According to Morgan Stanley, the sharp pullback in software valuations has created buying opportunities across major technology names. Software stocks have been under pressure in recent months as AI has gone from being a growth driver to a potential source of disruption.
The latest selloff in the industry was triggered by a new legal tool from Anthropic’s Claude large language model. According to Analyst Keith Weiss, “peak uncertainty has severely impacted Software multiples,” leading to an estimated 33% drop since October 2025.
He further added that at “~4.4X EV/Sales, the average software multiple is back into the range last seen during the peak uncertainty around Public Cloud.”
Weiss believes that markets are failing to appreciate how established software names can still capture meaningful upside from adopting artificial intelligence.
“The bear case arguments around GenAI appear to give too little credence to the ability of incumbent software vendors to participate in this innovation cycle.”
The firm has highlighted Microsoft, Intuit, Salesforce, ServiceNow, Atlassian, Snowflake, Cloudflare, Shopify, and Palo Alto Networks as the most attractive opportunities on the back of product cycles, improving financial metrics and discounted valuations.
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. The hedge fund data is as of Q3 2025.
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10. Super Micro Computer, Inc. (NASDAQ:SMCI)
Number of Hedge Fund Holders: 42
Super Micro Computer, Inc. (NASDAQ:SMCI) is one of the 10 AI Stocks Analysts Are Watching. On February 4, Rosenblatt analyst Kevin Cassidy reiterated a Buy rating on the stock with a $50.00 price target. The rating affirmation follows SMCI’s robust fiscal Q2 2026 results.
SMCI’s had a significant earnings and revenue beat, posting an earnings per share (EPS) of $0.69, a 40.82% surprise over the anticipated $0.49. Meanwhile, revenue reached $12.7 billion, outperforming the forecasted $10.42 billion by 21.88%.
The firm highlighted how SMCI’s revenue of $12.7 billion represented a 153% quarter-over-quarter growth. This growth was attributed to ramping production of the GB300 system, which it noted to be “one of the most complicated systems ever produced.”
Rosenblatt anticipates that SMCI will maintain its current revenue and production rate in the third quarter of fiscal year 2026. It is also likely to expand the adoption of its “One-Stop Shop” DCBBS (Data Center Building Block Solutions) offering.
Through DCBBS, customers are able to deploy AI factories faster and with engineering assurance, a significant opportunity for SMCI to expand its gross margins as its customer base grows.
With operating expenses running at roughly 2% of revenue, the firm said that any improvement in gross margins would likely translate entirely into earnings. However, it has moderated its near-term margin outlook as it continues to see “many opportunities to return to double-digit GM.”
Super Micro Computer, Inc. (NASDAQ:SMCI) designs and manufactures high-performance server and storage solutions for data centers, cloud computing, AI, and edge computing worldwide.
9. QUALCOMM Incorporated (NASDAQ:QCOM)
Number of Hedge Fund Holders: 63
QUALCOMM Incorporated (NASDAQ:QCOM) is one of the 10 AI Stocks Analysts Are Watching. On February 5, Piper Sandler analyst Harsh Kumar reiterated an Overweight rating on the stock with a $200.00 price target. The rating affirmation follows QCOM’s December 2026 quarter results.
The company reported stronger-than-expected earnings for the first quarter of fiscal 2026, with EPS of $3.50, beating the forecast of $3.40. It also exceeded revenue expectations, posting $12.25 billion compared to the expected $12.11 billion.
While QCOM did beat expectations, its March guidance was considerably tempered by memory constraints at certain OEMs, particularly in China, which led to reduced supply forecasts.
For the March 2026 quarter, QCOM’s handset business is forecast to decline sharply by 22% sequentially. Meanwhile, other key segments, such as Automotive and IoT, continue to establish strong growth.
The research firm does not anticipate a significant recovery in the handset business through September 2027 due to tight memory conditions. It also mentioned that 2027 will be impacted by the Apple agreement.
Qualcomm is expected to provide clarity regarding its data center strategy and ramp during its upcoming analyst day. This, the firm believes, could potentially boost estimates.
QUALCOMM Incorporated (NASDAQ:QCOM) develops wireless technologies, supplies chips for mobile, automotive, and IoT, licenses patents, and invests in emerging tech.
8. CrowdStrike Holdings, Inc. (NASDAQ:CRWD)
Number of Hedge Fund Holders: 66
CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is one of the 10 AI Stocks Analysts Are Watching. On February 9, Cantor Fitzgerald analyst Jonathan Ruykhaver reiterated an Overweight rating on the stock following a recent signing of memorandum of understanding (MoU) with Aramco.
The proposed collaboration aims to support CrowdStrike’s long-term investments in cybersecurity as Saudi Arabia seeks to secure and scale artificial intelligence initiatives.
“We’re proud to collaborate with Aramco as Saudi Arabia accelerates its secure AI adoption,” said George Kurtz, CEO and founder of CrowdStrike. “I’m thrilled to bring the power of the Crowd to the Kingdom, helping to secure the commerce, creativity, and purpose of one of the world’s fastest growing economies.”
The cyber security firm is planning to establish headquarters in Saudi Arabia, already announcing an in-country regional cloud deployment, a likely prerequisite for scaling the partnership between the two.
The MoU is nonbinding, representing a potential multi-year effort aligned with Saudi Vision 2030 to transform it into a diversified, global investment hub and reduce its oil dependency.
In other news, CRWD has also shared plans to establish new cloud deployments in Saudi Arabia, India, and the United Arab Emirates, thereby enhancing its Global Data Sovereignty initiative.
CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is a leader in AI-driven endpoint and cloud workload protection.
7. Datadog, Inc. (NASDAQ:DDOG)
Number of Hedge Fund Holders: 72
Datadog, Inc. (NASDAQ:DDOG) is one of the 10 AI Stocks Analysts Are Watching. On February 9, RBC Capital analyst Matthew Hedberg lowered the price target on the stock to $150.00 (from $175.00) while maintaining an “Outperform” rating. While the firm is cautious on the stock due to peer-multiple compression, upcoming earnings and analyst day will provide a key AI strategy update.
“Thinking through Datadog’s earnings report and analyst day; Next week will be busy for Datadog with earnings on 2/10 and an analyst day on 2/12.”
According to analyst Matthew Hedberg, DDOG is likely to report robust Q4 results but likely a conservative revenue and margin guidance that may weigh on shares “but act as a clearing event.”
Following earnings, Hedberg believes that DDOG’s analyst day will likely be focused on DDOG’s positioning in an agentic/AI world, evolving competitive environment, security, GTM strategy, and margin commentary.
However, the firm doesn’t expect DDOG to provide any long-term financial targets during the analyst event.
“Maintain OP rating and reduce PT to $150 from $175 on peer-multiple compression.”
Datadog, Inc. (NASDAQ:DDOG) offers a cloud-based SaaS platform for monitoring and analytics, specializing in cloud computing and AI-powered cybersecurity products.
6. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 115
Tesla, Inc. (NASDAQ:TSLA) is one of the 10 AI Stocks Analysts Are Watching. On February 9, Barclays reiterated the stock as “Equal Weight,” stating that TSLA remains a “battleground stock.”
“Remains battleground stock. Investors broadly acknowledge value is extreme and near-term fundamentals remain in question, but this is increasingly of less relevance to the stock”
Previously on February 4, Wolfe Research noted that it sees Tesla’s robotaxi business scale into a major revenue driver over the next decade. The firm eyes a “catalyst rich” year ahead for the company despite fundamental concerns.
Several potential catalysts, including the Optimus launch in Q1, Cybercab in April, new robotaxi markets, FSD updates, and a new Megapack facility launch, were highlighted by the firm.
Analysts on Wall Street have a consensus “Buy” rating on the stock. The average price target of $480 implies a 14.26% upside; however, the Street-high target of $600 implies an upside of 42.82%.
Tesla, Inc. (NASDAQ:TSLA) is an automotive and clean energy company that leverages advanced artificial intelligence in its autonomous driving technology and robotics initiatives.
5. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Number of Hedge Fund Holders: 115
Advanced Micro Devices, Inc. (NASDAQ:AMD) is one of the 10 AI Stocks Analysts Are Watching. On February 4, Goldman Sachs analyst James Schneider reiterated a Neutral rating on the stock with a $210.00 price target. Even though AMD reported strong revenue and guidance, the firm noted that it was offset by considerably higher-than-expected operating expense guidance.
The company reported fourth-quarter revenue of USD 10.3 billion, up 34% year over year, and ahead of guidance. Its adjusted earnings per share (EPS) was $1.53, beating consensus expectations of $1.32.
This strong revenue and guidance was particularly driven by upside in AMD’s Datacenter segment. Looking ahead, the company said it expects $9.8 billion in revenue, plus or minus $300 million, versus expectations of $9.38 billion.
Ahead of the earnings report, the research firm noted how investors were constructively positioned on the stock, particularly driven by market strength and share gains in server CPUs, continued strength in AI infrastructure buildouts, and prospects for a robust MI455X ramp in the second half of the year.
Similarly, AMD is likely to continue seeing robust momentum in its Datacenter business throughout 2026. This will be supported by server market share gains and the ramp of its MI400 series products. However, there is limited near-term operating leverage largely owing to the company’s major software and systems investments due to AI infrastructure expansion.
Overall, Goldman Sachs’s Neutral rating is based on limited near-term operating leverage and likely high customer concentration for AMD’s GPU datacenter business. Nevertheless, a more constructive position with increased confidence may be adopted in the coming quarters on the back of AMD’s revenue stream and execution timeline.
Advanced Micro Devices, Inc. (NASDAQ:AMD) develops and sells semiconductors, processors, and GPUs for data centers, gaming, AI, and embedded applications.
4. Oracle Corporation (NYSE:ORCL)
Number of Hedge Fund Holders: 122
Oracle Corporation (NYSE:ORCL) is one of the 10 AI Stocks Analysts Are Watching. On February 9, Melius analyst Ben Reitzes downgraded the stock from Buy to Hold while maintaining a price target of $160. The firm is cautious on ORCL, flagging its weak cash generation and AI monetization uncertainty.
The firm said that while it admired Larry Ellison’s bold push, it has also cautioned that the road ahead may be difficult. This is because high debt and potential equity raises may weigh on the stock for some time.
Melius particularly noted that the company’s enterprise value to free cash flow ratio is “NA” and suggesting that “value may be absorbed by debt and new stock issuances for a while.”
Reitzes added that Oracle should be valued “more akin to an infrastructure company vs. a software company.”
Oracle Corporation (NYSE:ORCL) is a database management and cloud service provider.
3. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 234
NVIDIA Corporation (NASDAQ:NVDA) is one of the 10 AI Stocks Analysts Are Watching. On February 9, Bank of America reiterated the stock as “Buy” with a $275 price target. The firm said it is standing by the stock. Its price target is based on a forward valuation that reflects Nvidia’s robust position in fast-growing AI compute and networking markets.
This view is supported by the chipmaker’s market leadership, but offset by several risks.
“Our $275 PO is based on 28x CY27E PE ex cash, within NVDA’ s historical 25x-56x forward year PE range, which we believe is justified by NVDA’s leading share in fast growing AI compute/networking markets, offset by lumpiness in global AI projects, cyclical gaming market, and concerns around access to power.”
Analysts on Wall Street have a consensus “Buy” rating on the stock. The average price target of $250 implies a 30.23% upside; however, the Street-high target of $432.78 implies an upside of 125.44%.
NVIDIA Corporation (NASDAQ:NVDA) specializes in AI-driven solutions, offering platforms for data centers, self-driving cars, robotics, and cloud services.
2. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 312
Microsoft Corporation (NASDAQ:MSFT) is one of the 10 AI Stocks Analysts Are Watching. On February 9, Melius analyst Ben Reitzes downgraded the stock from Buy to Hold with a $430 price target.
Investors have been growing increasingly wary about the potential disruption software stocks face from AI. Particularly for MSFT, analyst sees structural AI risks and limited near-term upside at current valuation.
Melius highlighted that Microsoft’s 365 business is facing threats from AI, implying a need to increase its capital expenditure substantially to keep up with Amazon and Google. However, it noted that cash flow may take another hit.
If Microsoft doesn’t increase its spending now, analysts at Melius believe that it may either be an execution issue or a need to manage earnings. Both cases, however, aren’t good.
The tech giant’s decreased free cash flow will make it look much less attractive when compared to its competitors.
“Given the free cash flow shortage, one could argue equity values for these stocks are nothing more than ‘vibes’ on AI prospects that hinge on what stronger free cash flow may look like in the 2030’s,” he wrote. “We may be only in the early stages of this investor aversion to ‘vibes’ that puts the premium back on free cash flow. That’s why we’ve kept buys on AI semis and select hardware names like Apple that all directly benefit from other people’s spending — and generate a ton of cash.”
Reitzes also criticized how slow the company is moving when it comes to its AI-powered assistant, Copilot.
“Anthropic developed Cowork in 10 days and most think it works better with Excel and other plug-ins vs. Copilot,” he said. “Due to things like Cowork from Anthropic, Microsoft’s powerful 365 suite could see challenges and may need to give Copilot away just to stay relevant — hurting growth and margins in its most profitable Productivity segment. This reality will consume internal capacity of Azure, limiting beats there too.”
Melius also highlighted valuation concerns for MSFT, stating that it appears expensive based on their revised free cash flow estimates.
Microsoft Corporation (NASDAQ:MSFT) provides AI-powered cloud, productivity, and business solutions, focusing on efficiency, security, and AI advancements.
1. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 332
Amazon.com, Inc. (NASDAQ:AMZN) is one of the 10 AI Stocks Analysts Are Watching. On February 8, Bank of America reiterated the stock as “Buy,” anticipating that “AWS capex returns will be the top stock driver” for AMZN. The firm’s review of the company’s 10-K had led to this conclusion.
“We think returns on AWS AI capex will be top stock driver for several years, and while the capacity ramp will add to quarterly margin volatility for AWS, we think this capacity will be fully utilized as part of the AI-driven transformation across industries and will help Amazon maintain competitiveness in a very attractive sector.”
Amazon has announced that its capex is set to rise by over 50%, an increase from almost $130 billion in 2025 to a total of $200 billion. Most of the spending, it noted, will be directed toward AWS. This announcement significantly beats analyst expectations, which had been around $150 billion.
“Amazon is not alone in this investment, and we think it makes sense that Amazon is investing more than competitors give AWS’ leading customer and revenue base.”
Amazon.com Inc. (AMZN) is an American technology company offering e-commerce, cloud computing, and other services, including digital streaming and artificial intelligence solutions.
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 have limited downside risk. If you are looking for an AI stock that is more promising than AMZN and that has 100x upside potential, check out our report about this cheapest AI stock.
READ NEXT:10 AI Stocks Analysts Are Watching and 10 Buzzing AI Stocks on Market Radar.
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