The R1 model is going to get a successor soon. For those who don’t know, Chinese artificial intelligence startup DeepSeek wreaked havoc in the tech world last month with its cut-price AI reasoning model, the R1, claiming that it outperforms many Western competitors.

Only a month later, hundreds of Chinese companies have already integrated the AI model into their products and services. At least 13 Chinese city governments and 10 state-owned energy companies also report deploying DeepSeek into their systems. Tech giants Lenovo, Baidu, and Tencent have integrated it too.

Goldman Sachs anticipates that the country’s economy will reflect the positive impact of AI adoption from next year.

“The recent emergence of DeepSeek … suggests faster AI development and adoption in China than we previously anticipated.”

READ ALSO: 10 Buzzing AI Stocks Dominating Headlines and 10 AI Stocks Taking Wall Street by Storm

The impact of the emergence was so intense, that it triggered a $1 trillion-plus sell-off in global equities markets last month. While the initial release of the R2 model was scheduled for release sometime in May, the company is now planning to launch it as early as possible.

“DeepSeek demonstrates that China is at or near the cutting edge of AI development, which boosts the prestige of China’s economy and tech ecosystem, making them more attractive for global investors”.

-Gabriel Wildau, managing director at Teneo.

DeepSeek is expecting highly of its new model too. The company said that it hopes that its new model will be able to produce better coding and be able to reason in languages beyond English. While competitors are still dealing with the implications of the R1 model, only time will tell how the market is going to react to its successor.

“The launch of DeepSeek’s R2 model could be a pivotal moment in the AI industry. DeepSeek’s success at creating cost-effective AI models “would likely spur companies worldwide to accelerate their own efforts … breaking the stranglehold of the few dominant players in the field”.

-Vijayasimha Alilughatta, chief operating officer of Indian tech services provider Zensar.

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.

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10. Sunlands Technology Group (NYSE:STG)

Sunlands Technology Group (NYSE:STG) provides online education services through online and mobile platforms. On February 24, the company announced that it had fully integrated DeepSeek, an advanced AI model, into its operations. Sunlands will be integrating DeepSeek’s powerful reasoning capabilities and efficient learning mechanisms to foster innovation, enable core business functions, and optimize processes in key areas such as teaching and research. The company has been progressing in AI and launched several products, including digital human instructors and AI-powered teaching assistants. The latest DeepSeek integration will allow it to enable and elevate its business with AI technology.

“The widespread application of DeepSeek will fundamentally transform the education model. On the learning front, students’ learning patterns and cognitive processes will undergo profound changes, prompting us to embrace new technologies with renewed determination. The introduction of DeepSeek’s AI model will not only provide students with more personalized, accurate, and efficient educational services but also optimize internal processes, driving sustainable growth for the business.”

-Sunlands Management

9. Nixxy, Inc. (NASDAQ:NIXX)

Nixxy, Inc. (NASDAQ:NIXX) operates an on-demand recruiting platform and provides online recruiting solutions. On Monday, February 24, the company announced that its subsidiary, Auralink AI, Inc. has entered into a twelve-month contract with Mexedia SpA, an Italian-based technology and communications provider. Auralink Al will be offering Mexedia SMS services over its newly integrated cloud-based platform, allowing carriers and operators to aggregate wholesale SMS messaging. Auralink AI has designed its system to handle up to $10 million in revenues per month for twelve calendar months, after which the agreement will be renewed unless canceled by either party with prior notice. Moreover, Auralink will be enabling its enhanced AI platform for quality billing and dynamic and price-based routing, working with multiple carriers.

“As we originally announced in 2024, executing a restructuring of the company, the overarching goal of Nixxy, is to transform traditional businesses with technology in a disruptive manner, thereby profiting from efficiencies. We will continue this expansion every quarter with the goal of additional vertical integration. This is planned to produce higher margins from existing revenues. We will enable growth by providing customers a greater suite of services at highly competitive pricing relative to the marketplace. Utilizing AI to rapidly scale revenues and profitability over the next twelve months gets us closer to our stated goal of building a billion-dollar enterprise.”

– Evan Sohn, Chairman of the Board of Directors of Nixxy.

8. Fortinet, Inc. (NASDAQ:FTNT)

Number of Hedge Fund Holders: 61

Fortinet, Inc. (NASDAQ:FTNT) is a cybersecurity company that provides enterprise-level next-generation firewalls and network security solutions, leveraging artificial intelligence across its cybersecurity products. On February 24, Robert W. Baird analyst Shrenik Kothari maintained a “Hold” rating on the stock with an associated price target of $115.00.

Kothari discussed the company’s revenue growth, especially in service and security subscriptions, which have demonstrated a considerable year-over-year increase.  However, Fortinet is expanding its data center and cloud hosting capacities which may impact future profitability, he noted.

In addition, the company’s customer base is solid, but revenue contribution from recent acquisitions remains minimal. Fortinet is also seen to rely on a limited number of countries, negatively impacting its growth stability. All of these factors contribute toward a cautious outlook for the stock.

7. Twilio Inc. (NYSE:TWLO)

Number of Hedge Fund Holders: 74

Twilio Inc. (NYSE:TWLO) is a leading cloud communications platform-as-a-service (CPaaS) company. On February 25, Tigress Financial analyst Ivan Feinseth raised the firm’s price target on the stock to $170 from $135 and kept a “Buy” rating on the shares.

The firm noted how Twilio continues to experience artificial intelligence-driven customer growth and develop into an AI-driven platform-based software service provider. It also said that with the increasing adoption of AI-driven and cloud-based communication solutions, Twilio is enjoying revenue and cash flow growth as well as an acceleration in business performance trends.

6. Palo Alto Networks, Inc. (NASDAQ:PANW)

Number of Hedge Fund Holders: 83

Palo Alto Networks, Inc. (NASDAQ:PANW) is a leader in AI-powered cybersecurity. On February 25, Citi analyst Fatima Boolani maintained a “Buy” rating on the stock and a $220.00 price target. Boolani noted how Palo Alto is managing the challenging macroeconomic environment well while also maintaining operational and free cash flow profitability. The company’s ongoing product cycle and commitment to platformization enhance its prospects.

Palo Alto Networks, Inc. (NASDAQ:PANW) is also making considerable investments in generative AI, integrating the technology in offerings such as XSIAM, Extended security intelligence, and automation management, which uses AI to automate security tasks. Rebranding its Prisma Cloud and focusing on network and security operations modernization are likely going to support mid-teens revenue growth. All of these factors underscore the firm’s confidence in Palo Alto’s growth potential.

5. Tesla, Inc. (NASDAQ:TSLA)

Number of Hedge Fund Holders: 126

Tesla, Inc. (NASDAQ:TSLA) is an automotive and clean energy company that leverages advanced artificial intelligence in its autonomous driving technology and robotics initiatives. One of the biggest analyst calls on Tuesday, February 25, was for Tesla Inc. Morgan Stanley analyst Adam Jones reiterated the stock as “Overweight” with a price target of $430.00. The rating comes from Tesla’s strategic positioning in the tech landscape, particularly in the humanoid and robotics sectors.

Major global tech firms are taking an interest, which seamlessly aligns with the rapid advancements and increasing investor attention. The firm noted how integrating AI and robotics in Tesla’s operations will drive growth and innovation, helping to capture new market opportunities. Furthermore, leveraging existing technological expertise and infrastructure further offers it a solid ground, collectively justifying the rating.

“We identify three main catalyst types that could support a stock price rally: 1) strong government support 2) major corporate/humanoid model updates; and 3) advancement in major technologies.”

-Morgan Stanley

4. Salesforce, Inc. (NYSE:CRM)

Number of Hedge Fund Holders: 162

Salesforce Inc (NYSE:CRM) is a cloud-based CRM company that has gained popularity after the launch of its AI-powered platform called Agentforce. On February 25, Citi analyst Tyler Radke lowered the firm’s price target on the stock to $350 from $390 and kept a “Neutral” rating on the shares. The rating, issued ahead of the earnings print on February 26, discussed how partner checks reflect on mixed demand trends for Salesforce.

Even though there are higher 2025 growth targets and strong activity for its AI-powered Agentforce platform, the company is also engaging in heavy discounts to drive adoption. The firm anticipates revenue and bookings growth to “remain constrained” in the high-single-digits but believes that consensus estimates for Q4 and Q1 are achievable.

3. NVIDIA Corporation (NASDAQ:NVDA)

Number of Hedge Fund Holders: 223

NVIDIA Corporation (NASDAQ:NVDA) specializes in AI-driven solutions, offering platforms for data centers, self-driving cars, robotics, and cloud services. On February 25, Evercore ISI analyst Mark Lipacis maintained a “Buy” rating on the stock with an associated price target of $190.00. Even though the stock has underperformed compared to the broader market, the stock is still being considered as undervalued. It is being traded at a price-to-earnings ratio that is lower than its historical average, presenting an attractive entry point for investors ahead of the company’s earnings print.

Hyperscaler continue to choose Nvidia as their preferred platform owing to its robust ecosystem, with demand for GPUs outstripping supply. Moreover, since the demand for Nvidia’s current products is robust, the delay in the Blackwell product ramp is not likely to tarnish Nvidia’s market position. In addition, artificial intelligence advancements are expected to drive the adoption of the company’s technology, advocating for its long-term growth prospects.

2. Alphabet Inc. (NASDAQ:GOOGL)

Number of Hedge Fund Holders: 234

Alphabet Inc. (NASDAQ:GOOG) is an American multinational technology conglomerate holding company wholly owning the internet giant Google, amongst other businesses. On February 24, Chegg Inc., an American education technology company, filed suit in federal district court against Google.

The company claims that Google’s artificial intelligence summaries of search results have negatively impacted its traffic and revenue. At the same time, Chegg is also weighing strategic options for its business, engaging with firms such as Goldman Sachs, and exploring options such as acquisition or going private.

“These two actions are connected, as we would not need to review strategic alternatives if Google hadn’t launched AI Overviews. Traffic is being blocked from ever coming to Chegg because of Google’s AIO and their use of Chegg’s content to keep visitors on their own platform”.

Chief Executive Officer Nathan Schultz said on Monday.

“Chegg has a superior product for education as evident by our brand awareness, engagement and retention. Unfortunately, traffic is being blocked from ever coming to Chegg because of Google’s AIO and their use of Chegg’s content to keep visitors on their own platform. We retained Goldman Sachs as the financial adviser in connection with strategic review and Susman Godfrey with respect to our complaint against Google.”

1. Microsoft Corporation (NASDAQ:MSFT)

Number of Hedge Fund Holders: 317

Microsoft Corporation (NASDAQ:MSFT) provides AI-powered cloud, productivity, and business solutions, focusing on efficiency, security, and AI advancements. On February 24, Mark Moerdler from Bernstein maintained a Buy rating on the stock with a price target of $511.00. The rating has been updated after news spread over the weekend that Microsoft has canceled some leases for US data center capacity.

TD Cowen analysts led by Michael Elias broke the news, citing channel checks, to reveal that the company has voided leases in the US totaling “a couple of hundred megawatts” of capacity. Following the news, Moelder from Bernstein said that this could indicate lower demand, particularly after lackluster quarterly results from major cloud companies

“Microsoft needed to meet demand and had a great deal of difficulty finding capacity. Management may, therefore, have rented, even at a meaningful premium, data centers and GPU capacity and negotiated more deals for additional future capacity than they needed”.

-Moelder.

While we acknowledge the potential of MSFT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MSFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 20 Best AI Stock To Buy Now and Complete List of All AI Companies Under $2 Billion Market Cap.

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