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.
9. Freshworks Inc. (NASDAQ:FRSH)
Number of Hedge Fund Holders: 41
On February 11, Cantor Fitzgerald reduced its price target on Freshworks Inc. (NASDAQ:FRSH) from $19 to $14 while reiterating an Outperform rating. The firm’s adjusted price target offers a further 91.78% upside from the current levels. According to the firm, the company posted better-than-expected Q4 results, exceeding consensus estimates for both earnings and revenue. In addition to solid fourth-quarter results, the company’s CY2026 revenue outlook was slightly above analysts’ expectations.
Although Freshworks Inc. (NASDAQ:FRSH) posted strong results, the firm said that the ongoing growth deceleration still requires attention. According to the analyst, recent trends don’t match the management’s usually positive commentary. It has led to investor disappointment and confusion.
Freshworks Inc. (NASDAQ:FRSH) reported its fourth-quarter financial results on February 11. The company grew its Q4 revenue by 14% YoY, totaling at $222.7 million. Annual recurring revenue increased 18% year over year to $907 million. Free cash flow margin for the quarter was 25%, while Non-GAAP operating margin was recorded at 19%. Supported by one-time items, GAAP net income for Q4 stood at $191.4 million. Customer growth during the quarter remained strong. More than 1500 customers now generate over $100,000 in ARR.
Freshworks Inc. (NASDAQ:FRSH) is a software development company. The company offers software-as-a-service (SaaS) products across the Middle East, North America, Asia-Pacific, Europe, Africa, and worldwide. Its SaaS solutions consist of Employee Experience (EX) and Customer Experience (CX). The company offers a Freshworks platform.
8. Mobileye Global Inc. (NASDAQ:MBLY)
Number of Hedge Fund Holders: 43
On February 11, Needham analyst Quinn Bolton maintained his Buy rating on Mobileye Global Inc. (NASDAQ:MBLY) stock, along with the price target of $16. The price target suggests another 65% rally in the stock from here on.
A day prior to this, Mobileye announced that it had secured an agreement with India’s Mahindra & Mahindra to provide SuperVision and Surround ADAS hands-free driver assistance systems. These systems use the company’s EyeQ6 High system-on-chip, with SuperVision also using 11 cameras and Surround ADAS 5 cameras. Production of vehicles containing these systems is expected to commence at some point in 2027.
Here’s what the President and CEO of Mobileye, Amnon Shashua, had to say on the occasion:
”This nomination demonstrates Mahindra’s commitment to advanced safety technologies and strengthens Mobileye’s long-term investment in India as a strategic hub for ADAS localization and production.”
The position as a Tier 1 supplier across Mahindra & Mahindra’s all programs is likely to bode well for the company’s ventures in the South Asian country.
Mobileye Global Inc. (NASDAQ:MBLY) develops computer vision and machine learning technologies for Advanced Driver Assistance Systems (ADAS), along with related autonomous driving solutions. The company is headquartered in Jerusalem, Israel.
7. Zeta Global Holdings Corp. (NYSE:ZETA)
Number of Hedge Fund Holders: 46
On February 9, RBC Capital analyst Matthew Swanson lowered the firm’s price target on Zeta Global Holdings Corp. (NYSE:ZETA) from $30 to $27 while reaffirming a Buy rating. The firm’s adjusted price target reflects an additional upside of 68.6% from the current levels. This upside is consistent with the Wall Street analysts’ median upside of 84% based on 14 analysts covering the stock.
In contrast to RBC Capital, Goldman Sachs raised its price target on Zeta Global Holdings Corp. (NYSE:ZETA) on January 28 while maintaining a Neutral rating. Analyst Gabriela Borges from Goldman Sachs increased the firm’s price target on the stock from $23 to $26. The revised price target suggests a further 62% upside from the current levels. The analyst said the firm expects software mergers and acquisitions to gain momentum in 2026. The outlook is supported by lower public-market valuations and the inherent advantages of software companies, including broad distribution networks, strong data positions, specialized industry knowledge, and established brand value. According to the firm, these factors could open the door for meaningful value creation through cross-portfolio synergies, strategic acquisition of leading private technologies, and the opportunity to utilize SaaS incumbents that are now trading at more compelling valuation levels.
Zeta Global Holdings Corp. (NYSE:ZETA) owns and operates an omnichannel, data-driven cloud platform. The company’s platform offers enterprises marketing automation and consumer intelligence software across the United States and globally. Moreover, it offers a range of product suites, including its agile intelligence.
6. Klaviyo, Inc. (NYSE:KVYO)
Number of Hedge Fund Holders: 48
Klaviyo, Inc. (NYSE:KVYO) reported its fourth-quarter financial results on February 10. The company’s revenue reached $350 million, a 30% increase compared with the same period last year. Non-GAAP operating income for the quarter came in at $51 million, resulting in a 15% operating margin. Non-GAAP gross margin for the quarter was 73%, while non-GAAP operating expenses accounted for 58% of the total revenue. Non-GAAP operating expenses reached their lowest levels since the company went public.
Free cash flow jumped to $87 million, showing a 61% year-over-year rise. Non-GAAP operating income totalled $169 million for the full year, with a 14% margin. Free cash flow margin reached 16%, and the company’s cash balance exceeded $1 billion for the first time. From a customer perspective, 60% of Annual Recurring Revenue (ARR) now comes from multiproduct customers. More than 15% of ARR is generated by customers who use at least three products. It reflects strong cross-sell and expansion opportunities within the existing client base.
Andrew Bialecki, Co-Founder, Co-CEO & Chairperson of Klaviyo, Inc. (NYSE:KVYO) pointed:
“We’re now serving more than 193,000 customers in over 100 countries, and we saw strong momentum across every part of the business, especially in our enterprise customer base and internationally.”
Following the Q4 results announcement, Jefferies lowered its price target on Klaviyo, Inc. (NYSE:KVYO) from $35 to $29 while maintaining a Buy rating on February 10. Jefferies said that the company’s fourth-quarter revenue came in above expectations, but long-term questions around AI remain unresolved.
Klaviyo, Inc. (NYSE:KVYO) is a technology company that offers a software-as-a-service platform across the United States, the Asia-Pacific, the Middle East, Europe, and Africa. It sells its products to small and medium-sized businesses, enterprises, entrepreneurs, and mid-market businesses. Klaviyo was founded in 2012 and is based in Boston, Massachusetts.
5. Charles River Laboratories International, Inc. (NYSE:CRL)
Number of Hedge Fund Holders: 50
Charles Rhyee, an analyst at TD Cowen, increased the firm’s price target on Charles River Laboratories International, Inc. (NYSE:CRL) from $197 to $251 while reiterating a Buy rating on January 22. The firm’s revised price target suggests a further 38.49% upside from the current levels. This price target adjustment came as part of the firm’s broader review and revision of price targets across the contract research organization sector, conducted ahead of the company’s Q4 results.
In its fourth-quarter earnings preview, TD Cowen expressed confidence in solid quarterly results. The firm suggested that the 2026 guidance could serve as a clearing event for operating conditions. This would give investors clearer insights into the company’s short-term outlook.
Earlier On January 21, Charles River Laboratories International, Inc. (NYSE:CRL) announced a new gene therapy collaboration with Gazi University Faculty of Medicine. Under the agreement, the company will provide plasmid DNA for Adeno–associated virus (AAV) production and support in vitro efficacy studies. The collaboration is designed to advance research on Hyperphosphatemic tumoral calcinosis (HTC), a rare inherited disorder that causes high phosphate levels and non-cancerous calcium phosphate deposits in soft tissues, particularly around joints. The company will supply off-the-shelf, royalty-free, animal component-free plasmids, offering Gazi University a ready-to-use solution for early-stage gene therapy programs.
Kerstin Dolph, Corporate Senior Vice President, Global Manufacturing, Charles River, expressed thoughts on the collaboration by commenting:
“We are excited to build a strong collaboration with Gazi University. Leveraging cell and gene therapy CDMO expertise will enable the Faculty of Medicine to test and ultimately transform ground-breaking concepts into real-world therapies.”
Charles River Laboratories International, Inc. (NYSE:CRL) provides non-clinical development, drug discovery, and safety testing services across the United States, the Asia-Pacific, Europe, Canada, and internationally. The company operates in the Discovery and Safety Assessment (DSA), Research Models and Services (RMS), and Manufacturing Solutions (Manufacturing) segments. It was incorporated in 1947 and is based in Wilmington, Massachusetts.
4. JFrog Ltd. (NASDAQ:FROG)
Number of Hedge Fund Holders: 52
On February 8, Robert W. Baird analyst Shrenik Kothari reaffirmed a Buy rating on JFrog Ltd. (NASDAQ:FROG) while increasing the firm’s price target on the stock from $70 to $78. He cited the company’s strong growth profile and conservative guidance. According to the analyst, current Wall Street expectations are modest, projecting mid-teens total revenue growth and high-20s to low-30s cloud growth. He noted that usage continues to exceed minimum commitments, while management’s outlook does not fully reflect the potential upside from usage overages, large cloud migrations, and emerging AI demand.
In addition to Robert W. Baird, Bank of America Securities maintained a Buy rating on JFrog Ltd. (NASDAQ:FROG) and set a $74 price target on February 6. The firm said that the company is expected to be among the first enterprise software stocks to rebound once the SaaSpocalypse comes to an end. According to the analyst, the investment case for JFrog Ltd. (NASDAQ:FROG) is straightforward. He said that the increased adoption of AI generates more binaries, which directly benefits the company.
The BofA analyst highlighted:
”JFrog is an AI beneficiary. Why? AI is creating more code and more risks…this we are certain. That code needs to be transformed into something a machine can use, which are binaries. JFrog is the leading tool that helps enterprises manage the distribution of binaries (i.e., the supply chain of software) and the mitigation of the risks associated with them (i.e., bad code, hackers and more). This is driving higher usage of JFrog, which can be seen in the accelerating growth in Cloud revenue (+50% y/y in 3Q25, up from +45% in 2Q25).”
JFrog Ltd. (NASDAQ:FROG) provides a supply chain platform across Israel, the United States, India, and worldwide. It provides JFrog Artifactory, JFrog Xray, JFrog Advanced Security, and JFrog Runtime Security, as well as JFrog ML, JFrog Distribution, and JFrog Connect. The company serves financial services, healthcare, technology, retail, and telecommunications organizations.
3. GDS Holdings Limited (NASDAQ:GDS)
Number of Hedge Fund Holders: 53
According to a report released on February 5, J.P. Morgan analyst Gokul Hariharan raised the firm’s price target on GDS Holdings Limited (NASDAQ:GDS) from $40 to $55 while maintaining a Buy rating. The firm’s upwardly adjusted price target suggests a further 18% upside from current levels. This upside is consistent with the Wall Street analysts’ median upside estimate of 11% based on 19 analysts covering the stock.
Ahead of the analyst’s recent price target increase, GDS Holdings Limited (NASDAQ:GDS) issued a capital markets update that drew investor attention. The company revealed on February 6 that it had filed a Form 6-K with the U.S. Securities and Exchange Commission. The filing relates to the transaction documents associated with a $300 million private placement of convertible preferred shares issued to a Chinese institutional investor. By raising capital through convertible preferred equity, GDS Holdings Limited (NASDAQ:GDS) highlighted its ongoing capacity to attract capital from institutional investors. The additional capital is expected to enhance the company’s financial flexibility, supporting its day-to-day operations and growth plans. At the same time, the filing reflects GDS’s commitment to meeting regulatory standards in both the United States and Hong Kong.
GDS Holdings Limited (NASDAQ:GDS) is an operator and developer of data centers. The company is operating in the People’s Republic of China. It provides colocation, consulting, managed hosting, managed cloud, and server middleware services. The company serves large Internet companies, telecommunications carriers & IT service providers, multinational corporations, cloud service providers, financial institutions, and the large domestic private sector.
2. Monday.com Ltd. (NASDAQ:MNDY)
Number of Hedge Fund Holders: 55
UBS analyst Taylor McGinnis reduced the firm’s price target on monday.com Ltd. (NASDAQ:MNDY) from $140 to $93 while keeping a Neutral rating on February 10. The firm’s adjusted price target implies a further 25.49% upside from the current levels as of February 11. The price target revision came in response to the company’s fourth-quarter earnings report, which highlighted margin pressure as a major concern.
Monday.com Ltd. (NASDAQ:MNDY) reported its Q4 results on February 9, beating expectations on both revenue and earnings. Revenue for the quarter totalled $333.9 million, up 24.6% YoY, and $4.24 million above the consensus. Non-GAAP earnings per share for the quarter came in at $1.04, exceeding the estimates by $0.12. The company generated $59.7 million in net cash from the operating activities, with $56.7 million in adjusted free cash flow. Both figures were down from $76.7 million and $72.7 million, respectively, in the same quarter last year. However, the number of paid customers grew across all segments.
For the first quarter of 2026, the company expects revenue to be between $338 million and $340 million. This is slightly below the consensus estimate of $342.87 million and reflects approximately 20% year-over-year growth. Non-GAAP operating income is anticipated to lie between $37 million and $39 million. The operating margin is projected to be 11% to 12%, assuming a negative foreign exchange impact of 100 to 200 basis points.
monday.com Ltd. (NASDAQ:MNDY) develops software applications across the United States, the Middle East, Europe, the United Kingdom, Africa, and internationally. The company’s product offerings include monday work management, monday CRM, monday dev, monday service, WorkCanvas, and WorkForms. It mainly serves educational or government institutions, organizations, and distinct business units of an organization.
1. Maplebear Inc. (NASDAQ:CART)
Number of Hedge Fund Holders: 60
On February 12, Maplebear Inc. (NASDAQ:CART) reported Q4 earnings and easily beat Wall Street revenue estimates, with shares rising more than 13% after the announcement. The revenue of $992 million was $18 million above consensus estimates, while the EPS of $0.3 fell below expectations of $0.52. During the quarter, the firm also repurchased $1.1 billion in shares.
On February 10, Maplebear Inc. (NASDAQ:CART) entered into a strategic partnership with Toast (NYSE:TOST), a comprehensive digital platform serving the hospitality industry. The partnership is aimed at expanding its presence among U.S. restaurants and retailers. The agreement will allow Toast’s retail customers to connect their in-store inventory directly to the Instacart marketplace. This will help create new sales opportunities and expand their online reach. By integrating SKU data and inventory systems, Instacart intends to keep online product availability closely aligned with the store stock and enhance catalog accuracy.
The partnership also strengthens Maplebear Inc.’s (NASDAQ:CART) business, its B2B same-day delivery platform, which will serve as a supply partner for Toast-powered restaurants. Operators can order essential items, such as fresh ingredients and pantry staples, with delivery within an hour. Additionally, a pilot launch is planned early this year, followed by a nationwide rollout expected later in 2026.
Ryan Hamburger, Vice President of Commercial Partnerships at Instacart, commented:
”This partnership brings together two platforms that play complementary roles in how retailers and restaurants operate and grow. We’re looking forward to expanding our breadth of retailers by welcoming Toast’s retail partners to the Instacart Marketplace and giving Toast restaurants access to our marketplace via Instacart Business for a fast and flexible way to source produce and other essentials to meet last-minute needs.”
Separately, Benchmark lowered its price target on Maplebear Inc. (NASDAQ:CART) on the same day. Analyst Mark Zgutowicz of Benchmark reaffirmed his Buy rating on the stock while lowering the firm’s price target from $60 to $53. Despite reducing its price target, the firm still holds a favorable outlook.
Maplebear Inc. (NASDAQ:CART) operates as Instacart. It provides online grocery shopping services to households across North America. The company offers its services through its website and mobile application. In addition to grocery shopping services, it also provides software-as-a-service solutions and advertising services. Maplebear is based in San Francisco, California.
While we acknowledge the potential of CART as an investment, 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 CART and that has 100x upside potential, check out our report about this cheapest AI stock.
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