AI-darling Nvidia reported its earnings yesterday, and it’s safe to say that the numbers have been objectively great. Nevertheless, investor sentiment remains rather mixed, implying a “buy the rumor, sell the news” case.
Most of these concerns remain about sustaining the AI-driven market rally. The emergence of less power-hungry rivals such as DeepSeek also suggests uncertainty regarding the future demand for advanced chips.
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Alongside, President Donald Trump noted that the 25% tariffs on Canada and Mexico are set to go into effect on March 4, adding that an additional 10% tax would be imposed on Chinese imports.
Investment firm UBS, without commenting on individual names, said that the earnings print reinforces their view that the broader AI market is big enough for every segment to grow, and that they remain positive on the AI compute industry as well as the broader AI trend. This is despite recent concerns around low-cost models like DeepSeek and recent noise around data centers, they stated.
“We maintain our positive view on AI semiconductors and leading cloud platforms, and recommend investors take advantage of elevated near-term volatility by buying the dip in quality AI stocks or through structured strategies.”
-UBS
Investors were skeptical ahead of the print considering how rival DeepSeek’s less power-hungry nature could imply an overspend by US tech giants on AI infrastructure without sufficient return in that investment. Nonetheless, AI players are continuing to announce plans to funnel tens of billions of dollars into infrastructure.
According to Wedbush analyst Dan Ives, $325 billion in capital expenditures is expected this year from just the “Magnificent Seven” tech companies. Moreover, a majority of this spend is aimed at supporting AI growth.
“We have seen NOT ONE AI enterprise deployment slow down or change due to the DeepSeek situation. No customer wants to ‘lose their place in line’ as it is described to us for Nvidias next gen chips.”
-Dan Ives
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 Q4 2024.
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).
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10. Sterling Infrastructure, Inc. (NASDAQ:STRL)
Number of Hedge Fund Holders: 28
Sterling Infrastructure, Inc. (NASDAQ:STRL) provides e-infrastructure, transportation, and building solutions primarily in the United States. On February 26, DA Davidson analyst Brent Thielman upgraded the stock to “Buy” from Neutral with an unchanged price target of $185. The firm stated that the recent pullback in shares is a good buying opportunity.
Thielman highlighted a potential continuance in southern homebuilding activity as well as strength in Sterling’s e-infrastructure solutions segment, which develops systems for data centers and e-commerce warehouses and distribution centers. He also noted that e-infrastructure earnings potential and profit margins may rise in comparison to last year as demand for data centers, industrial facilities and e-commerce boosts.
“E-Infrastructure growth is expected to be > 10% with EBIT growth of > 25% — it appears STRL largely has what it needs to achieve this target. Overall, our estimates increase for 2025 and 2026 EPS/ EBITDA. We expect strong cash flow albeit we are approaching conversion assumptions below recent years — we still think we could see FCF/sh of ~$12/share-$13/share in each of the next couple of years (2024 was ~$13/share).”
9. AppLovin Corporation (NASDAQ:APP)
Number of Hedge Fund Holders: 95
AppLovin Corporation (NASDAQ:APP) provides a leading marketing platform powered by AI technology. On February 26, two short sellers, Fuzzy Panda and Culper Research, published short reports against AppLovin Corporation, stating that it is misrepresenting the benefits of its AI advertising platform. In response, AppLovin (APP) CEO Adam Foroughi expressed his disappointment in a company blog, writing how these so-called claims are “false and misleading”, and aim to undermine AppLovin’s success and drive down its stock price for their financial gain.
The company reaffirmed its compliance with app store policies, emphasizing that its ads drive real engagement and revenue. It also said that it does not track children’s data, and that there are no financial improprieties. It also highlighted the success of its e-commerce pilot program, having reached a run rate of roughly $1 billion a year of gross advertiser spend in the e-commerce category alone in December.
“It’s also noteworthy that the short reports emerged after our earnings report, where we would be in a period of being unable to respond with financial performance. We remain focused on executing our strategy, generating strong cash flow, and conducting share buybacks.”
Hedge Fund Resource Center