We recently compiled a list of the 13 AI News and Ratings on Wall Street’s Radar. In this article, we are going to take a look at where Informatica Inc. (NYSE:INFA) stands against the other AI stocks on Wall Street’s radar.

In his latest memo named “On Bubble Watch,” Howard Marks, co-founder and co-chairman of Oaktree Capital, highlighted several warning signs in the stock market, including high valuations that may lead to poor long-term returns or short-term declines. While not calling it a bubble, he pointed to the S&P 500’s elevated price-to-earnings ratio, which historically correlates with lower returns. Marks also expressed concerns over AI investments’ excessive enthusiasm and overconfidence in the Magnificent Seven tech stocks, which have contributed significantly to the S&P 500’s recent gains. Marks also wrote:

“…..when stocks rise too fast – out of proportion to the growth in the underlying companies’ earnings – they’re unlikely to keep on appreciating. Michael Cembalest has another chart that makes this point. It shows that prior to two years ago, there were only four times in the history of the S&P 500 when it returned 20% or more for two years in a row. In three of those four instances (a small sample, mind you), the index declined in the subsequent two-year period. (The exception was 1995-98, when the powerful TMT bubble caused the decline to be delayed until 2000, but then the index lost almost 40% in three years.)

In the last two years, it’s happened for the fifth time. The S&P 500 was up 26% in 2023 and 25% in 2024, for the best two-year stretch since 1997-98. That brings us to 2025. What lies ahead?

The cautionary signs today include these:

• the optimism that has prevailed in the markets since late 2022,

• the above average valuation on the S&P 500, and the fact that its stocks in most industrial groups sell at higher multiples than stocks in those industries in the rest of the world,

• the enthusiasm that is being applied to the new thing of AI, and perhaps the extension of that positive psychology to other high-tech areas,

• the implicit presumption that the top seven companies will continue to be successful, and

• the possibility that some of the appreciation of the S&P has stemmed from automated buying of these stocks by index investors, without regard for their intrinsic value.”

READ ALSO: 15 AI Stocks That Skyrocketed in Q4 and 14 AI Stocks Making Waves on Wall Street.

Assessing the Future of AI Valuations

According to the JP Morgan report, AI investing: More broadening than bubble, the current valuation gap between the largest AI-linked companies (Mag Seven) and the rest of the S&P 500 is unlikely to last. These companies now represent a significant portion of the S&P 500’s market cap and have driven a substantial portion of its returns since 2023. While the AI industry is expected to fuel the next tech revolution, the important question for investors is whether market expectations are realistic.

Currently, companies involved in AI hardware and hyperscalers are dominating, but future growth could come from other sectors, such as AI developers and integrators. While many major tech firms have strong fundamentals, the high valuations may not be sustainable if the broader market does not fully adopt AI technologies. Investors should focus on opportunities across the entire AI value chain, especially where valuations are less stretched.

For this article, we selected AI stocks by reviewing news articles, stock analysis, and press releases. We listed the stocks in ascending order of their hedge fund sentiment taken from Insider Monkey’s database of 900 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).

Informatica Inc. (NYSE:INFA)

Number of Hedge Fund Holders: 22

Informatica Inc. (NYSE:INFA) offers an AI-powered platform for managing and integrating data across different systems to provide solutions for data quality, governance, and observability.

Informatica Inc. (NYSE:INFA) has expanded its partnership with Google Cloud by launching its Cloud Data Governance and Catalog (CDGC) on Google Cloud Marketplace. Built on Informatica’s Intelligent Data Management Cloud, CDGC helps organizations govern, classify, catalog, and measure data and also improves data trust and accessibility for Google Cloud users.

The integration supports AI and analytics initiatives, including Informatica’s Gen AI Blueprint for Vertex AI and Gemini models. Google Cloud’s Ritika Suri highlighted the importance of governance in AI strategies and noted that CDGC simplifies adoption and accelerates outcomes with a unified data management system. The service is now available in North America, EMEA, and Saudi Arabia.

Rik Tamm-Daniels, Global Vice President of Strategic Ecosystems and Technology at Informatica commented:

“AI-driven cataloging and governance capabilities provide a rich metadata foundation that is critical for modern analytics and AI initiatives, including Informatica’s recently-released Gen AI Blueprint for the Vertex AI platform and Gemini models.”

Overall INFA ranks 10th on our list of the AI stocks on Wall Street’s radar. While we acknowledge the potential of INFA as an investment, our conviction lies in the belief that 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 INFA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.

Disclosure: None. This article is originally published at Insider Monkey.