In this article, we will take a detailed look at the Top 10 AI Stocks to Watch In February.
Barry Bannister, Stifel’s chief equity strategist, said in a latest program on CNBC that the macroeconomic factors are finally catching up to the AI-led bull market. He expects inflation to remain sticky and no further rate cuts from the Federal Reserve in the short term. The analyst also rejected the notion that the massive tech selloff after the launch of DeepSeek was a buying opportunity.
“Over 30 years ago, we used to joke about how technology was such a displacement event business where new competitors would come in and destroy the entrenched stocks, that it deserved a lower multiple because of that. It’s a short life cycle business that’s got a very short competitive advantage period. But investors forgot about that. They bid up the stocks. The growth relative to value large-cap total return, one divided by the other on a 10-year compound basis, reached the absolute outer limits of the past 90 years. And that exact limit line is exactly where it peaked—the price earnings multiple and the outperformance of growth. So, for us, it’s just a very bubbly market that’s just gotta take some air out of it.”
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For this article, we chose 10 AI stocks currently making moves in the market. With each stock, we have mentioned the number of hedge fund investors. 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).
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10. Palantir Technologies Inc (NASDAQ:PLTR)
Number of Hedge Fund Investors: 43
Daniel Kern, the Chief Investment Officer for Nixon Peabody Trust Company, said in a latest program on Schwab Network that he likes Palantir (NASDAQ:PLTR) and the company’s business but the stock’s bullish run has him on the sidelines for now:
“Palantir is a classic example of a company that I really love but don’t love the stock today. They are really well positioned in the AI space, and they do a great job with data integration and analytics. They’ve got, I think, really strong and innovative management, and we’re in the early days. This is, I think, a long-term winner, but the market needs to digest what’s happened with the stock. We’ve got a nice growth rate, but the stock’s up more than 300% over the past 52 weeks. The growth rate doesn’t justify the level of the stock price, but I think, long term, Palantir’s stock is very much worth watching.”
Ithaka US Growth Strategy stated the following regarding Palantir Technologies Inc. (NASDAQ:PLTR) in its Q4 2024 investor letter:
“From the front-lines of warzones to Fortune 500 enterprises, Palantir Technologies Inc. (NASDAQ:PLTR) builds software to address high-level action items, respond to defense and security concerns, and improve organizational efficiency. The company offers a number of software products from data analysis and curation (Palantir Gotham and Foundry) to a cloud-based operations software (Apollo). The company rose to popularity, in part, due to several government contracts (~55% of revenues) arising from recent and continuous global conflicts. In addition to creating generative AI defense solutions for governments across the globe, commercial customers (~45% of revenues) have flocked to the company’s security and data analysis solutions to monitor and analyze business data and protect sensitive information. The stock’s meteoric rise in the quarter was due to a strong earnings report that beat Street expectations as well as investor excitement with regard to the company’s ability to further monetize its AI product across its growing customer base.”
9. Constellation Energy (NASDAQ:CEG)
Number of Hedge Fund Investors: 78
Joe Tigay from Rational Equity Armor Fund talked about the AI-related reasons to be excited about Constellation Energy (NASDAQ:CEG) during a latest program on Schwab Network:
“Constellation, you’re going to need a company to be able to have mobile energy centers, really quick on-demand popup energy centers. So, going to be new power plants built specifically for massive data centers. So, that’s where people are betting on Constellation here, and absolutely, they are crushing it so far this year.”
8. Oracle Corp (NYSE:ORCL)
Number of Hedge Fund Investors: 91
Eric Lynch, managing director of Scharf Investments, recently made the case for Oracle in a latest program on Schwab Network. The analyst believes Oracle Corp (NYSE:ORCL)’s benfetting from AI and talked about the company’s “mind-boggling” guidance.
“It has this really great superior kind of vertical technology stack uh that you know AI was the use case that it needed. So you know it started with the TikTok signing and the last several quarters their Cloud infrastructure business has been growing at 55% roughly multiples of AWS and Microsoft so this is a business uh oracles one there’s other ones out there that are benefiting from AI the AI trade should continue to uh transfer to new companies the real question is how fast and how much and whether or not that’s baked into valuations correctly in Oracle’s case you know they kind of gave a mindboggling five-year guidance at Oracle World last September that they were going to grow revenues 16% annually until then this for a company that was growing only five or 6% the last decade so AI is clearly helping.”
Parnassus Value Equity Fund stated the following regarding Oracle Corporation (NYSE:ORCL) in its Q3 2024 investor letter:
“Oracle Corporation (NYSE:ORCL) announced second-quarter results that exceeded consensus expectations, driven by growth in its cloud infrastructure business, which is benefiting from demand for AI applications. Investor sentiment was further bolstered by the company’s announcement of a new partnership with Amazon.”
7. Tesla Inc (NASDAQ:TSLA)
Number of Hedge Fund Investors: 99
Andy Swan from LikeFolio explained in a latest program on Schwab Network why he’s bullish on Tesla (NASDAQ:TSLA). The analyst said he maintains an “infinitely long” bullish position” on the EV maker.
“I think you can just look at the fact Elon Musk bet very big on this election and he won. I think that is, you know, there’s good reason to think he will continue to win with this new administration in place, and that is a deregulated environment that allows not just the AI part of things but also the full self-driving features that Tesla has rolled out and the path to autonomous vehicles, the autonomous taxis rolling out. I think it’s just gotten a lot clearer with a Trump administration rather than one that’s a little more heavy-handed from a regulation side.
As far as LikeFolio data goes, we’re seeing Tesla kind of buck what everybody thought was happening, which is everybody thought that Tesla was getting less popular via its founder or not its founder, but its CEO’s political takes. What we’re seeing is that web visits are up year-over-year, app usage is up year-over-year considerably, and we look at the app usage of Tesla as a really kind of cool metric in terms of Tesla being a viral kind of word-of-mouth product. Because what Tesla’s integrated into the app are some really cool features that pretty much no other car in the world has, such as the ability for the car to come pick you up from an empty parking spot to the door of the restaurant that you’re just leaving. So, that type of word-of-mouth viral type of feature set in the app is starting to grow in usage, and that means more and more people getting exposed to Tesla. So, we maintain our multi-e, you know, infinitely long bullish position on Tesla.”
Analysts are still trying to look beyond Elon Musk’s claims and find out the specifics on the company’s EV and robo-taxi plans.
Tesla Inc’s (NASDAQ:TSLA) product lineup is showing signs of stagnation, with over 95% of sales still coming from the Model 3 and Model Y. Meanwhile, competitors are rolling out more advanced models. According to Reuters, Tesla’s market share in Europe is slipping as legacy automakers like BMW post stronger sales. Chinese competitor BYD is also gaining ground in Europe, despite talk of tariffs.
Infuse Asset Management stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its Q4 2024 investor letter:
“I’ve been very patient with Tesla, Inc. (NASDAQ:TSLA). Frankly, I’m a big believer in Elon but I also hate investing in companies where the narrative far outweighs any financial evidence. I do see a path to Tesla being one of the world’s largest companies but slight growth in a cyclical industry with very little pricing power is not a recipe for strong forward returns. Though the AI/robotics narrative is strong, I’m not adding at current prices since we haven’t seen much of the narrative translate into the earnings yet. This cognitive dissonance can be an uncomfortable tension but I’m trying to look at the big picture here. So while I fully admit that Tesla may be overvalued in the short run, the long-term destination of the company should not be underestimated.”
6. Salesforce Inc (NYSE:CRM)
Number of Hedge Fund Investors: 116
Piper Sandler recently gave Salesforce (NYSE:CRM) an Overweight rating and set its price target at $405. However, Piper Sandler believes that significant revenue from its AI agents is still a year away.
“Agentforce has renewed customer engagement, but it likely won’t become a major revenue driver until fiscal 2027 (calendar year 2026),” analysts at Piper Sandler, led by Brent Bracelin, wrote in an investor note.
According to Piper Sandler and Gartner data, Salesforce holds a 19.1% average share of the total addressable market in sales, marketing, commerce, and support, more than twice the combined market share of Oracle (ORCL), Microsoft (MSFT), and HubSpot (HUBS).
“Considering 64% of the market remains outside of the top 8 vendors, there’s significant room for Salesforce to gain further share, especially as AI drives more consolidation,” Bracelin noted.
He added that AI agents could boost subscription growth in the medium term, especially if they help drive multi-cloud cross-selling and increase ARPU through a premium mix.
Montaka Global Investments stated the following regarding Salesforce, Inc. (NYSE:CRM) in its Q4 2024 investor letter:
“There are multiple structural trends in the enterprise software space, including (i) the ongoing cloud migrations and digital transformations of enterprises, and (ii) the infusion of AI into software applications.
While the former remains in its early innings (80-85% of enterprise workloads still reside ‘on-premise’ – many of which will ultimately move to public clouds), the latter remains in its infancy.
Given all the hype of late, it’s hard to fathom that large-scale deployments of AI-based enterprise applications have barely even started. It’s all still to come. And we believe 2025 will be the first year that we really start to see meaningful deployments and adoption of these kinds of applications.
Consider another of our top 10 holdings, Salesforce, for example. Its revenue growth is at a cyclical low. Indeed, at just +8% per annum, as reported in the company’s most recent quarter, its rate of revenue growth has never been lower.
But in 2025, not only will price increases that were announced two years ago boost Salesforce, Inc.’s (NYSE:CRM) revenue growth, but the year will also mark the early stages of adoption of the company’s new ‘Agentforce’ (released only weeks ago). This is a new platform that lets businesses build and deploy their own custom AI agents to automate tasks, improve efficiency, and enhance customer experiences…” (Click here to read the full text)
5. Apple Inc (NASDAQ:AAPL)
Number of Hedge Fund Investors: 158
Dan Niles, Niles Investment Management founder & portfolio manager, said in a latest program on CNBC that Apple Inc (NASDAQ:AAPL) is a laggard in the AI race.
“Apple, likewise, is using AI the worst, or has really no AI presence, their stock’s down 11% to start this year, and they were the second worst performing of the Mag 7 last year. So, to some extent, the market’s starting to differentiate between all of these names.”
Apple’s latest results were helped by Services revenue in the latest quarter, but the key challenges haunting the company remain as they were. Many analysts believe just a few AI apps would not be enough to trigger a broader upgrade cycle for iPhone. Apple is dealing with currency headwinds as the stronger US dollar is expected to reduce top-line growth by 2.5% next quarter. For Q2 FY2025, management expects overall revenue to grow in the low to mid-single digits. Apple’s stock is trading at a premium valuation, with a price-to-earnings ratio of 39-40x, a price-to-free-cash-flow ratio of 33-34x, and a PEG ratio exceeding 3x. Upcoming quarters would be difficult for Apple and its current valuation is not justified. The company’s revenue in China fell 8% in fiscal year 2024, following a 2% decline the previous year. The Chinese market accounts for about 15% of Apple’s total revenue, so this downtrend cannot be ignored.
Greenlight Capital stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q4 2024 investor letter:
“We continue to be concerned about the overall valuation of the market and have maintained a lower-than-average net market exposure. In fact, our daily correlation to the S&P 500 last year was 0.01. Cyclically and interest rate adjusted valuations are as high as we can remember.
A look at a prior favorite company of ours, Apple Inc. (NASDAQ:AAPL), shows that the stock at times sported a single digit P/E ratio and achieved 19.2% compounded revenue growth during the eight years we owned it. The last couple of years AAPL has had no revenue growth, but the P/E multiple has expanded from 22x to 37x. In this environment, we can’t say the multiple won’t expand to 45x a year from now. It might. But we don’t see why it should or what the investment appeal is at this valuation.”
4. Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM)
Number of Hedge Fund Investors: 158
James E. Demmert from Main Street Research was recently asked on Schwab Network why Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) shares did not grow significantly following a spectacular quarter. The analyst said 2025 will be a “different” year for AI stocks and investors would need to be very “specific” with their trades.
“I think the key point here is that it’s a bit of a microcosm for what we’re going to see this year—spectacular enthusiasm, but more tempered than what we saw in 2023 and 2024 across the semiconductor business in general. I think that’s what you’re seeing with the flow-over from Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), which reported excellent numbers with top- and bottom-line beats. These were really fabulous numbers from what I consider one of the most important companies in the semiconductor business. It was a clean and impressive report. What stood out to me was not just the beats on the top and bottom lines, but the very significant guidance. Keep in mind, they are the backbone of anything AI-related in the semiconductor business.”
TSMC’s high-performance computing (HPC) revenue exceeded 50% for the full year of 2024, with HPC sales reaching 53% of total revenue in the fourth quarter. Smartphones contributed 35% in Q4, underscoring AI as the key growth driver for TSMC in the coming years.
At a forward EBITDA multiple of 11.2x, the stock does not seem overpriced. Compared to the tech sector median, TSM’s forward non-GAAP PEG ratio of 0.75 is significantly lower—about 60% below the peer average of 1.9.
Wedgewood Partners stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q4 2024 investor letter:
“Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) was another top contributor to performance during the quarter and for the year. The Company’s earnings growth dramatically accelerated compared to last year as the Company’s wafer fabrication and packaging volumes soared in 2024. In addition, the Company customer prices rebounded in the face of more normalized capital expenditures. The Company maintains a near-monopoly in the fabrication of nearly every new AI accelerator brought to market over the past two years. They continue investing tens of billions to build and 7ill future capacity with orders for what seems to be insatiable hyperscale demand for accelerated computing. The stock ended the year trading at a consensus forward earnings multiple that is several points lower than large cap growth benchmarks, despite the Company’s dominant position in the most important industry that is driving one of the largest technological shifts in a generation.”
3. Alphabet Inc (NASDAQ:GOOG)
Number of Hedge Fund Investors: 160
Joe Tigay from Rational Equity Armor Fund said in a latest program on Schwab Network that he likes Alphabet (NASDAQ:GOOG) stock and mentioned the reasons behind his bullish thesis:
“I am very excited about Alphabet. You know, they had a slow start when we went into this AI world. They were offside, they had a false start, they had a terrible rollout of their Bard, I think it was called at the time. They’ve completely reshaped that. I love how they’re currently working with Gemini, they’ve partnered with Apple, and I think they’re fighting very hard with OpenAI to be the LLM leader. I think that’s an interesting spot in the AI world. There’s so much more in the AI world that we’re just scratching the surface of, and we saw their advancements with their quantum computing. I think that’s the type of company, that’s the type of visionaries that are at Google, just looking past this LLM, looking past the current technologies that are out there, and looking for the future. I just think that they are there, and they are so well-positioned to take advantage of all of it. They have the data, they have the video, they have everything. They’re in phones and their own phones and everything else. So yes, I love this company for the short term, I love it for the long term, and I think it’s an integral part of this technology AI breakthrough.”
Alphabet shares slipped following the company’s latest quarterly results. The market was spooked by the massive $75 billion Capex guidance for 2025. However, GOOG bulls believe these investments will pay off. The company needs to spend to maintain its dominance in search. Its Gemini model has an edge over competitors because of the huge ecosystem Alphabet already has. For the end user, it’s easier to switch from traditional search to Geminin instead of moving to a completely new app like ChatGPT or Perplexity. So far AI competition hasn’t dented the company’s search revenue.
In the fourth quarter, Alphabet’s operating margin rose 32%. YouTube ad revenue jumped 14% and Cloud revenue skyrocketed by 30.1%. Google raked in $12.8 billion in FCF, marking a roughly 215% growth compared to the same period last year, despite heavy investments in AI. The stock has a forward (2026) P/E ratio of 20.8x, which makes it about 22% cheaper than the average company in its sector.
Montaka Global Investments stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q4 2024 investor letter:
“While the bulk of Montaka’s portfolio exposures continued to remain relatively stable over the December quarter, we did undertake some modest hands-on portfolio management in the tail-end of the portfolio.
We exited three of Montaka’s smallest portfolio names. While we see long-term upside in all of these names, we see more upside elsewhere. Hence, we reallocated these proceeds to (i) scale up Montaka’s investment in Alphabet Inc. (NASDAQ:GOOG) on increased probabilities that its advantages in Google Search are strengthening (not to mention the group’s numerous growth options increasing in probability – from YouTube, to Waymo, and even quantum computing); and (ii) to establish an initial ‘outlier’ position in database software provider, MongoDB (MDB).”
2. NVIDIA Corp (NASDAQ:NVDA)
Number of Hedge Fund Investors: 193
Megan Brantley from LikeFolio said in a latest program on Schwab Network that she sees “massive tailwinds” for Nvidia, especially after the Stargate project announcement despite valuation concerns.
“I think that right now really it’s a question of the valuation of NVIDIA Corp (NASDAQ:NVDA) and how high expectations are. For us, we see this and we just see massive tailwinds, especially in AI as just a macro trend at large. When you look at these investments, all those that you just mentioned, this should be a massive tailwind for NVIDIA Corp (NASDAQ:NVDA). Perhaps some of it is priced in. I think there’s a little bit of uncertainty from some investors saying, “Is this possible? Are these valuations possible for Nvidia to achieve?” But when we look at this, we look at this company and we say we constantly are seeing revisions to the upside when it comes to just how much companies are planning on investing in AI and ultimately utilizing NVIDIA Corp (NASDAQ:NVDA) products.”
Infuse Asset Management stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q4 2024 investor letter:
“We do still own some NVIDIA Corporation (NASDAQ:NVDA) as the forward multiple isn’t egregious and it powers over 90% of AI workloads. This company is only becoming increasingly important though the hyperscalers are actively trying to save money through their own ASIC programs. The moat CUDA provides has been underestimated time and time again. While I don’t think Nvidia has quite the upside as some of the other companies in the portfolio, it has a product that the best companies in the world literally can’t get enough of.”
1. Amazon.com Inc (NASDAQ:AMZN)
Number of Hedge Fund Investors: 286
Jessica Inskip, Director of Investor Research at StockBrokers, explained in a latest program on Schwab Network her top three reasons to be bullish on Amazon.com (NASDAQ:AMZN).
“I really do like Amazon, and there’s three primary reasons. First and foremost, of course, is AI. They have AI-driven cloud growth as AI agents are being developed, and that’s extremely important. The other is the impending TikTok ban. A ban may not be imminent, but platform diversification certainly is. One of the next innovations that I think we’ll see with the e-commerce space is the use of short-form video. That’s the next innovation that could lead to retail margin expansion with e-commerce sales from the Amazon front. Then the third, and maybe overlooked, is the AWS operational cost. I think that would be lowered actually with a stronger US dollar. The US dollar, as we see, is strengthening. I heard your previous guest even say that as well, and since many of AWS’s operational costs tend to be outside of the US, therefore that stronger dollar would actually just naturally help lower those operational costs. So, a lot working for Amazon in terms of margin expansion.”
Simply beating earnings estimates is not enough for NVIDIA Corporation (NASDAQ:NVDA) anymore, and the impact of high expectations will continue to weigh on the stock as growth cools.
Nvidia’s forward P/E ratio for the fiscal year ending January 2026 is around 31. An EPS surprise of 8.5% was not able to help the stock. A similar trend occurred following the second-quarter earnings after a 5.6% EPS surprise. It’s difficult to see Nvidia maintaining a mid-70s gross margin by the end of 2026. Over the last two quarters, Nvidia has already reported a drop in its gross margin from 78% to 74.5%.
Then there’s competition. Amazon (AMZN) recently disclosed its Trainium 3 chip, which is set to be released by the end of 2025. The chip is expected to be twice as fast with 40% more power efficiency than the previous generation, manufactured on TSMC’s (TSM) cutting-edge N3 technology.
Vulcan Value Partners stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q4 2024 investor letter:
“There were five material contributors to performance: Amazon.com, Inc. (NASDAQ:AMZN), Salesforce Inc., Live Nation Entertainment Inc., Carlyle Group Inc., and Alphabet Inc. Amazon.com is a dominant, world class company with powerful secular tailwinds in place including its e-commerce penetration, digital advertising growth, and the cloud transition. Amazon reported strong results during the quarter. The market is beginning to reward the company for its untapped margin opportunity in the core retail business as its consolidated operating margins expanded.”
While we acknowledge the potential of Amazon.com Inc (NASDAQ:AMZN), our conviction lies in the belief that under the radar 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 AMZN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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