According to Bank of America, artificial intelligence continues to underpin valuations across large-cap internet platforms, with 2026 anticipated to be another pivotal year for AI developments.

As AI infrastructure spending continues to rise, the firm anticipates proprietary chip technology, frontier models, user data, and scaled consumer distribution to become increasingly important.

The firm further noted that 2027 Internet mega-cap average price to earnings valuation, at 22-times, is attractive vs the S&P at 20, driven by growing AI asset base and superior revenue growth.

While firms such as BofA remain optimistic about AI’s growth in 2026, many investors have also been warning about a potential risk looming ahead. They believe a surge in inflation driven partly by the tech investment boom may spoil the AI party.

“What keeps us awake at night is that inflation risk has resurfaced,” said Julius Bendikas European head of economics and dynamic asset allocation at Mercer.

Even though Bendikas isn’t proposing a stock market correction, he does believe debt markets may get rattled by an inflation shock.

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. SoundHound AI, Inc. (NASDAQ:SOUN)

Number of Hedge Fund Holders: 22

SoundHound AI, Inc. (NASDAQ:SOUN) is one of the 10 AI Stocks Investors Are Watching Closely. On January 12, H.C. Wainwright analyst Scott Buck reiterated a Buy rating on the stock with a $26.00 price target. Firm analysts view SOUN as a long-term winner in Voice AI with sustained revenue momentum throughout the year.

The firm highlighted SoundHound’s CES 2026 demonstrations in Las Vegas, noting how the company showcased its Vision AI technology, an amalgamation of its real-time camera-based visual perception and their established voice AI.

Their Agentic+ platform was another highlight of the event, offering businesses the ability to employ their own agents within minutes. The firm not only sampled these demonstrations, but was also able to hold discussions with members of the executive team.

Their discussions were a clear reflection of how there is high level of interest from multiple verticals such as automotive and the service sector for SOUN’s products. The firm also highlighted favorable traction across both direct and channel sales efforts.

As such, H.C. Wainwright anticipates SOUN to break even on an adjusted EBITDA basis by the end of the year, but noted that the company remains willing to accept lower margins in the near term as it prioritizes growth.

“Positive revenue traction and renewed focus on operating costs drive management’s expectation to exit 2026 at adj. EBITDA breakeven levels. However, growth remains a priority suggesting the company may sacrifice adj. EBITDA margin near term should revenue opportunities present themselves, either organically or through M&A. The company is afforded this flexibility because of its balance sheet strength, holding $269.0M of cash and no debt as of 3Q25. In addition, we believe there may be attractive opportunities through strategic partnerships that could drive additional customer engagement and revenue in future periods. While growth rarely moves in a straight line, we believe the company continues to position itself as a long-term winner in voice AI and expect the company to continue to demonstrate material revenue growth through 2026. We remain Buy-rated with a $26 price target.”

SoundHound AI, Inc. (NASDAQ:SOUN) is a voice artificial intelligence company offering voice AI solutions to businesses.

9. Penguin Solutions, Inc. (NASDAQ:PENG)

Number of Hedge Fund Holders: 29

Penguin Solutions, Inc. (NASDAQ:PENG) is one of the  10 AI Stocks Investors Are Watching Closely. On January 7, Rosenblatt analyst Kevin Cassidy reiterated a Buy rating on the stock with a $30.00 price target. The rating affirmation PENG’s better-than-expected revenue and earnings report.

The firm noted that Penguin’s Advanced Computing revenue is up 52% year-over-year, excluding contributions from hyperscale (Meta) and discontinued Penguin Edge products. It believes that revenue growth should accelerate as the company expands its enterprise customer base and becomes less dependent on Meta deployments.

Meanwhile, Integrated Memory revenue grew 41% year-over-year, with the firm forecasting this business segment to exceed $600 million in fiscal year 2026.

Penguin’s LED segment has begun to soften, thereby creating a “drag” on full-year gross margin performance. However, Rosenblatt continues to see growth in Advanced Computing and Integrated Memory segments, which is the primary reason to own Penguin Solutions stock.

Penguin Solutions, Inc. (NASDAQ:PENG) is a leading AI and HPC computing company engaged in the design and development of enterprise solutions worldwide.