According to the latest Sevens Report, divergence between AI chipmakers and the broader equity market may be pointing toward early risks of an “AI bubble.”
Therefore, investors are being advised to monitor the semiconductor sector for signs of a market peak.
“Every bubble in modern market history has been based on a narrative. That potentially bubble-inflating theme is unquestionably AI technology.”
While AI-driven market sentiment is largely driven by chipmaker Nvidia, Sevens argues how solely relying on one stock can be misleading.
“There are a lot of various factors that can impact a single stock, including a ‘cult following’… a dynamic that has appeared to have emerged with NVDA as well.”
Instead of reliance on one stock, the firm believes it is better to watch the Philadelphia Semiconductor Index (SOX), which includes multiple AI-related chipmakers such as AMD, Qualcomm, and more.
“It would be much more prudent to keep tabs on the broader-based semiconductor index, SOX.”
They explain that the SOX hasn’t had a new high since July 2024. This is despite S&P 500 being up roughly 13% over the same period.
“If AI remains the primary source of bullish optimism… this market is in trouble and at risk of rolling over sooner than later.”
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 Q1 2025.
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).
An analyst studying charts and graphs in her office, pouring over details of the company’s portfolio performance benchmarking.
10. Pony AI Inc. (NASDAQ:PONY)
Number of Hedge Fund Holders: 13
Pony AI Inc. (NASDAQ:PONY) is one of the 10 AI Stocks Analysts Are Watching Closely. On August 4, UBS analyst Paul Gong initiates coverage on the stock with a Buy rating and a $20 price target.
According to UBS analysts, Pony is best positioned for China’s robotaxi commercialization considering it is the only robotaxi company to initiate commercial fee-charging and driverless operations in all four tier-one Chinese cities.
The firm came away impressed from test drives, particularly looking at the company’s ability to handle complicated road situations without human help.
“We initiate coverage with a Buy rating and a PT of US$20, implying 53% upside potential. Pony is the first and only robotaxi company to start commercial fee-charging and driverless robotaxi operations in all four tier 1 cities in China. During our test drives in Guangzhou and Shenzhen, Pony impressed us with its capability in handling complicated road situations without human intervention. We forecast a 2025-30 sales CAGR of 96% on Pony’s robotaxi technology and operating scaling efforts.”
Pony AI Inc. (NASDAQ:PONY) specializes in autonomous mobility, offering AI-driven robotruck and robotaxi services, intelligent driving software, and vehicle integration solutions.
9. Arm Holdings plc (NASDAQ:ARM)
Number of Hedge Fund Holders: 42
Arm Holdings plc (NASDAQ:ARM) is one of the 10 AI Stocks Analysts Are Watching Closely. On July 31, Raymond James analyst Srini Pajjuri raised the price target on the stock to $165.00 (from $140.00) while maintaining an “Outperform” rating.
The rating affirmation follows Arm’s fiscal first-quarter results, which were in-line with expectations. However, fiscal second-quarter outlook was weaker than anticipated.
Royalty revenue grew 25% year-over-year backed by strong data center performance. This was, despite weakness in smartphone and IoT units. The firm also talked about royalty rate expansion.
“Secular royalty rate expansion remains on track driven by continued ARMv9 adoption. We are also encouraged by early CSS progress (including at Samsung, MSFT, Xiaomi), which essentially doubles the royalty rate. Licensing declined slightly y/y but was better than our model while annualized contract value (ACV) grew 28%.”
Looking ahead, the firm is optimistic on the back of strong v9/CSS adoption and growing Data Center opportunity.
“Management also alluded to expanding into chiplets and full end solutions, which could significantly expand SAM, although margin impact remains unclear. We are lowering EPS partly due to higher OpEx but are raising price target from $140 to $165 on recent peer multiple expansion. Reiterate Outperform.”
Arm Holdings plc (NASDAQ:ARM) is a semiconductor and software design company that designs and manufactures semiconductor technology and other related products.
