Mega caps dominated most of 2024 and 2025, but with big tech’s high valuations and a general belief that they are unlikely to deliver outsized returns in the coming years, hedge funds and analysts are looking at mid-cap stocks.
The reason is simple: Mid-caps have a lot of catching up to do to match the returns of larger AI stocks. If investors can identify these stocks, they could outperform the market in the coming years.
As AI becomes mainstream, more mid-cap companies are integrating the technology into their products and offerings, either to improve efficiency or the quality of their products. These companies thus provide exposure to AI, but at a significantly more attractive valuation than mega caps.
Lucas Downey, co-founder of MoneyFlows, talked to Schwab Network two weeks ago and pointed out how small and mid cap stocks were trading at a low PE compared to their S&P 500 peers. Asked if the shift to mid cap stocks will continue in 2026, Downey had this to say:
If you look at valuations, S&P forward earnings PE is 22 times. You look at small and even mid caps because it’s more of a broadening theme thats happening, small caps is in the mid teens, so the forward PE is at about 15.7 and then midcaps they’re also at 16.6 so i think there’s a lot of value to be had.
In search of this value, we decided to look at which mid cap stocks hedge funds were buying. To do that, we came up with the 12 best mid cap AI stocks to buy according to hedge funds.
Our Methodology
To compile our list of 10 best mid cap AI stocks to buy according to hedge funds, we first looked at financial media and ETFs to come up with a list of AI stocks. We then filtered for stocks with market caps between $2 billion and $10 billion. We also examined the number of hedge funds holding these stocks using Insider Monkey’s database and ranked them in ascending order by that count.
Why do we care about what hedge funds do? 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).
Note: All share price data in the article is as per market close on February 11.
12. Itron, Inc. (NASDAQ:ITRI)
Number of Hedge Fund Holders: 37
On February 3, Itron, Inc. (NASDAQ:ITRI) and Toumetis announced a project in Southern California to enhance power reliability and reduce wildfire risks. The project is being carried out under the EPIC program with San Diego Gas & Electric (SDG&E). The companies intend to improve electric reliability by restoring power more quickly when outages occur and preventing outages before they happen. The project combines Toumetis’ Cascadence predictive analytics and machine learning platform with Itron’s detailed data from smart grid devices. The system brings together data from smart meters, relay signals, substations, and other grid sensors into a single clear view.
Using advanced AI models and algorithms, the system is designed to help crews respond more quickly and identify risk sooner, mainly in high wildfire-risk areas. Another major focus is to spot warning signs early and reduce outages before they occur. By identifying electrical conditions that could lead to fires, the program supports wildfire prevention.
Don Reeves, Senior Vice President, Outcomes at Itron, Inc. (NASDAQ:ITRI), said:
“We have a strategic relationship with Toumetis to incorporate Cascadence with Itron’s waveform detection and classification agents on Gen5 Riva meters to provide grid edge analytics and operational awareness—helping utilities detect and locate precursor conditions, prioritize detection risk and restore power faster.”
Itron, Inc. (NASDAQ:ITRI) operates as a technology, service, and solutions company. It offers end-to-end solutions for managing water, energy, and smart city operations worldwide. The company operates through the Networked Solutions, Device Solutions, and Outcomes segments. It sells its products and services under the Itron brand.
11. Aurora Innovation, Inc. (NASDAQ:AUR)
Number of Hedge Fund Holders: 39
Aurora Innovation, Inc. (NASDAQ:AUR) reported its fourth-quarter financial results on February 11. In Q4, the company generated $1 million in revenue, demonstrating a 25% QoQ increase. For the full year, revenue came in at $3 million, with adjusted revenue of $4 million. However, the company recorded an operating loss of $238 million during the quarter, which included $48 million in stock-based compensation. Research and Development costs stood at $155 million, while selling, general, and administrative expenses were $30 million. The cost of revenue came in at $6 million.
Despite using $146 million in operating cash during the quarter, Aurora Innovation, Inc. (NASDAQ:AUR) ended the year with $1.5 billion in cash and other liquid assets. Capital expenditures totalled $31 million for the full year and $8 million for the fourth quarter.
For 2026, revenue is expected to be in the range between $14 million and $16 million. More than 200 driverless trucks are projected to be in operation by the end of 2026. CFO, David Maday, commented on the revenue expectations by saying:
“Revenue will be back-end loaded with the fourth quarter projected to contribute over half of full year revenue as we scale driverless operations without a partner requested observer following the launch of our new fleet.”
Aurora Innovation, Inc. (NASDAQ:AUR) is a self-driving technology company operating across the United States. The company specializes in developing the Aurora Driver. It is a platform that combines self-driving software, hardware, and data services. Aurora Innovation was incorporated in 2017 and is based in Pittsburgh, Pennsylvania.
10. Planet Labs PBC (NYSE:PL)
Number of Hedge Fund Holders: 40
On January 29, Jeff Van Rhee of Craig-Hallum reiterated his Buy rating on Planet Labs PBC (NYSE:PL) and raised his price target. He raised the firm’s price target on the stock from $30 to $33, reflecting a further 52% upside from the current levels. This upside is in line with the highest Wall Street analyst target upside of 61.66%, based on 12 analysts covering the stock.
Earlier, on January 26, Planet Labs PBC (NYSE:PL) announced a major partnership with the Surveying and Mapping Authority of the Republic of Slovenia (GURS). As part of this agreement, the company will provide high-resolution tasking services and detailed satellite data to Slovenia’s civil public administration. This data will help plan cities and infrastructure, monitor forests, respond quickly to natural disasters, and track agricultural health. GURS will utilize the company’s high-resolution tasking services and high-cadence PlanetScope imagery to enhance its long-term planning and decision-making.
Tomaž Petek, Director-General of the Surveying and Mapping Authority of the Republic of Slovenia, commented:
”Our mission at GURS is to provide the highest quality geodetic and spatial data to support the prosperity and safety of the Republic of Slovenia. This agreement with Planet represents a significant leap forward in our national infrastructure. By integrating daily global scanning and high-resolution tasking into our workflows, we are providing our agencies with the tools needed for faster decisions during natural disasters and a more robust foundation for the long-term planning of our built and natural environments.”
Planet Labs PBC (NYSE:PL) is engaged in the design, construction, and launch of constellations of satellites. The company serves clients across the United States and internationally. Its satellites provide geospatial data that can be accessed through its online platform. The company also offers a hyperspectral imaging satellite named Tanager and an Earth Observation platform.
