While AI bubbles seem to be getting all the attention, Hugging Face CEO Clem Delangue believes that Large Language Models (LLMs) are the real bubbles that could burst.
Wall Street initially rose after AI chipmaker Nvidia delivered record revenue, beating estimates and increasing current-quarter guidance. However, the rally was short-lived as fears of a growing AI bubble resurfaced last week.
Thankfully, stock futures climbed Monday morning as the Thanksgiving holiday week historically brings a more constructive tone.
Delangue believes that LLM, which is a subset of AI, may be the actual thing that may burst instead of AI.
“I think the LLM bubble might be bursting next year,” Delangue told Axios’ Dan Primack in New York City.
Delangue’s concerns stem from the widening mismatch between LLM investments and returns. While billions are being poured into these models, industry commentary warns that many companies have been unable to turn this into meaningful profit and that revenue figures still remain a small fraction of their large investment sums.
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 Q2 2025.
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10. Arm Holdings plc (NASDAQ:ARM)
Number of Hedge Fund Holders: 41
Arm Holdings plc (NASDAQ:ARM) is one of the 10 AI Stocks in Focus on Wall Street. On November 20, Raymond James reinstated coverage on the semiconductor sector, citing significantly more upside for a number of semiconductor stocks including ARM.
“The AI secular theme has taken the wheel, and the strategy of trading the cycle in semis has moved to the back seat. Each of these companies is impressive in its own way.”
Particularly for ARM, the firm noted long-term potential in artificial intelligence but views strategic uncertainty and valuation headwinds ahead. It has a Market Perform rating on the stock with no price target.
“The company is transitioning as it gains ground in data centers, with opportunities catalyzed by AI. Arm licenses its semiconductor intellectual property to a broad base of fabless semi customers and also realizes ongoing revenue through the collection of royalties on the devices sold.”
The firm discussed how ARM is considering becoming a fabless semi supplier, enabling it to capture more of the value chain for ARM processors. While this could bring in bigger profits, the firm believes it also comes with risks and may lead to a reduced stock multiple.
Since SoftBank holds a 90% ownership, any shift that ARM decides upon will need to align with its strategy and philosophy.
The firm also noted how the company’s exposure to data center is growing, reaching an estimated 20% of sales including customers such as Amazon, Google, and Microsoft. Meanwhile, there is declining exposure to Arm China, Apple, and Samsung.
Moroever, Arm’s revenue streams is evolving and each segment now contributing to an estimated 50-50 split. However, management is now focusing on higher royalties from Neoverse and CSS.
“Royalties for CSS sales can be almost 2× higher than commoditized legacy chips, and adoption is accelerating as hyperscalers continue to invest in expanding AI capacity and building new clusters.”
Arm Holdings plc (NASDAQ:ARM) is a semiconductor and software design company that designs and manufactures semiconductor technology and other related products.
9. Astera Labs, Inc. (NASDAQ:ALAB)
Number of Hedge Fund Holders: 56
Astera Labs, Inc. (NASDAQ:ALAB) is one of the 10 AI Stocks in Focus on Wall Street. On November 20, Raymond James assumed coverage on the stock with a Market Perform rating and no price target. The firm sees opportunity on ALAB driven by GenAI demand and PCIe leadership. However, shares seem fairly valued and long-term competitive pressures remain.
The firm has acknowledged that Astera Labs is a leading supplier of high-speed connectivity solutions “benefitting from the GenAI megatrend.” Even though substantial opportunities are ahead, it considers risk-reward as balanced.
“Compute intensity and collective operations (required to sync and update LLMs) fuels the traffic among chips, boards, and racks, which necessitates high-speed interconnects in which Astera specializes.”
The firm highlighted how Astera has been the first to market PCIe 5 and 6, with solid share at Amazon and Google. However, competitors like Broadcom, Marvell, and Credo are deemed to be “fast followers.”
Astera’s new Scorpio PCIe fabric switches also boost its market opportunity, and it is also progressing in the Active Electrical Cable (AEC) markets where Credo remains the leader.
The firm has also acknowledged diminished content in NVIDIA’s Blackwell NVL systems, largely offset by custom ASIC growth. However, potential disruptions also exist which are having an impact on the bull thesis.
“Astera’s diminished content in NVIDIA’s Blackwell NVL systems is largely offset by custom ASIC growth with significant content expansion opportunities due to open standards-based, back-end networks, but Ethernet for Scale-Up Networking (ESUN) and co-packaged optics are two potential major disruptive factors to the bull thesis.”
Astera Labs, Inc. (NASDAQ:ALAB) is engaged in the design, manufacture, and selling of semiconductor-based connectivity solutions for cloud and AI infrastructure.
