shifting year during which customer investments accelerate in AI on Azure and Microsoft 365 Copilot,” said Scotia Capital analysts, led by Patrick Colville, in a detailed note to investors.
Scotiabank set a $470 price target on the stock, saying about 60% of companies are using foundational models in the public cloud. Azure, they said, is well-positioned to capture spending on generative AI.
“Almost all IT decision makers plan to add additional use cases in 2025,” Colville said. “Microsoft’s partnership with OpenAI, Inc. and pre-existing customer relationships are the key advantage for Azure in AI. Based on our fieldwork, a slow moderation in growth in Microsoft’s traditional public cloud business is the most likely outcome – important for assuaging investor fears that one revenue source is being substituted for another.”
Columbia Seligman Global Technology Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q4 2024 investor letter:
“Within software, the fund maintained an underweight position to Microsoft Corporation (NASDAQ:MSFT), which proved beneficial as share price for the company fell during the fourth quarter. Microsoft’s outlook for its Azure business came down slightly, which hampered the stock price at times during the quarter and, combined with losses on the Open AI business, led to a disappointing end to 2024. The company has guided its capital expenditure spending up slightly and investors continue to wait for additional monetization from the company’s large commitment to AI infrastructure spending. The fund continued to hold an overweight allocation to Oracle as we believe Oracle is positioned to be a major beneficiary of the AI rollout and has the potential to compete with other large cloud providers, such as Amazon, Alphabet and Microsoft. Oracle shares moved lower during the quarter and the stock suffered its worst day of the year in December, as the company narrowly underperformed analysts’ average estimates. Oracle’s business model remains strong as demand for computer power that can handle AI is increasing and the company’s revenues from its cloud infrastructure unit moved higher year over year.”
1. Amazon.com Inc (NASDAQ:AMZN)
Number of Hedge Fund Investors: 286
Jed Ellerbroek from Argent Capital said in a latest program on Schwab Network that Amazon.com Inc (NASDAQ:AMZN) is one of his fund’s biggest holdings amid the company’s strong retail and AWS business.
“Amazon is our favorite stock, and it’s the largest holding in Argent’s large-cap portfolio. We like it because both of their businesses are performing exceptionally well. The retail business that we’re all familiar with—where we’re seemingly receiving packages every day—is one of the few U.S. retail businesses actually growing revenue today. The others are Walmart and Costco, but Amazon is taking the lion’s share of that growth.
We also love their AWS business. The cloud computing unit is growing as businesses shift from on-premises to cloud data storage, and they’re also using the cloud more for AI purposes as they work toward deploying that technology in their operations every day. We like both businesses, think they both have a great growth outlook, and believe today is a great buying point.”
Diamond Hill Large Cap Concentrated Fund stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q4 2024 investor letter:
“Among our top individual contributors in Q4 were General Motors and Amazon.com, Inc. (NASDAQ:AMZN). Internet retail and cloud infrastructure company Amazon continues taking share in non-discretionary categories. Retail margins also increased in the quarter, particularly international margins. Amazon Web Services’ (AWS) revenue growth accelerated in the quarter, and, despite increased AI-related capital expenditures, margins improved to all-time highs.”
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 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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