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.
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 427.7% since May 2014, beating its benchmark by 264 percentage points (see more details here).
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.
8. QUALCOMM Incorporated (NASDAQ:QCOM)
Number of Hedge Fund Holders: 63
QUALCOMM Incorporated (NASDAQ:QCOM) is one of the 10 AI Stocks Investors Are Watching Closely. On January 9, Mizuho analyst Vijay Rakesh downgraded the stock from Outperform to Neutral with a price target of $175.00 (from $200.00).
The firm is cautious on the stock despite its robust handset positioning, believing that handset drag limits upside. Qualcomm has been dominant in the mobile chip market for a long time now, recently pushing into artificial intelligence (AI) hardware.
Mizuho has downgraded the stock amid weaker growth expectations, lowering its FY26 and FY27 revenue and earnings forecast to below-consensus levels and introducing FY28 estimates that also trail expectations.
While the firm notes progress in QCOM’s non-handset business, it believes handset exposure still caps upside.
“Downgrade QCOM to Neutral from Outperform. Lower estimates, PT to $175 from $200. Lower FY26 Rev/EPS from $45.9B/$12.12 to $44.2B/$11.67 (below cons. $45.6B/$12.15). Lower FY27 Rev/EPS from $46.5B/$12.73 to $44.4B/$11.84 (below cons. $46.4B/$12.44). Introduce FY28 Rev/EPS at $45.6B/$12.20 (below cons. $48.8B/$13.02). Our $175 PT is 14.8x FY27 EPS (prior 15.7x), in line with its 14–15x 2–3Y average, which fairly values QCOM below the SOX at ~25x as we see QCOM EPS declining 3% y/y and up 1–3% y/y in FY26–28E. We see QCOM positioned well with non-handset businesses ramping, though with handsets accounting for >70% of QCT revenue, C26E headwinds to the handset industry limit upside.”
QUALCOMM Incorporated (NASDAQ:QCOM) develops wireless technologies, supplies chips for mobile, automotive, and IoT, licenses patents, and invests in emerging tech.
7. Bloom Energy Corporation (NYSE:BE)
Number of Hedge Fund Holders: 64
Bloom Energy Corporation (NYSE:BE) is one of the 10 AI Stocks Investors Are Watching Closely. On January 9, BMO Capital analyst Christopher Dendrinos reiterated a Market Perform rating on the stock with a $136.00 price target.
The rating affirmation follows Bloom Energy’s first multi‑hundred‑megawatt utility order, a reflection of the growing adoption of its fuel cell technology at grid-scale for AI-driven demand.
Back in 2024, American Electric Power had signed an agreement with Bloom Energy to acquire 100 megawatts of solid oxide fuel cells, along with an option to purchase an additional 900 MWs. Its utility unit has now exercised that option, as revealed in a regulatory filing.
The firm noted how in addition to this agreement, AEP has also signed a 20-year PPA with an unnamed “high investment grade” counterparty for the output of fuel cell generated power at an average selling price of $2,950 per kilowatt, in line with BMO’s model. This will be constructed at a data center development in Wyoming that has been linked with Bloom Energy.
Even though this deal marks Bloom Energy’s first multi-hundred megawatt deployment, BMO believes that the disclosed revenue opportunity is below its base-case assumptions without an additional service contract.
“In an 8K today, AEP disclosed it will utilize majority of 900MW balance of its 1GW fuel cell supply agreement with BE for a WY-based data center project for $2.65B as part of a separately executed 20-year PPA with an investment-grade counterparty, which implies a product ASP ~$2,950/kW largely consistent with our ~$3,000/kW modeled assumption in 2026–2027E. However, also suggests total revenue opportunity as currently disclosed is ~65–70% below what we typically assume in BE fuel cell development if a separate service contract is not added later.”
Bloom Energy Corporation (NYSE:BE) develops solid-oxide fuel cell systems for on-site power generation, helping meet the growing energy demands of AI data centers.
6. Adobe Inc. (NASDAQ:ADBE)
Number of Hedge Fund Holders: 88
Adobe Inc. (NASDAQ:ADBE) is one of the 10 AI Stocks Investors Are Watching Closely. On January 9, BMO Capital downgraded the stock to Market Perform from Outperform and also reduced its price target to $375 from $400. The rating downgrade is driven by limited catalysts for Adobe and firm belief that shares will remain range-bound amid increasing competition.
“We believe that Adobe’s valuation is attractive though faces greater competitive threats in the creative market and thus remains at the bottom of our pecking order in the front office market.”
-BMO analysts, led by Keith Bachman, in a Friday investor report.
BMO Capital has flagged competition for Adobe in the creative market, particularly among small businesses, students, and freelancers. More than 50% of students surveyed in the seventh instalment of its proprietary Creative Cloud survey are using rival Canva over Adobe, while an estimated 50% of freelancers are using Canva compared to about 10% using Adobe.
“While Adobe’s current valuation is undemanding, we do not envision positive catalysts and think the shares will remain range-bound. Net, we are downgrading Adobe to Market Perform and lowering our price target to $375. No changes to our estimates. In the front office application sector, we prefer Salesforce (CRM; $266.12; OP) and HubSpot (HUBS; $398.22; OP) over Adobe.”
Adobe Inc. (NASDAQ:ADBE) is a software company that provides digital marketing and media solutions.
5. Constellation Energy Corporation (NASDAQ:CEG)
Number of Hedge Fund Holders: 91
Constellation Energy Corporation (NASDAQ:CEG) is one of the 10 AI Stocks Investors Are Watching Closely. On January 9, TD Cowen analyst Eli Mingos initiated coverage on the stock with a $440.00 price target. The firm believes that Constellation’s Calpine integration offers a “compelling opportunity for contracting.”
TD Cowen analyst Eli Mingos believes that deals will continue to be signed through 2026 above forward curve prices. It also noted gas PPA (Power Purchase Agreement) deals are “intriguing upside potential” on top of CEG’s existing nuclear fleet.
Overall, the firm holds a positive outlook for CEG but also cautioned that “regulatory risk remains elevated” for the stock.
Constellation Energy Corporation (NASDAQ:CEG) is an energy provider specializing in clean, carbon-free energy solutions.
4. Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holders: 156
Broadcom Inc. (NASDAQ:AVGO) is one of the 10 AI Stocks Investors Are Watching Closely. On January 9, Bernstein SocGen Group analyst Stacy Rasgon reiterated an Outperform rating on the stock with a $475.00 price target. Firm analysts have dismissed competitive threat concerns for Broadcom, citing leadership in the AI ASIC space with unmatched innovation and execution.
Bernstein held a meeting with company leadership and noted how concerns about rising AI competition are overblown. Investors have been particularly concerned about rising competition and customer-owned tooling (COT)’s impact on Broadcom’s AI-dominant position.
“But we spent almost an hour with Charlie yesterday (in a session that was as much teach-in as anything else) as he walked us (in sharp detail) through Broadcom’s technological, scale, and supply chain advantages around their XPU roadmaps and business. We came away with more conviction than ever that these worries are hugely overblown, and that the company is unlikely to be dethroned in the AI ASIC space anytime soon.”
The firm noted how Broadcom acknowledges Nvidia’s pace of innovation in the AI space, which actually benefits the company since they are the only company that can enable XPU customers to keep up with NVIDIA’s roadmap trajectory.
Highlighting its numerous technical innovations, Broadcom’s innovation appears matchless amid competitors and customers.
“With technical innovations around 3D chip stacking and 400G serdes, to supply chain scale, to investment in their own substrate manufacturing, to new techniques that might even allow interposer-less manufacturing, the company continues to innovate across dimensions that no competitors or customers can match.”
Broadcom is a technology company uniquely positioned in the AI revolution owing to its custom chip offerings and networking assets.
3. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Number of Hedge Fund Holders: 194
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is one of the 10 AI Stocks Investors Are Watching Closely. On January 7, JPMorgan analyst Gokul Hariharan raised the price target on the stock to NT$2,100.00 (from NT$1,700.00) while maintaining an Overweight rating.
The firm anticipates 2026 to be another strong year for TSM, forecasting 30% USD revenue growth. Key drivers of this revenue growth include rising N3 demand, accelerating N2 ramp, stronger advanced packaging, and an uptick in blended ASP.
The firm also anticipates TSMC’s gross margins to improve, driven by better mix, higher N3 yields, accelerating expedited wafer orders on N4/N3 nodes, and encouraging TWD exchange rates.
JP Morgan also anticipates 2027 to deliver 20+% revenue growth for TSMC, supported by leading-edge capacity and sustained AI-driven capital spending. It also sees upside risks from stronger-than-expected gross margins in first half of 2026, additional upside in N2 capacity and demand into 2027.
The firm also pointed to a possible rebound in Nvidia H200 shipments, and potential upside in mature technology in case industrial and automotive demand increases.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) manufactures and sells advanced chips used in artificial intelligence applications.
2. Alphabet Inc. (NASDAQ:GOOGL)
Number of Hedge Fund Holders: 219
Alphabet Inc. (NASDAQ:GOOGL) is one of the 10 AI Stocks Investors Are Watching Closely. On January 9, Scotiabank analyst Nat Schindler raised the price target on the stock to $375.00 (from $336.00) while maintaining a Sector Outperform rating. With AI tailwinds, the firm remains confident in continued outperformance for GOOGL.
“OUR TAKE: Positive. Google is up ~64% over the TTM, and every decision they make seems to be the correct one.”
Schindler noted robust Q3 results for Alphabet, demonstrating acceleration across Search, YouTube, and Cloud segments. He noted how the firm is particularly confident on potential upside within Cloud, particularly operating margins.
While Google has had a slower start in artificial intelligence development as compared to other competitors, the firm views it as a structural winner within the hyperscalers.
“Ultimately, while Google got a (relatively) slower start than competitors within the ‘AI Wars’, we see Google as the structural winner within the hyperscalers. There may be some noise within D&A but Google stock should outperform, given how the name stands to benefit from AI monetization.”
Alphabet Inc. (NASDAQ:GOOGL) is an American multinational technology conglomerate holding company wholly owning the internet giant Google, amongst other businesses.
1. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 332
Amazon.com, Inc. (NASDAQ:AMZN) is one of the 10 AI Stocks Investors Are Watching Closely. On January 12, BofA Securities analyst Justin Post reiterated a Buy rating on the stock with a $303.00 price target. The firm sees potential improvements in AI sentiment for the stock in year 2026 driven by AI capacity growth, leadership changes, and rising Rufus usage.
BofA noted how Amazon stock was up only 5% in 2025, underperforming the S&P 500, which was up 16% and Nasdaq, which was up 20%. The company maintained retail execution, experiencing modest share gains and expanding margins.
However, BofA highlighted how sentiment on AWS positioning worsened nevertheless and resulted in a lower forward EV/EBITDA multiple by an estimated 15% year-over-year.
It anticipates AWS growth to accelerate this year, driven by factors such as leadership changes, new capacity, and strong Rufus usage growth. These changes will allow Amazon to improve its AI positioning as well as set up for an Agentic retail future.
“We believe AI sentiment could improve in 2026, with AWS growth likely to accelerate due to new capacity, recent AWS leadership changes that could drive change in AWS’s AI positioning, and strong Rufus usage growth setting up an agentic retail future. For long-term investors, if Amazon’s proprietary tech (LLM & Trainium) improves versus competitors, AWS’s positioning as a lower-cost provider could become a meaningful advantage as enterprises focus on AI inference cost efficiency.”
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 Best AI Stocks to Buy Under $50 and 11 AI Stocks on the Market’s Radar
Disclosure: None. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily e-newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.
