The US is struggling to keep its technology within its borders, a goal that the US government and most of the country are determined to achieve to maintain dominance, particularly in AI. In this regard, ChatGPT maker OpenAI has recently complained that its competitors, including those in China, are using its work to advance in developing their own artificial intelligence (AI) tools.

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Bloomberg reported that Microsoft, a major investor in OpenAI, is currently investigating whether any data belonging to the AI startup has been used in an unauthorized manner. White House “AI and crypto czar”, David Sacks, seems to agree with OpenAI’s allegations. Sacks suggested that DeepSeek may have used OpenAI’s models to get better, a process known as knowledge distillation.

“There’s substantial evidence that what DeepSeek did here is they distilled the knowledge out of OpenAI’s models. I think one of the things you’re going to see over the next few months is our leading AI companies taking steps to try and prevent distillation… That would definitely slow down some of these copycat models.”

-David Sacks

Nevertheless, DeepSeek’s AI models demonstrate how previous sanctions and export controls by the US have failed to curb competition. Investment firm Morgan Stanley, speaking of the broad market reaction on Monday following the emergence of DeepSeek’s cheaper and more efficient AI models, stated that the consequence may be a reduced spending interest or even tighter export controls.

“The DeepSeek release highlights evolutionary innovations in AI, some of which may be deflationary. That said, the stock market reaction is probably more important than the cause and could bring further export controls or reduce spending enthusiasm”.

It must be noted here that the technology behind DeepSeek’s r1 model Wall Street is raving over isn’t new, but what is surprising is the claim that it has been developed cheaply, and also using less powerful chips.

“The takeaway is that there are many possibilities to develop this industry. The high-end chip/capital intensive way is one technological approach. But DeepSeek proves we are still in the nascent stage of AI development and the path established by OpenAI may not be the only route to highly capable AI.”

-Xiaomeng Lu, director of Eurasia Group’s geo-technology practice.

That said, the road ahead for AI development looks enticing, and AI scientists broadly agree that these new developments are a positive step for the industry as a whole.

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.

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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

10. BigBear.ai Holdings, Inc. (NYSE:BBAI)

Number of Hedge Fund Holders: 7

BigBear.ai Holdings, Inc. (NYSE:BBAI) is an artificial intelligence specialist that provides decision intelligence solutions for national security, digital identity, supply chain and logistics, enterprise operations, and manned-unmanned teaming in autonomous systems. On January 30, the company announced that it had been awarded a prime Indefinite Delivery/Indefinite Quantity (IDIQ) contract under the U.S. Department of Navy’s SeaPort Next Generation (SeaPort NxG) program. SeaPort NxG is the key contracting platform for the Navy. This contract will allow BigBear to provide its AI-powered solutions to the U.S. Navy and other federal agencies. In particular, the company will be offering systems engineering, process engineering, and specialized technology solutions under the SeaPort NxG contract. BigBear has been expanding its efforts in naval initiatives before this contract, including AI development for advanced autonomous surface vessels (ASV), computer vision for maritime situational awareness, and more.

“BigBear.ai is proud to build AI-powered solutions for the U.S. Department of Defense and federal agencies. This award reflects our continued dedication to our Nation’s defense efforts, and we are honored to contribute our capabilities to the critical missions of the U.S. Navy.”

-Kevin McAleenan, CEO of BigBear.ai.

9. Synaptics Incorporated (NASDAQ:SYNA)

Number of Hedge Fund Holders: 23

Synaptics Incorporated (NASDAQ:SYNA) develops and supplies custom-designed semiconductor solutions. On January 28, the company announced that it has accelerated its Edge AI strategy by signing a definitive licensing agreement with Broadcom. The agreement includes technologies such as Wi-Fi 8, ultra-wideband (UWB), Wi-Fi 7, advanced Bluetooth, and next-gen GPS/GNSS for the IoT and Android ecosystem. The strategic benefits of the deal include solidifying Synaptics’ leadership position for end-to-end AI Internet of Things (IoT) connectivity, securing its Veros™ wireless product roadmap, expanding its addressable market, strengthening its wireless team, and an expected $40+ million in annualized sales.

“Our wireless technology and capabilities are cornerstones of our success in IoT markets. We are now developing this expertise to enable ecosystems with centralized control and seamless connectivity to a rapidly growing array of Edge AI devices. Our platform history, proven track record, and strategy uniquely position us to integrate Broadcom’s technology and fully deliver on the potential of IoT connectivity”.

-Michael Hurlston, President and CEO of Synaptics.

8. Palantir Technologies Inc. (NASDAQ:PLTR)

Number of Hedge Fund Holders: 43

Palantir Technologies Inc. (NASDAQ:PLTR) is a leading provider of artificial intelligence systems. On January 30, Jefferies analyst Brent Thill maintained a “Sell” rating on Palantir Technologies and set a price target of $28.00. While the analyst has acknowledged that the technology giant’s fundamentals remain robust, he has also forecasted a 65% stock price drop in the coming 12 months. Not everyone is pessimistic about Palantir’s stock, however. On January 23, Wedbush Securities maintains its “Outperform” rating on the stock, demonstrating confidence in the company’s artificial intelligence (AI) strategy. The analyst told investors in a research note that even though Palantir’s valuation is expensive today, the “Messi of AI,” is going to be a major winner in the trillions of AI spend over the next few years.

7. Juniper Networks, Inc. (NYSE:JNPR)

Number of Hedge Fund Holders: 47

Juniper Networks, Inc. (NYSE:JNPR) is a leader in secure, AI-Native Networking that delivers the best and most secure user experiences from the edge to the data center and cloud. On January 30, Reuters reported the U.S. Department of Justice has sued to block Hewlett Packard Enterprise’s $14 billion deal to acquire networking gear maker Juniper Networks. The DOJ said that the acquisition would stifle competition and would lead to only two companies — Cisco Systems and HPE. Both of these would end up controlling more than 70% of the U.S. market for networking equipment.

“Juniper has also introduced innovative tools that have materially decreased the cost of operating a wireless network for many customers. This competitive pressure has forced HPE to discount its offerings and invest in its own innovation”.

 -DOJ said in its complaint.

6. International Business Machines Corporation (NYSE:IBM)

Number of Hedge Fund Holders: 56

International Business Machines Corporation (NYSE:IBM) is a multinational technology company and a pioneer in artificial intelligence, offering AI consulting services and a suite of AI software products. On January 29, the company saw its shares rise as much as 10% after it reported a Q4 earnings beat. The company’s adjusted earnings per share (EPS) of $3.92 outperformed analyst expectations of $3.78. However, revenue was $17.55 billion, slightly missing the estimate of $17.56 billion. The company’s software segment saw the biggest jump in five years. This is largely because customers have been prioritizing spending on cloud infrastructure in a rush to adopt the data-intensive generative artificial intelligence technology.

The company also forecast revenue growth of at least 5% at constant currency for fiscal 2025, reflecting confidence in its AI and cloud strategy. IBM’s consulting business, which accounts for about 80% of IBM’s AI book, fell about 2% to $5.2 billion in the quarter. This is because the companies who have focused spending on longer-term consulting deals to integrate AI in their business are yet to reflect in IBM’s revenue. Like Meta, IBM also talked about DeepSeek. Addressing the launch of its AI models, IBM Chief Financial Officer James Kavanaugh told Reuters that “DeepSeek was an initiation that open (source) AI can play a role in the overall GenAI space”. However, it is unclear whether IBM plans to offer DeepSeek’s models on its Watsonx platform.

5. Arista Networks, Inc. (NYSE:ANET)

Number of Hedge Fund Holders: 70

Arista Networks, Inc. (NYSE:ANET) develops, markets, and sells cloud networking solutions. On January 30, Morgan Stanley analyst Meta Marshall maintained a Buy rating on Arista Networks and retained the price target of $118.00. Arista Networks has robust prospects that have led to the reiterated buy rating. According to the firm, Celestica’s networking business, which reported a 64% year-over-year increase in the Communications segment, has been a major driver. This robust networking growth highlights a healthy demand for cloud networking, particularly in Ethernet. This, in turn, fares well for Arista Networks’ business outlook. Moreover, data center demand is expected to persist beyond 2026, further supporting the company’s growth outlook. The expected increase in demand for training and inference use cases also reinforces the Buy rating, reflecting on the company’s ability to maintain a strong market presence and deliver value to investors.

4. Constellation Energy Corporation (NASDAQ:CEG)

Number of Hedge Fund Holders: 78

Constellation Energy Corporation (NASDAQ:CEG) is an energy provider specializing in clean, carbon-free energy solutions. On January 30, BofA lowered the firm’s price target on Constellation Energy (CEG) to $366 from $380 and kept a “Buy” rating on the shares. AI power stocks Constellation and Vistra were both tanking amidst the broad market reaction on Monday due to the emergence of cheaper and more efficient AI models from DeepSeek. According to the firm, the sell-off has been an “overreaction to this news.” The firm believes that data center demand is likely to stay strong over the immediate term, but may be as high as expected over the longer term. There is also a chance that efficiency gains may arrive sooner than the firm initially expected, which is why it has adjusted its valuations for both Constellation and Vistra.

3. Tesla, Inc. (NASDAQ:TSLA)

Number of Hedge Fund Holders: 99

Tesla, Inc. (NASDAQ:TSLA) is an automotive and clean energy company that leverages advanced artificial intelligence in its autonomous driving technology and robotics initiatives. On January 30, Daiwa analyst Jairam Nathan maintained their neutral stance on the stock, giving a “Hold” rating. Nathan has assigned a hold rating on the stock due to intense pressure on Tesla’s operating margins. Reporting its earnings call on January 29, the company had a weak fourth quarter with a GAAP operating margin of 6.2%, falling short of expectations. One of the reasons for this weakness has been a 7% quarter-over-quarter decline in revenue per unit, despite an increase in deliveries. Moreover, even though Tesla managed to reduce direct costs, the decline in automotive and energy storage gross margins led to overall margin pressure.

Despite the weak quarter, investors were able to relax a bit after CEO Elon Musk vowed to launch long-awaited cheaper models in the first half of 2025 and also begin testing an autonomous ride-hailing service in June. Jairam Nathan also pointed to this optimism, noting improvements in Tesla’s Full Self-Driving (FSD) Technology. This advancement, together with affordable EVs and robotaxi trials, will support Tesla’s valuations. Nevertheless, margin challenges and uncertain pricing and volume have led to a cautious outlook.

2. Alibaba Group Holding Limited (NYSE:BABA)

Number of Hedge Fund Holders: 115

Alibaba Group Holding Limited (NYSE:BABA) is an online retailer that leverages AI in its e-commerce business. On January 29, the company reported that it had released a new version of its Qwen 2.5 artificial intelligence model. Alibaba has claimed that the model surpassed the highly acclaimed DeepSeek-V3. Qwen 2.5-Max was released on the first day of the Lunar New Year, a day when most Chinese are off work and with their families. The release day implies how DeepSeek’s AI models have put pressure on both domestic and international competition.

“Qwen 2.5-Max outperforms … almost across the board GPT-4o, DeepSeek-V3 and Llama-3.1-405B”.

-Alibaba’s cloud unit said in an announcement posted on its official WeChat account.

1. Meta Platforms, Inc. (NASDAQ:META)

Number of Hedge Fund Investors: 235

Meta Platforms, Inc. (NASDAQ:META) is a global technology company. On January 29, the company reported its fourth-quarter earnings that beat on the top and bottom lines. Meta reported earnings per share of $8.02 on revenue of $48.4 billion, higher than expectations for EPS to reach $6.75 on revenue of $46.9 billion, according to Bloomberg estimates. The company’s shares were flat after the markets closed, but rose after CEO Mark Zuckerberg expressed optimism regarding Meta’s AI initiatives. He also addressed the launch of Chinese company DeepSeek’s AI models, stating that an open-source AI strategy is the right way to go.

“There’s going to be an open-source standard globally,” he said. “For our own national advantage, it’s important that it’s an American standard.”

Zuckerberg also praised the Trump Administration during the earnings call, quoting how 2025 will be big for “redefining” the company’s relationships with governments.

“We now have a U.S. administration that is proud of our leading companies, prioritizes American technology winning and that will defend our values and interests abroad. I am optimistic about the progress and innovation that this can unlock, so this is going to be a big year”.

Chief Financial Officer Susan Li also discussed Meta’s AI chatbot, stating that it had surpassed 700 million monthly active users, up from 600 million in December. Zuckerberg said he anticipates Meta AI to reach one billion users this year. Meta has also finished training a mini version of Llama 4. Zuckerberg further stated that the training for a larger version of the LLM “is making great progress”.

While we acknowledge the potential of META 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 timeframe. If you are looking for an AI stock that is more promising than META 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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