Markets are getting jittery after JPMorgan CEO Jamie Dimon pointed to potential cracks in the credit markets following a few regional bank earnings. However, Wall Street bulls continue to believe that AI will fuel the current market rally until at least the end of this year amid rising demand. Tom Lee from Fundstrat said in a recent interview with CNBC that despite credit market concerns and rising volatility, the AI trade remains strong and the S&P 500 could hit at least 7,000 by the end of the year. Here is what Lee said:
“Markets still have a lot of tailwinds into year end. And part of it is AI is like I think demand is accelerating there and we know that investors are sitting on a lot of cash and institutional investors are really having a terrible year. Only 22% are beating the benchmark. So I think there’s a bit of a chase and then sentiment has flipped negative which is always a contrarian buy signal. So you know, I think despite this mounting wall of worries, including the shutdown, I think it sets us up for a pretty good rally into the end of the year.”
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10. Sixth Street Specialty Lending Inc (NYSE:TSLX)
Number of Hedge Fund Investors: 10
Jenny Van Leeuwen Harrington, the Chief Executive Officer of Gilman Hill Asset Management, said in a recent program on CNBC that she likes Sixth Street Specialty. Here is why:
“There’s been a weird phenomenon in the last couple weeks where you see the private equity stocks like KKR and Carlyle really trade down, but the private lenders trade down way more. That relationship should be reversed. This is a very high-quality private credit lender. Nine and a half percent yield. I largely agree with Joe that I don’t want to touch them, but I’m very comfortable with this particular company and it’s been dragged down more than it should.”
9. KB Home (NYSE:KBH)
Number of Hedge Fund Investors: 26
Stephen Kim, Evercore ISI head of housing research, recently downgraded several housing stocks. During a program on CNBC, the analyst said that he believes the US government plans to find supply-side solutions to the housing problem, and that could negatively impact housing companies. Here is what the analyst said:
“They look at the builders and say these builders are deliberately building fewer homes than they could. They’re posting strong profitability and cash flow and buying shares back. They say, if the builders could produce more homes at lower prices, homebuyer affordability gets better, inflation improves, employment will improve, and new home prices can decline, even without dragging down existing home prices, which, by the way, has kind of been happening. There’s a lot of truth in what they say, but it misses something critically important, which I think the builders are really hoping they recognize: we have a demand problem right now. We don’t actually have a supply problem currently. If they had gotten builders to build a lot more three or four years ago, that would have been different, but today you’re slamming the gate shut when the horses already left the barn. We don’t have enough demand, so having the administration focus on supply-side solutions as opposed to mortgage spreads is a problem, and it’s unfortunate for the builders.”
However, the analyst believes housing stocks could trade at higher multiples in the long term.
“We believe the builders deserve and will get a revaluation to higher multiples than they have historically received. The basis for that is that if you look at how much the builders have improved their operations, how they have become more asset-light, and how they have more competitive advantages relative to their smaller peers. We look at all of what they’ve done and they’ve delivered significantly. These are companies that, if you compare them across almost any metric that matters relative to their S&P peers, they outperform them, but they trade at a fraction of what the other peers trade. We think that’s going to change. By the way, there’s a builder out there in the wild called NVR that’s already done this, and the other builders are following in its footsteps. We actually think that the builders are looking really good from a multi-year perspective, but unfortunately, you cannot disregard what the government and the administration are seeking to do here. In the near term, it’s going to be, we think, a depressant on the builder stocks.”
8. DR Horton Inc (NYSE:DHI)
Number of Hedge Fund Investors: 64
Stephen Kim, Evercore ISI head of housing research, explained in a recent program on CNBC why he downgraded several housing stocks, including DR Horton Inc (NYSE:DHI). The analyst said the US government’s reasoning on the housing problem could negatively impact homebuilders. He said as of now, there is no supply problem.
“A big part of our downgrade was our understanding that the administration was going to aggressively pursue supply-side solutions to affordability, which is really the worst possible thing that the builders could hear. FHFA Director William Pulte has been very clear and increasingly clear in his tweets and interviews about what he’s looking for. The administration seems to believe that we have a national housing deficit because we didn’t build enough homes. The deficit is why home prices are so high and housing has become unaffordable. Higher home prices are also contributing to inflation because the shelter component of CPI is high. They look at the builders and say these builders are deliberately building fewer homes than they could. They’re posting strong profitability and cash flow and buying shares back. They say, if the builders could produce more homes at lower prices, homebuyer affordability gets better, inflation improves, employment will improve, and new home prices can decline, even without dragging down existing home prices, which, by the way, has kind of been happening. There’s a lot of truth in what they say, but it misses something critically important, which I think the builders are really hoping they recognize: we have a demand problem right now. We don’t actually have a supply problem currently. If they had gotten builders to build a lot more three or four years ago, that would have been different, but today you’re slamming the gate shut when the horses already left the barn. We don’t have enough demand, so having the administration focus on supply-side solutions as opposed to mortgage spreads is a problem, and it’s unfortunate for the builders.”
Heartland Mid Cap Value Fund stated the following regarding D.R. Horton, Inc. (NYSE:DHI) in its third quarter 2025 investor letter:
“Consumer Discretionary. Our best-performing holding in the quarter, D.R. Horton, Inc. (NYSE:DHI), came from our Deep Value bucket. The largest homebuilder in the country, DHI enjoys around a 10% market share with scale advantages in a highly fragmented industry.
The company has a particularly strong position in entry-level homes. To produce affordable housing, D.R. Horton runs the business with speculative inventory, meaning it builds homes before buyer contracts are signed. This allows the company to operate the business more like a manufacturer thereby reducing unit costs with most savings passed to the homebuyer. To accommodate this business model, the company’s balance sheet is notably strong, allowing for maximum flexibility in capital allocation. For more than a decade, management pivoted the company’s balance sheet away from owning large swaths of undeveloped land, preferring instead to use less capital-intensive methods to source buildable lots. This self-help strategy reduced the capital commitment to the business and increased returns on investments…” (Click here to read the full text)
7. AbbVie Inc (NYSE:ABBV)
Number of Hedge Fund Investors: 89
Jim Lebenthal from Cerity Partners said in a recent program on CNBC that he likes AbbVie amid “attractive” valuation and dividend yield.
“If I’m a little nervous, just a little nervous, I’m going to go with something that’s kind of on the safe side. AbbVie Inc (NYSE:ABBV). Now, this has been an aggressive name this year, up about 30%, still has a good dividend yield, attractive valuation. So, regardless of whether I need to be nervous, this is a good pick.”
ABBV shares are up 27% so far this year.
Carillon Eagle Growth & Income Fund stated the following regarding AbbVie Inc. (NYSE:ABBV) in its second quarter 2025 investor letter:
“AbbVie Inc.’s (NYSE:ABBV) shares were a detractor for the portfolio in the second quarter. We attribute the weakness primarily to the underperformance of the broader biopharmaceutical industry, which is under pressure as it navigates policy threats from the Trump administration surrounding both tariffs on the pharmaceutical sector and a proposal to explore most-favored nation prescription drug pricing.”
6. Datadog Inc (NASDAQ:DDOG)
Number of Hedge Fund Investors: 103
Joseph Terranova, Senior Managing Director, Virtus Investment Partners, said in a recent program on CNBC that he likes Datadog and believes the stock has more room to run. Here is what he said:
“Two years ago, Josh Brown and I were having a dinner on Long Island with a huge fan of the show and a New York sports legend. We discussed this stock, Datadog Inc (NASDAQ:DDOG). Certainly hope he purchased it because it’s going to break out further to new highs.”
Datadog Inc (NASDAQ:DDOG) makes observability services for cloud-scale applications, providing monitoring of servers, databases and tools. One of the company’s AI offerings is Bits AI, a suite of apps used for critical monitoring.
ClearBridge Large Cap Growth Strategy stated the following regarding Datadog, Inc. (NASDAQ:DDOG) in its third quarter 2025 investor letter:
“During the quarter, the Strategy initiated new positions in infrastructure software providers Oracle and Datadog, Inc. (NASDAQ:DDOG) and added to custom silicon developer Broadcom. Datadog operates a monitoring, observability and data security platform for cloud applications. Observability is a large and growing end market with penetration rising as use and complexity of applications grow, requiring more performance monitoring. Datadog is a leader in cloud application monitoring, offering ease of use, breadth and scalability superior to its competitors. We believe large language model (LLM) observability, a rapidly growing market due to the acceleration of Gen AI workloads, creates a new vector for growth not reflected in fundamental estimates. Datadog’s mission critical offering and rapid innovation should support attractive >20% revenue growth with an attractive valuation as the company further scales margin and cash flow.”
5. Advanced Micro Devices Inc (NASDAQ:AMD)
Number of Hedge Fund Investors: 113
Joe Tigay from Equity Armor Investments said in a recent program on Schwab Network that he’s bullish on AMD amid rising demand for AI chips. Here is what the analyst said:
“When I just listened to the CEO’s comments a week and a half ago, just saying, “Hey, we’re just scratching the surface of what this potentially could be when it comes to production of chips or where we’re going to be in how many more of these chips we’re going to be pushing out there,” which is just phenomenal because you could have said that a year and a half ago. Every quarter we’re saying, “Wow, this is incredible. I can’t believe the increase or I can’t believe how much this company has grown, Advanced Micro Devices Inc (NASDAQ:AMD), Nvidia specifically. I can’t believe how many more chips are needed.” And we’re still at this ramping up phase, which is really phenomenal, really exciting to see. I think it’s branching out. Yes, Nvidia is the leader of the world, but there are other options out there and other requirements for chips, not only GPUs, but also for all of these servers and data centers. Advanced Micro Devices Inc (NASDAQ:AMD) is a big part of that. It’s exciting to see and, of course, exciting to see their partnership with OpenAI.”
Macquarie Large Cap Growth Fund stated the following regarding Advanced Micro Devices, Inc. (NASDAQ:AMD) in its third quarter 2025 investor letter:
“Advanced Micro Devices, Inc. (NASDAQ:AMD), a US semiconductor company, was also added to the portfolio. The total addressable market for AI chips is vast and in need of a second supplier to complement NVIDIA. We believe AMD is now positioned to supply a competitive, and possibly superior, chip for inference on a price/performance basis. Additionally, its next-generation chip for AI training should be a viable option to supplement NVIDIA supply.”
4. Oracle Corp (NYSE:ORCL)
Number of Hedge Fund Investors: 124
Joe Tigay from Equity Armor Investments said in a recent program on Schwab Network that he’s excited about the future of Oracle amid a new customer (TikTok US).
“They’re going to spend a lot of money to use Oracle Corp (NYSE:ORCL) cloud and Oracle is getting into the cloud business and now they got a new customer coming in. The US TikTok world is coming in, which is a very large customer, very important customer. So they’re going to be a player in the cloud game and I’m really excited about the potential for Oracle’s future. Really great action here. Now when it popped up to 345 right off of the news, I thought don’t go chasing here. Wait for it to come back here and we’ve come back a long way. Great price action last week. The market was just collapsing on Friday. Oracle hung in there very nicely. So I’m really, it’s really positive to see Oracle Corp (NYSE:ORCL) continue higher here and I think it could go back up and close to their recent highs of 340 plus.”
TikTok US algorithm will be operated in the United States and overseen by Oracle, CNN reported in September.
Headwaters Capital Management stated the following regarding Oracle Corporation (NYSE:ORCL) in its third quarter 2025 investor letter:
“The catalyst for the September AI trade was Oracle Corporation’s (NYSE:ORCL) announcement of a 5-year contract with OpenAI for $300B (implying annual contract value of $60B) to host the company’s LLMs at Oracle data centers beginning in 2027. While the market has grown desensitized to these large headline numbers, it’s useful to step back and put these figures into context from the perspective of both the magnitude of spending and return on investment. It’s easiest to start with the amount of investment that five companies are collectively spending on AI. The table below outlines CAPEX spending by the five hyperscalers and compares it with the other 495 companies in the S&P 500. In 2026, these five hyperscaler companies are expected to spend $405B of CAPEX, nearly all of this related to AI infrastructure build.
In terms of the economics around this investment, details have emerged from the Oracle-OpenAI announcement that can help investors begin to untangle the economics of these contracts. It’s easiest to unpack this from the perspective of each of the players involved.
Committed to spending $60B annually with Oracle to host the Company’s LLMs. This annual expense represents the Company’s cost of goods sold for running LLMs. OpenAI is on track to generate $13B of revenue in 2025 (Source: Reuters and the Information). So just to cover the cost of operating their LLMs on this single contract, OpenAI needs revenue to grow 4.6x in 2 years, or a +115% CAGR over the next 2 years. This is a single contract for hosting services. OpenAI has numerous other hosting contracts, implying that the company needs revenue to significantly exceed $60B just to cover the company’s total cost of goods sold…” (Click here to read the full text)
3. Alphabet Inc (NASDAQ:GOOG)
Number of Hedge Fund Investors: 178
Scott Devitt from Wedbush said in a recent program on Schwab Network that Alphabet Inc (NASDAQ:GOOG) seems to have become an AI leader from an AI laggard. He believes the AI revolution forced the company to innovate.
“This company’s original mission was to organize the world’s information and make it universally accessible and useful. I guess I would argue that at points in time, when it lacked competition, it maybe got caught up being addicted to the drug of monetization. This whole new wave of innovation actually has the potential to be a net positive for Google because it’s forcing this giant to act in ways it wouldn’t naturally have done on its own, and it has all the assets to be very competitive. You’re seeing that with the integration of AI overview into search results and really throughout the entire platform now that this AI innovation wave is underway. Business multiples have already expanded a little bit from 17 to the low 20s, more on par with where Meta trades now. On an ongoing basis, this company has the ability to grow revenues in the low double digits with some operating margin expansion over time. So you get about a 15% operating income growth rate and a stock that probably has a return similar to that over the next 3 to 5 years on an annualized basis.”
Alphabet is in a strong position to develop an AI ecosystem around search and Cloud. Businesses around the world are migrating to Google Cloud. Alphabet’s cloud margin rose to 20.7% in the second quarter from 11% last year. Google Cloud chief said earlier this year that the business has a backlog of $106 billion, and it’s “growing faster than our revenue.”
According to data from SimilarWeb, ChatGPT’s market share in AI chatbot traffic is shrinking despite being a leader. Gemini, on the other hand, is growing fast and has quadrupled its market share in the last six months.
SaltLight Capital stated the following regarding Alphabet Inc. (NASDAQ:GOOGL) in its second quarter 2025 investor letter:
“To illustrate our approach to navigating these uncertainties, we turn to our recent investment in Alphabet Inc. (NASDAQ:GOOGL), which exemplifies balancing innovation risks with established strengths.
Innovator’s Dilemma: Google is grappling with an Innovator’s Dilemma as it protects its $200 billion search business from a significant technological shift. To put it plainly, Google Search’s primary purpose is to act as a ‘match-maker’, guiding users to the best source for their query on the open web. However, artificial intelligence is changing this role, with AI handling much of the searching, synthesis, and answering for the user, reducing the need to visit destination websites to gather information. A natural tension is emerging.
Humans naturally gravitate towards the path of least resistance, increasingly depending on AI to undertake cognitive tasks for them. This development poses challenges for content providers and for Google itself, which derives advertising revenue from these interactions…” (Click here to read the full text)
2. NVIDIA Corp (NASDAQ:NVDA)
Number of Hedge Fund Investors: 235
Ross Mayfield, Investment Strategist at Baird, said in a latest program on CNBC that the recent trade tensions between the US and China over rare earth minerals will not significantly impact the ongoing AI bull market.
“I mean obviously it’s not good news. I mean we saw some of the news about rare earths a couple days ago as well. I think putting the screws to the US a little bit ahead of the next round of negotiations makes a lot of sense. You know, as far as NVIDIA Corp (NASDAQ:NVDA), obviously, they’ve printed amazing quarters, excluding the Chinese market entirely. So I don’t think it’s a gamechanger or anything. I don’t think the market is all that surprised that China is trying to build up its own chip industry. But, you know, on the whole a negative, I just don’t think it’s the thing that’s going to knock this market off this bull run we see.”
With its strong position in the data center market and rising demand, Nvidia is likely to keep growing, though not at the same pace it has in the past. Increasing competition from major companies like Broadcom is also expected to impact Nvidia’s margins in the long term.
The current AI boom cycle stems from spending by major tech companies, and Nvidia is the biggest beneficiary of this spending. In Q2 FY2026, three direct customers accounted for 23%, 19%, and 14% of NVDA’s accounts receivable. Almost all of the company’s revenue comes from AI-related infrastructure spending. In the latest quarter, $41.3 billion of the $46.7 billion revenue came from these clients. The music could stop for Nvidia if these major companies decide to slow down their spending amid a lack of ROI. If investors sense a weakness in CapEx spending, and the market begins to waver, NVDA stock price would be the first to see its impact.
Polen Focus Growth Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its third quarter 2025 investor letter:
“In early August we initiated positions in both NVIDIA Corporation (NASDAQ:NVDA) and Broadcom, after having not owned either company over the past 2½ years following the initial wave of enthusiasm around Gen AI. While we have long admired both companies, their highly cyclical business models have made it extremely difficult to forecast future earnings growth with any degree of conviction. Given our approach of seeking durable and persistent earnings growth that compounds over long holding periods, our concern in holding either was that we would be forced to endure a punishing downcycle within our typical holding period – there is very little room that in a concentrated portfolio of 20-30 companies. In fact, pre ChatGPT, NVIDIA had two punishing down cycles over the preceding five years.
That is specifically what has occurred for NVIDIA and Broadcom. While the sheer magnitude of demand for AI chips, servers and networking equipment was something that we clearly underappreciated, new incremental data points over the past few months lead us to conclude the current boom in AI chips and related hardware will likely continue for the foreseeable future giving us greater conviction over the trajectory of future earnings for both NVIDIA and Broadcom.
NVIDIA produces the fastest chips that are able to process compute intensive tasks like Gen AI training models extremely efficiently, are very flexible so can be used for any type of workload, and as a result are the chips in highest demand as the hyperscalers build out their Gen AI infrastructure (NVIDIA currently receiving 90c of every dollar spent on AI accelerated semiconductors). Their business has a very strong competitive moat, which is partly about the speed of their chips, but also the entire ecosystem they have built around them (programing language, training models and associated network effects)…” (Click here to read the full text)
1. Amazon.com Inc (NASDAQ:AMZN)
Number of Hedge Fund Investors: 335
Steve Weiss, Founder and Managing Partner of Short Hills Capital Partners, said in a recent program on CNBC that he likes Amazon despite the company being a “laggard
“Look, it’s up a little today in the bounce back, but this has really been somewhat of a laggard. Not that it hasn’t done well, of course it has, but it’s lagged the other AI plays and they’re doing extraordinarily well with AWS. More data, more compute power, more cloud.”
Amazon shares are down 3% and have underperformed major tech stocks. Why? Two major factors are impacting the stock. Tariff-related headwinds and weakening consumer buying power have been an overhang for the company’s e-commerce business. But more than that, Wall Street has been spooked by a relative slowdown in the company’s Cloud business. In the second quarter, AWS grew 17.5%, a deceleration compared to the previous few quarters. In the same period, Microsoft Azure grew 26% and Google Cloud rose 32%.
What’s ailing AWS? The cloud market is going through a structural change amid the AI wave.
AWS has always been focused on infrastructure (IaaS), allowing customers to build their own applications with flexibility. However, companies are now preferring AI-first cloud platforms with strong integration with generative models. This helps Microsoft (OpenAI) and Google (Gemini) because of their strong AI and app ecosystem.
Mairs & Power Balanced Fund stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its second quarter 2025 investor letter:
“The Fund also started a new position in Amazon.com, Inc. (NASDAQ:AMZN) in the second quarter, where the company is well positioned to continue capturing market share in retail while also growing its market leading cloud business. The Fund took advantage of weakness in the stock during April to start the position as tariff news and a precipitous market decline provided an opportunity to build a position.”
While we acknowledge the potential of AMZN to grow, 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.
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