In this article we discuss the Top 10 Unlikely AI Stocks with Tremendous Upside Potential.
Artificial intelligence was the main force that drove the US stock market to record highs last year. While major indices have since pulled back, the big question is whether the AI trade is fully priced in. Nothing could be further from the truth, as we are still in the early stages of AI development and revolution.
Tech giants pumping billions of dollars into data centres, building AI platforms and investing in startups affirm that AI growth is all but starting. According to former OpenAI chief scientist Ilya Sutskever, we are still in the early stages of the AI revolution, and significant changes are on the horizon.
“We’re in the beginnings of this generative AI revolution as we all know. And we’re at the beginning of a new generation of foundation models that are able to do reasoning and able to do long thinking,” Sutskever said.
After years of building the foundation to support the AI revolution, generative AI is entering a new phase of advanced foundation models that should take AI reasoning and thinking to new heights. Likewise, Sutskever insists we are on the cusp of super-intelligent, self-aware AI capable of reasoning like humans as tech giants work on game-changing innovations.
Nvidia CEO Jensen Huang shares similar sentiments, who insists there is about $1 trillion worth of computers that need updating for accelerated computing. Consequently, AI is looked upon to bring about much-needed changes by improving business efficiency and developing game-changing products. This implies that there is plenty of room for AI-driven revenue growth that should benefit many companies.
Amid the stock run-up experienced in 2024, investment professionals are also optimistic that the trend will persist in 2025. Companies should start reaping the rewards of adopting generative AI as others start generating some returns from their AI investments.
Similarly, Wedbush analyst Daniel Ives expects a 25% rise in tech stocks in 2025, keeping up with the momentum enjoyed last year. While most of the gains will be driven by reduced regulatory pressure under President Donald Trump’s administration, a more AI-friendly environment will also significantly impact the upward momentum.
“We believe tech stocks will be robust in 2025 on the shoulders of the AI Revolution and $2 trillion+ of incremental AI cap-ex over the next 3 years,” analysts led by Daniel Ives said in a note.
Some cracks are starting to emerge amid the expected growth around artificial intelligence. Although generative AI has advanced rapidly over the last two years, Silicon Valley has grown increasingly concerned in recent weeks that the pace of advancement is slowing. The lack of advancement between models published by the industry’s major players is one early sign. The primary issue might be that AI firms are running out of data on which to train their models.
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).
A financial adviser looking over a portfolio of securities and stocks.
10. Penguin Solutions, Inc. (NASDAQ:PENG)
Number of Hedge Fund Holders: N/A
Penguin Solutions, Inc. (NASDAQ:PENG) is a technology company that designs and develops enterprise solutions worldwide. It operates through three segments: Advanced Computing, Integrated Memory, and Optimized LED. On January 10th, the company partnered strategically with SK Telecom and SK Hynix. The agreement paves the way for Penguin Solutions, Inc. (NASDAQ:PENG) to pursue developing and delivering comprehensive data center solutions. It also comes on the heels of SKT committing to invest $200 million to help Penguin Solutions pursue growth opportunities in the AI infrastructure market. Consequently, the company remains in a solid position to deliver AI infrastructure solutions and services efficiently.
The strategic collaboration comes on the heels of research firm Loop Capital’s initiation of the stock on January 7th. The firm has a buy rating on the stock with a price target of $30, affirming that the company is a promising player in the generative artificial intelligence (Gen AI) sector.
9. POET Technologies Inc. (NASDAQ:POET)
Number of Hedge Fund Holders: 5
POET Technologies Inc. (NASDAQ:POET) designs, develops, manufactures, and sells discrete and integrated opto-electronic solutions. Known for its advanced optical technology, the company is already playing an integral role in the AI landscape with the innovative POET Optical Interposed. The platform is proving to be of great help in accelerating data transmission while optimizing energy use and computation power crucial to AI applications.
On December 31st, POET Technologies Inc. (NASDAQ:POET) confirmed the acquisition of Super Photonics Integrated Circuit Xiamen Co., Ltd. The acquisition supplements agreements with Globetronics Manufacturing Sdn. Bhd (“GMSB”) to produce optical engines for POET. The two assembly and testing facilities, which are all devoted to the 800G and faster transceivers needed for AI clusters, will have a combined annual production capacity of more than one million optical engines.
Until the company chooses a different location for the operation, POET Technologies Inc. (NASDAQ:POET) plans to keep assembling optical engines at SPX in the cleanrooms it has leased from SAIC.
8. Veritone, Inc. (NASDAQ:VERI)
Number of Hedge Fund Holders: 6
Veritone, Inc. (NASDAQ:VERI), together with its subsidiaries, provides artificial intelligence (AI) computing solutions and services. On January 9th, the human-centred enterprise AI solutions leader confirmed enhancing its Veritone Contact solution with Contact Analytics. The upgrade will enhance how law enforcement agencies access and analyze stop data.
Veritone Contact makes it easier for law enforcement agencies to gather and report traffic and pedestrian stop data, supporting their efforts to adhere to legal requirements. Built on Veritone, Inc.’s (NASDAQ:VERI) aiWARETM enterprise AI platform, the system is designed to give law enforcement agencies quick access to thorough analytics and reporting tools.
Veritone’s Contact Analytics’ near real-time reporting features help agencies overcome a major obstacle when it comes to stop data analysis and RIPA compliance. At the moment, organizations enter thousands of records into databases, but they frequently have to wait until the end of the year to get valuable insights. Agencies can now make quicker, better-informed decisions thanks to on-demand data, which improves operational efficacy and efficiency.
7. GLOBALFOUNDRIES Inc. (NASDAQ:GFS)
Number of Hedge Fund Holders: 22
GLOBALFOUNDRIES Inc. (NASDAQ:GFS) is a semiconductor foundry that provides a range of mainstream wafer fabrication services and technologies worldwide. Thanks to a robust and global manufacturing footprint, the company serves some of the most prominent chip designers and technology companies. On January 6th, the company inked a strategic partnership with UK-based quantum computing company Quantum Motion.
The partnership paves the way for the company to produce Quantum Motion’s silicon chip that features 1024 quantum dots using its scalable silicon platform 22FDX platform. The platform uses industry leading capabilities such as power efficient edge processing, wider temperature range and system on chip integration. The company’s 22FDX platform, a cutting-edge technology tailored for AI applications, is in high demand.
The technology is perfect for artificial intelligence and machine learning workloads as it offers up to 50% better performance and 70% less power consumption than other planar technologies. Amid the strong demand, GLOBALFOUNDRIES Inc. (NASDAQ:GFS) has also expanded its manufacturing partnership with Lightmatter to enhance silicon photonics for improved data transfer.
6. Pegasystems Inc. (NASDAQ:PEGA)
Number of Hedge Fund Holders: 28
Pegasystems Inc. (NASDAQ:PEGA) is a technology company that develops, markets, licenses, hosts, and supports enterprise software. On January 4th, analysts at RBC Capital reiterated an outperform rating on the stock and raised the price target to $115. The upgrade came amidst growing optimism that Pegasystems is one of the software companies well poised to benefit from multiple catalysts in the software sector.
According to analysts, software spending trends are improving, and generative artificial intelligence has the opportunity to drive new innovations. The upgrade also comes on Pegasystems Inc. (NASDAQ:PEGA) unveiling a next-generation version of its market-leading Pega Smart Dispute offering. Coming with new generative AI and automation features, the software helps banks accelerate the resolution of disputes and fraud claims for any type of payment.
The unveiling of the new AI-powered solution paves the way for Pegasystems Inc. (NASDAQ:PEGA) to entrench its software in the financial services sector by helping banks resolve complex disputes and claims. The company should play a pivotal role in an industry where customers disputed over $11 billion of charges last year according to research firm Datos Insights.
5. UiPath Inc. (NYSE:PATH)
Number of Hedge Fund Holders: 34
UiPath Inc. (NYSE:PATH) is a technology company that provides an end-to-end automation platform with a range of robotic process automation (RPA) solutions. It offers a suite of interrelated software to build, manage, run, and govern automation within the organization. The stock was under pressure in 2024 amid concerns that AI disruptions could reduce demand for traditional robotic process automation.
On December 16th, UiPath Inc. (NYSE:PATH) moved to alleviate the worries by announcing strategic AI partnerships and launching AI features to enhance its automation solutions. It has already unveiled Agent Builder, an AI-powered tool for building, evaluating and publishing AI agents. It has also set itself up for success as a pioneer in agentic automation.
Its platform is already the greatest location to develop, test, and implement AI enterprise-grade agents. Additionally, it offers a comprehensive infrastructure to facilitate agentic automation of end-to-end procedures. Its capacity to coordinate all agents across all workflows and applications sets it apart as well. UiPath has also partnered with AI startup Inflection AI to enhance the development of security-focused automation solutions for industries with strict security requirements.
4. DocuSign, Inc. (NASDAQ:DOCU)
Number of Hedge Fund Holders: 42
DocuSign, Inc. (NASDAQ:DOCU) provides electronic signature solutions. The company offers an e-signature solution that enables sending and signing agreements on various devices. On January 7th, analysts at JMP Securities reaffirmed a market outperform on the stock with a $124 price target. The firm remains bullish on the stock following the launch of the Intelligent Agreement Management (IAM) platform.
The AI-powered IAM platform helps businesses handle the entire contract lifecycle, including initial drafting, the negotiating process, and final signatures. The platform consists of DocuSign AI to generate text for the contract drafting stage. It also consists of Docusgn Navigator, which helps businesses store all their agreements. It can alert companies when deals are about to expire so that no crucial dates are missed, and it uses AI to extract crucial data from each individual contract.
Customers are taking IAM live at a much faster pace than previous platforms. Consequently, DocuSign, Inc. (NASDAQ:DOCU) is on track to achieve $2.96 billion in revenue in fiscal 2025, representing 7% from 2024 levels.
3. Datadog, Inc. (NASDAQ:DDOG)
Number of Hedge Fund Holders: 71
Datadog, Inc. (NASDAQ:DDOG) operates an observability and security platform for cloud applications. Its products comprise infrastructure and application performance monitoring, log management and digital experience monitoring. On January 8th, research analysts at Scotiabank reiterated an outperform rating on the stock with a $133 price target.
The upgrade comes amid growing optimism of another good year for the software sector, which is expected to benefit from multiple catalysts, including artificial intelligence. It also comes on Datadog, Inc. (NASDAQ:DDOG) being named a leader in observability and digital experience monitoring software by consulting firm Gartner. As cloud migration and digital transformation increase the complexity of computing environments, spending in that market is expected to grow at a rate of 12% per year through 2027.
The company is launching new products to satisfy demand, and artificial intelligence (AI), in particular, should be a significant tailwind. LLM Observability, a software module that enables developers to keep an eye on generative AI applications and the large language models (LLMs) that underpin them, was unveiled by Datadog last year.
2. CrowdStrike Holdings, Inc. (NASDAQ:CRWD)
Number of Hedge Fund Holders: 74
CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is a software infrastructure company that provides cybersecurity solutions. Its unified platform offers cloud-delivered protection of endpoints, cloud workloads, identity, and data. On January 3rd, RBC Capital upped their price target of the stock to $420 from $365 and reiterated an “Outperform” rating of the stock. The firm anticipates that 2025 will be another promising year for software, as the group “could benefit from multiple catalysts.”
The price hike comes amid expectations that CrowdStrike will be one of the biggest beneficiaries as the software sector benefits from multiple catalysts. While the company has been at the forefront of cybersecurity, it has started integrating artificial intelligence to strengthen the Falcon Platform’s threat detection, workflow automation, and predictive analytics.
It has also sought to enhance the Falcon platform by introducing Charlotte AI, an artificial intelligence tool that aids security analysts in threat triage. The new artificial intelligence system is already eliciting strong demand and use owing to its ability to enhance savings and workflow automation. AI solution integration is also helping drive stronger overall growth, depicted by CrowdStrike Holdings, Inc. (NASDAQ:CRWD), delivering a 29% revenue increase in the third quarter.
1. ServiceNow, Inc. (NYSE:NOW)
Number of Hedge Fund Holders: 78
ServiceNow, Inc. (NYSE:NOW) is a software application company that provides end-to-end intelligent workflow automation platform solutions for digital businesses. It operates the Now platform for end-to-end digital transformation, artificial intelligence and machine learning. While growth has slowed among software makers, the company is on the cusp of reaching the $10 billion mark in annual revenue.
The growth is being accelerated by the integration of artificial intelligence into products, therefore eliciting strong demand. Likewise, the company is increasingly monetizing its AI-driven products, which have emerged as a control tower for AI business transformation. On January 4th, analysts at RBC Capital reiterated an overweight rating on ServiceNow, Inc. (NYSE:NOW) and increased the price target to $1210 from $1045.
The price hike came amid expectations that ServiceNow will be one of the biggest beneficiaries of improved spending trends in the software sector as artificial intelligence drives new innovations.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article was originally published at Insider Monkey.
Hedge Fund Resource Center