Is it time to sell the Mag-7 stocks? According to U.S. investment bank Goldman Sachs, investors may want to sell the Magnificent Seven after none of them delivered a positive earnings surprise this reporting season. To be fair, one important company still hasn’t reported its financial results for the final quarter of 2024. Regardless, the firm isn’t broadly optimistic about the stocks.
“This marks the first quarter with no positive sales surprises for the [Magnificent Seven] since 2022.”
– David Kostin, Chief U.S. Equity Strategist at Goldman Sachs.
On that note, Kostin has advised that investors may begin shifting capital to other technology companies, specifically those involved in artificial intelligence (AI).
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For those wondering exactly which artificial intelligence companies to invest in, Kostin suggests allocating capital to “AI Phase 3” companies. These companies have the potential to monetize AI by generating incremental revenues, such as in software and information technology (IT) services.
While choosing AI stocks for investment is important, an even more serious development in the tech world is the ongoing AI Summit in Paris. The summit has launched new partnerships, foundations, and projects as yet, and the BBC has also recently reported on an international agreement on artificial intelligence (AI) at the Summit.
According to the source, the US and the UK have reportedly declined to sign the agreement. While dozens of countries including France, China, and India, have already signed the charter that pledges an “open”, “inclusive” and “ethical” approach to the technology’s development, these two countries have chosen to decline instead.
The UK government has cited concerns about national security and “global governance” as reasons for not signing the agreement. Meanwhile, US Vice President JD Vance told delegates in Paris earlier that too much artificial intelligence (AI) technology regulation could “kill a transformative industry just as it’s taking off”.
According to Vance, AI was “an opportunity that the Trump administration will not squander” and said “pro-growth AI policies” should be prioritized over safety.
On the contrary, French President Emmanuel Macron has defended the need for further regulation.
“We need these rules for AI to move forward”.
-Macron said at the summit.
For those wondering what the agreement stipulates, the statement that 60 countries have signed aims to reduce digital divides by promoting AI accessibility, while ensuring AI development is “transparent”, and “safe” as well as “secure, and trustworthy”.
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).
Photo by Pascal Bernardon on Unsplash
12. Astera Labs, Inc. (NASDAQ:ALAB)
Number of Hedge Fund Holders: 39
Astera Labs, Inc. (NASDAQ:ALAB) is engaged in the design, manufacture, and selling of semiconductor-based connectivity solutions for cloud and AI infrastructure. On February 11, Jefferies analyst Blayne Curtis maintained a “Buy” rating on the stock with a price target of $125.00. Curtis’ buy rating reflects Astera Lab’s strong growth potential. Its strong performance metrics, predominantly with its ASIC ramps that involve major hyperscalers such as Amazon and Google, is evidence of this potential. The company also boasts a robust growth trajectory, which the firm noted is exemplified by expected contributions from Nvidia’s custom Blackwell designs in the latter half of 2025. The firm also highlighted that the company’s revenue from its Aries and Taurus SCMs has significantly exceeded expectations, demonstrating its ability to scale PCIe/Ethernet connectivity for AI configurations. Moreover, a shift towards hardware solutions does raise some concerns over gross margins, but the company’s strategic acquisitions and increased R&D activities outweigh them.
11. monday.com Ltd. (NASDAQ:MNDY)
Number of Hedge Fund Holders: 49
monday.com Ltd. (NASDAQ:MNDY) develops software applications globally, offering a cloud-based Work OS for creating work management tools. On February 10, KeyBanc upgraded the stock to “Overweight” from Sector Weight with a $420 price target. The firm upgraded the project management software company following earnings, admitting that it was wrongly worried about Monday.com’s guidance into the quarter. It now believes that the company outlook is “plenty achievable” with “multiple potential areas of upside.” The firm also highlighted several factors supporting the company’s future growth, including increased sales rep productivity, headcount expansion, new product momentum, refining macroeconomic environment, and artificial intelligence initiatives.
“We are back on the Monday train with an upgrade to Overweight and are reintroducing a price target at $420.”
10. AppLovin Corporation (NASDAQ:APP)
Number of Hedge Fund Holders: 51
AppLovin Corporation (NASDAQ:APP) provides a leading marketing platform powered by AI technology. On February 10, Jefferies analyst James Heaney CFA maintained their bullish stance on the stock, giving a “Buy” rating along with an upward revision of the price target to $460. The analyst’s buy rating stems from Applovin’s potential to outperform market expectations in the upcoming quarters. A recent survey on mobile gaming advertising has revealed how AppLovin remains a leading network among major advertisers. Moreover, the shift in advertiser spending plans suggests a promising growth trajectory. E-commerce advertising data analysis further demonstrates substantial ad expenditure through AppLovin, which in turn points to a significant revenue boost in the near term. Applovin leverages its AI-driven ad technology, particularly its AI-driven ad engine Axon 2.0, to optimize mobile and e-commerce advertising. All of these positive indicators have led to a buy rating on the stock.
9. Twilio Inc. (NYSE:TWLO)
Number of Hedge Fund Holders: 52
Twilio Inc. (NYSE:TWLO) is a leading cloud communications platform-as-a-service (CPaaS) company. On February 10, Monness analyst Brian White maintained a “Buy” rating on the stock with an unchanged price target of $152.00. According to the firm, Twilio has successfully turned around by focusing on innovation, execution, and financial rigor. These qualities have allowed the company to improve its cost structure and a strategic stock repurchase plan, implying how its efforts have been sustainable despite a fragile macro environment. Moreover, the company is expected to achieve significant growth ahead. After Investor Day, the firm noted how highlights such as Twilio’s new $2 billion stock repurchase program have come to light. The company is also expected to boost its future opportunities by focusing on emerging markets such as conversational artificial intelligence. It also plans on improving its operating margin and cash flow, strengthening the buy rating on the stock.
8. Palo Alto Networks, Inc. (NASDAQ:PANW)
Number of Hedge Fund Holders: 64
Palo Alto Networks, Inc. (NASDAQ:PANW) is a leader in AI-powered cybersecurity. On February 11, KeyBanc analyst Eric Heath raised the firm’s price target on the stock to $240 from $217 and kept an “Overweight” rating on the shares. The optimism stems from the firm’s checks with company partners which have been positive and better than the previous quarters. The firm stated that all partners it spoke to were in line or above plan. It further states that it anticipates Q2 billings to be higher than expected, and is also encouraged by the improving firewall cycle after positive checks from Checkpoint and Fortinet. Palo Alto benefits from both Department of Defense contracts where it offers its AI-powered cybersecurity solutions, and positive developments in the Thunderdome project, a cybersecurity project within the Department of Defense (DoD) that incorporates security solutions Prisma Access and CloudGenix SD-WAN alongside its AI-powered security capabilities.
7. CrowdStrike Holdings, Inc. (NASDAQ:CRWD)
Number of Hedge Fund Holders: 74
CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is a leader in AI-driven endpoint and cloud workload protection. On February 11, KeyBanc raised the firm’s price target on the stock to $480 from $385 and kept an “Overweight” rating on the shares. The rating, issued ahead of the company’s quarterly results, highlights the firm’s solid channel checks with partners. All partners the firm spoke with were in line or above plan. In particular, there has been little to no churn from CrowdStrike’s AI-powered Falcon platform. The firm does, however, advise caution ahead of earnings given CrowdStrike’s +23% return year-to-date vs. IGV’s +6%. There is also the concern regarding exposure to the Fed, which could represent a significant portion of the company’s revenue.
6. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 99
Tesla, Inc. (NASDAQ:TSLA) is an automotive and clean energy company that leverages advanced artificial intelligence in its autonomous driving technology and robotics initiatives. On February 11, Morgan Stanley analyst Adam Jonas maintained a “Buy” rating on the stock and set a price target of $430.00. According to the firm, Tesla has been proactive in integrating artificial intelligence and autonomous vehicle technology. This has allowed it to be ahead of traditional automakers who are less focused on these advancements. The firm anticipates investor expectations and market dynamics to be bolstered further by the planned launch of unsupervised autonomous services in Austin. Tesla’s potential for growth is also supported by the competitive environment with companies like Waymo and the rise of innovative Chinese players like BYD, driving regulatory acceptance, consumer interest, and even innovation and price competitiveness. Meanwhile, the company’s efforts in maintaining strong supply chain relationships with China also play an important role in sustaining its advancements in electric mobility.
5. Alibaba Group Holding Limited (NYSE:BABA)
Number of Hedge Fund Holders: 115
Alibaba Group Holding Limited (NYSE:BABA) is an online retailer that leverages AI in its e-commerce business. On February 11, The Information reported that Apple is teaming up with Alibaba to roll out artificial intelligence features for iPhone users in China. Last year, Apple had selected Baidu as its main partner, but Baidu’s progress in developing models for Apple Intelligence fell short of standards. According to the report, both companies have submitted the Chinese AI features that they co-developed for approval by China’s cyberspace regulator. These tools are crucial for Apple to bring its AI services to China considering sales for the iPhones dipped in the holiday quarter due to a lack of AI features available. The Information stated that Apple has chosen Alibaba for this partnership partly because of the massive personal database the e-commerce giant has on users’ shopping and payment habits. This data could potentially help Apple train models and deliver more customized services.
4. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 158
Apple Inc. (NASDAQ:AAPL) is a technology company. On February 11, Evercore ISI analyst Amit Daryanani lauded the partnership news between Apple and Alibaba which aims to help roll out artificial intelligence features for iPhone users in China. Daryanani reiterated his “Outperform” rating on the stock with a price target of $260. According to the analyst, this partnership is good news for Apple given its commentary that noted how iPhone sales have been stronger in markets where AI features are available.
“China has become a more competitive market in recent quarters, so it is encouraging to see some positive developments given many expected securing regulatory approval for AI features to be a challenge.”
3. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 193
NVIDIA Corporation (NASDAQ:NVDA) specializes in AI-driven solutions, offering platforms for data centers, self-driving cars, robotics, and cloud services. One of the biggest analyst calls for Tuesday, February 11, was for Nvidia Corporation. Citigroup reiterated the stock as “Buy”, stating that the artificial intelligence chipmaker is very well positioned ahead of earnings later this month.
“However, we believe attention will shift to strength from AI companies as NVDA, AVGO and MU report in March and cell phone demand appears to be solid along [with] demand from data center and PC demand appears to be seasonal.”
Analysts on Wall Street currently have a consensus Buy rating on NVDA stock. The average price target of $175 implies an upside of 31.72% from current levels, however, the Street-high target of $220 implies a 66% upside.
2. Meta Platforms, Inc. (NASDAQ:META)
Number of Hedge Fund Investors: 235
Meta Platforms, Inc. (NASDAQ:META) is a global technology company. On February 11, Forbes reported that the company is in discussions to acquire South Korean company FuriosaAI. FuriosaAI is a chip startup that designs and develops data center accelerators for the “most advanced AI models and applications.” The deal, which is speculated to be completed as early as this month, could boost Meta’s custom chip efforts amid the shortage of Nvidia chips and a growing demand for alternatives. The deal would allow Meta to design and develop its chips particularly for its own applications. However, Meta is one of the many companies looking to buy the startup, according to a person familiar with the matter.
1. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 286
Amazon.com Inc (NASDAQ:AMZN) is an American technology company offering e-commerce, cloud computing, and other services, including digital streaming and artificial intelligence solutions. On February 7, Bloomberg reported that Amazon has warned investors that it may face capacity constraints in its cloud computing division despite its plans to spend over $100 billion this year. Chief Executive Officer Andy Jassy wants to ensure that Amazon turns into an “AI supermarket”, which is why it is spending huge sums to maintain its edge in cloud computing services.
“It is true we could be growing faster were it not for some of the constraints on capacity”.
-Andy Jassy
Jassy stated that the power capacity and supply of chips from third parties and Amazon’s own design unit are preventing Amazon Web Services from bringing new data centers online. However, the said constraints will likely ease in the second half of 2025.
Analysts note that these capacity constraints are also being faced by rivals Google and Microsoft.
“AWS growth did not accelerate as anticipated and instead matched Q3 levels, indicating that the company is challenged by the same types of capacity constraints facing rivals Google and Microsoft”.
-Sky Canaves, an analyst at Emarketer.
While we acknowledge the potential of AMZN 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 AMZN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stock To Buy Now and Complete List of All AI Companies Under $2 Billion Market Cap.
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