According to analysts at Capital Economics, the S&P 500 isn’t likely to lose momentum any time soon despite years of strong gains and all-time highs. Enthusiasm around artificial intelligence, together with factors such as Fed policy, and economic growth, will likely lead it further.
“It can be tempting to think the risks will be skewed to the downside,” wrote the firm, noting the recent all-time high. “But 12-month inflation-adjusted returns since 1964have been slightly stronger following new all-time highs compared to the average day.”
While the data is “often sensitive to time horizons,” the analysts said that they “don’t find any compelling evidence that real returns are significantly different to average after hitting all-time highs.”
“The upshot is that while headlines about the level and momentum of the stock market are understandable, we aren’t convinced either has a clear implication for future returns.”
Instead, they believe drivers such as Fed rate cuts, GDP growth, valuations, and new technologies will impact upon performance.
“On past form, the macro backdrop we envisage over the next year…looks consistent with decent returns,” wrote Capital Economics. “But given starting valuations and the fact 125bps worth of cuts are priced, we think the cyclical backdrop is consistent with the S&P 500 drifting sideways.”
However, they believe “this relatively neutral cyclical backdrop” will coincide with the enthusiasm for AI.
“We continue to think that the rally in AI-related stocks has room to run, lifting the S&P 500 both in absolute terms and relative to markets elsewhere,” concluded Capital Economics.
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.
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).
10. SoundHound AI, Inc. (NASDAQ:SOUN)
Number of Hedge Fund Holders: 18
SoundHound AI, Inc. (NASDAQ:SOUN) is one of the 10 AI Stocks In The Spotlight For Investors. On September 9, the company announced the acquisition of Interactions, an artificial intelligence leader in customer service and workflow orchestration. The deal will allow SoundHound to strengthen its growing leadership in Agentic AI and improve its market penetration in customer service.
The company announced that major new powerhouse brands will be introduced to SoundHound’s customer portfolio through the strategic deal. These include global consumer icons, large technology device brands, insurers, automakers, and other famous Fortune 100 companies across industries.
Interactions offers businesses with AI-powered voice assistants that improve customer engagement and productivity. By integrating with SoundHound’s existing solutions, its solutions will help grow the company’s enterprise business.
The merged entity will hold an estimated 400 patents and over $270 million in cash, with no outstanding debt. It is expected that the transaction will offer immediate accretion to operating profitability.
“We’re rapidly moving towards a future of AI agents, where voice and conversational AI are absolutely integral to high quality customer service. This has always been SoundHound’s vision, and we’re committed to working with the very best to get there. Interactions is unquestionably a pioneer in the field, with a client roster with incredible breadth and depth. Bringing them on board makes SoundHound even stronger as we establish the company as a true leader for the new AI era.”
-Keyvan Mohajer, CEO & Co-Founder of SoundHound AI.
SoundHound AI, Inc. (NASDAQ:SOUN) is a voice artificial intelligence company offering voice AI solutions to businesses.
9. Baidu, Inc. (NASDAQ:BIDU)
Number of Hedge Fund Holders: 33
Baidu, Inc. (NASDAQ:BIDU) is one of the 10 AI Stocks In The Spotlight For Investors. On September 10, the company released an updated version of its proprietary reasoning showcasing capabilities similar to advanced AI systems from DeepSeek, OpenAI and Google.
According to Baidu chief technology officer Wang Haifeng, third-party AI benchmarks reveal that the firm’s X1.1 reasoning model had surpassed the performance of DeepSeek-R1, while it matched OpenAI’s GPT-5 and Google’s Gemini 2.5 Pro.
Wang further said that the model has shown a 34.8 per cent improvement in knowledge accuracy, as well as enhanced agentic capabilities and instruction compliance based on a “mixed reinforcement learning” process.
According to South China Morning Post, the closed-source X1.1 model is now available to corporate clients through Baidu’s cloud computing platform. Meanwhile, individual users can gain access through Baidu’s Ernie Bot website and app.
“From reasoning improvements to slow, deep thinking and multimodal abilities, [our] model’s performance and efficiency have increased.”
-Wang.
Baidu, Inc. (NASDAQ:BIDU) is a Chinese internet giant and AI pioneer, known for its noteworthy investments in artificial intelligence technology and its position as the dominant search engine within the country.
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