10 Best Dow Stocks to Buy for 2027

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4. Alphabet (NASDAQ:GOOGL)

Number of Hedge Fund Holders: 275

Short Interest: 1.34%

Average Upside Potential: 37%

Alphabet’s third-quarter report put the AI payoff on display, even as it spooked investors. Google Cloud revenue more than doubled, rising 103%, while the unit’s operating margin widened to 36.2%, showing that the growth is profitable even at this scale.

A cloud backlog of $561 billion gives that growth runway, with just over half of it expected to turn into revenue over the next two years. Demand is broadening too. Chief Executive Sundar Pichai said the Gemini app has reached 1 billion users, which he called the fastest-growing product in Google’s history.

The worry is spending. Capital expenditures keep climbing, and free cash flow turned negative in the quarter, which weighed on the stock. Bulls counter that operating income still grew strongly and that the earnings miss traced to an unrealized loss on the company’s SpaceX stake, not to the core business. Search, the largest business, also kept growing, with Pichai saying AI is lifting query volume, including commercial queries. Management expects capital spending to rise significantly next year, so the bull argument rests on cloud contracts converting into revenue on schedule.

Our analysis on Alphabet (NASDAQ:GOOGL) is available here: Alphabet (GOOGL): Does Its Valuation Account for Waymo’s Potential?

3. Cisco Systems (NASDAQ:CSCO)

Number of Hedge Fund Holders: 101

Short Interest: 1.53%

Average Upside Potential: 44%

Cisco is turning AI data center spending into hard orders. Hyperscalers placed $9.3 billion of AI infrastructure orders with the company in fiscal 2026, several times the prior year’s level, and management expects those customers to generate $7.5 billion of AI infrastructure revenue in fiscal 2027.

The strength is not confined to the largest cloud buyers. Networking product orders climbed 40% in the fiscal fourth quarter, the eighth straight quarter of double-digit growth, while newer Wi-Fi 7 and security products added breadth. Chief Executive Chuck Robbins describes the period as the early stage of a networking super cycle, as customers upgrade networks for AI traffic.

Chief Financial Officer Mark Patterson called that revenue target prudent, because hyperscaler orders are large, uneven and usually placed well ahead of delivery, so the company enters the year with a sizable order book. Enterprise, public-sector and telecom orders also grew at double-digit rates, which means demand is not resting on a few buyers. Gross margin dipped as faster hardware growth changed the sales mix, but the growing order book gives Cisco room to absorb the shift.

You can read our analysis on Cisco Systems (NASDAQ:CSCO) here: Cisco (CSCO): Can It Profit From Helping Customers Spend Less on AI?

2. Caterpillar (NYSE:CAT)

Number of Hedge Fund Holders: 84

Short Interest: 1.65%

Average Upside Potential: 49%

Caterpillar has become a quiet beneficiary of the data center buildout. The company posted its highest sales quarter ever, and its backlog swelled to a record $78 billion, nearly double the level of a year earlier. Sales of power generation equipment to users jumped 75% as customers sought turbines and large engines for data centers.

Demand is running ahead of supply, which is the bullish part. Orders for large reciprocating engines now run into 2029, with turbine orders reaching 2030. Chief Executive Joe Creed said customers still want more power than the company can supply, so Caterpillar is ramping production as quickly as it can.

Profitability is holding up as volumes climb. The adjusted operating margin expanded sharply from a year earlier, and Caterpillar returned cash to shareholders through dividends and buybacks while still funding the expansion. Management said full-year sales should grow in the mid-to-high teens, supported by a record backlog and healthy end markets across construction, mining and power. Frame agreements in the pipeline convert into orders over time, which helps the company plan production beyond the current backlog.

Our analysis on Caterpillar (NYSE:CAT) is here: Caterpillar (CAT): A Cyclical Machine Maker Meets a Growth-Stock Valuation

1. Nvidia (NASDAQ:NVDA)

Number of Hedge Fund Holders: 28

Short Interest: 1.30%

Average Upside Potential: 76%

Nvidia is still growing faster than almost any company its size. Revenue in the fiscal second quarter more than doubled to $96.2 billion, and the company guided the fiscal third quarter to about $108.0 billion without assuming any data center compute revenue from China. That leaves the outlook free of one of the biggest geopolitical swing factors.

The next leg is Vera Rubin, which Nvidia said is ramping into full production, with racks already running at partners including CoreWeave, Google Cloud, Microsoft Azure and Oracle Cloud Infrastructure. Management also said it expects to grow revenue by about 70% in fiscal 2028 and called that outlook supply constrained. It pointed to hyperscaler capital spending reaching $1.3 trillion next year as the demand behind it.

That visibility explains the preparation. Inventory rose in preparation for the Vera Rubin launch, giving the company product ready as customers place orders, and Nvidia returned $26 billion to shareholders in the quarter through buybacks and dividends. Gross margin held steady on a similar product mix, a sign the growth is not coming at the expense of profitability.

Read more in our analysis on Nvidia (NASDAQ:NVDA) here: Nvidia (NVDA) Is Trading Like Growth Will Stop. The Numbers Say Otherwise.

READ NEXT: Nvidia Is Becoming More Than a Chipmaker. Can it Sustain Its Exceptional Margins? and Amazon vs. Alphabet: Is GOOGL’s Cloud Growth Being Undervalued?

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