Because hedge funds employ complex financial analysis, they're often able to find stocks with above-average value or growth potential. If a stock is popular with hedge funds, that's one sign it could be a quality investment.
As artificial intelligence (AI) technology has become more sophisticated, hedge funds have invested heavily in AI stocks. But it's a top-heavy market so far, with a few AI companies getting most of the attention.
We ranked hedge fund interest in AI stocks based on five metrics:
- Net change in holdings to track buying and selling trends for shares of the stock.
- Percentage of hedge funds holding the stock.
- Number in top 10 holdings to show how many hedge funds have a high level of conviction in the stock.
- Quarter-over-quarter (QoQ) 13F market cap changes tracking if hedge funds are increasing or decreasing their exposure to the stock.
- Put/call ratio to assess bullish or bearish sentiment, with a lower ratio indicating a bullish sentiment.
Based on that methodology, hedge funds tend to favor tech giants that have integrated AI across their businesses, like Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), [Alphabet’s] Google (NASDAQ:GOOG), and Nvidia (NASDAQ:NVDA). Funds are less bullish on companies that provide nice AI applications.
Methodology
The Motley Fool selected 20 stocks with strong AI capabilities to analyze. To rank stocks, the Motley Fool analyzed the following metrics: net change in holdings, percentage of hedge funds holding a stock, inclusion in top 10 holdings, quarter-over-quarter market cap changes, and the put/call ratio. Each metric was normalized and then weighted. The weights are as follows:
- Net Change: 0.3
- Percent Hedge Funds Holding: 0.2
- Number in Top 10 Holdings: 0.25
- Quarter-Over-Quarter Market Cap Change: 0.15
- Put/Call Ratio: 0.1
The AI Stocks Hedge Funds Love
The Top 5 Stocks Hedge Funds Are Bullish About
1. Microsoft
Why Hedge Funds Love It
- Microsoft is the most popular AI stock among hedge funds, with 45% holding it and 527 having it in their top 10.
- It has invested in and partnered with OpenAI, the company behind ChatGPT.
- It launched Microsoft Copilot, an everyday AI companion and one of its most notable AI products, in 2023.
Key Metrics
- Net Change in Holdings: -8,147,380
- Percent of Hedge Funds Holding: 44.76%
- Appearances in Top 10 Holdings: 527
- QoQ Market Cap Change: -6%
- Put/Call Ratio: 1.10
2. Amazon
Why Hedge Funds Love It
- Amazon comes in second for fund ownership of AI stocks, as 42% of hedge funds are holding it. The retail giant is one of the top 10 holdings for 393 hedge funds.
- It has incorporated AI technology into its business for decades, starting with personalized product recommendations in the 1990s.
- AI powers its virtual assistant, Alexa, as well as its forecasting, supply chain, and capacity planning. It’s also rolling out generative AI features for AWS users, in its fulfillment operations, and for buyers and sellers in its ecommerce business.
Key Metrics
- Net Change in Holdings: -64,316,749
- Percent of Hedge Funds Holding: 41.79%
- Appearances in Top 10 Holdings: 393
- QoQ Market Cap Change: -9%
- Put/Call Ratio: 1.27
3. Meta Platforms
Why Hedge Funds Love It
- Meta Platforms (NASDAQ:META) has one of the lowest put/call ratios at 0.87, indicating hedge funds are feeling bullish about this stock.
- This company's market cap is up 11% quarter over quarter, and more than one-third (37%) of hedge funds are holding it.
- Meta released a large language model (LLM), Llama, in February 2023, and Meta AI Assistant in April 2024.
- Advertising makes up the bulk of Meta's revenue, and it provides businesses with generative AI tools to improve ad performance.
Key Metrics
- Net Change in Holdings: -2,628,023
- Percent of Hedge Funds Holding: 37.11%
- Appearances in Top 10 Holdings: 300
- QoQ Market Cap Change: 11%
- Put/Call Ratio: 0.87
4. Nvidia
Why Hedge Funds Love It
- Nvidia added more than $2 trillion to its market cap in 2024, and it's now a top 10 holding of 346 hedge funds.
- This tech company manufactures graphics processing units (GPUs) that are ideal for training and running AI models.
- Nvidia AI Enterprise is a software platform that allows businesses to deploy AI models in cloud environments.
Key Metrics
- Net Change in Holdings: -107,820,463
- Percent of Hedge Funds Holding: 36.81%
- Appearances in Top 10 Holdings: 346
- QoQ Market Cap Change: -5%
- Put/Call Ratio: 1.22
5. Alphabet (Google)
Why Hedge Funds Love It
- Alphabet, the holding company that owns Google, is held by 38% of hedge funds, which ranks third in that metric.
- AI powers Google's core products, including its search tools, Google Maps, YouTube, Gmail, and ads.
- It also offers an AI assistant called Gemini.
Key Metrics
- Net Change in Holdings: -25,780,409
- Percent of Hedge Funds Holding: 38.32%
- Appearances in Top 10 Holdings: 251
- QoQ Market Cap Change: -17%
- Put/Call Ratio: 1.23
5 AI Stocks Hedge Funds Favor Less
Synopsys
Hedge Fund Interest
- Synopsys (NASDAQ:SNPS) isn't a large holding for many hedge funds, and its market cap dropped by 16.41% quarter over quarter.
- It's using generative AI tools to speed up chip development and design.
- The company offers Synopsys.ai, a portfolio of electronic design automation (EDA) development tools that have AI enhancements.
Key Metrics
- Net Change in Holdings: -2,646,361
- Percent of Hedge Funds Holding: 12.74%
- Appearances in Top 10 Holdings: 10
- QoQ Market Cap Change: -16.41%
- Put/Call Ratio: 1.47
Arm Holdings
Hedge Fund Interest
- Few hedge funds are investing in Arm Holdings (NASDAQ:ARM). Only 7% of them hold stock in this company, and it's in the top 10 holdings of five hedge funds.
- As AI has become more popular, Arm has developed AI-enabled chip designs.
- Arm licenses out its chip designs and receives royalties from companies that use them.
Key Metrics
- Net Change in Holdings: -1,375,109
- Percent of Hedge Funds Holding: 7.10%
- Appearances in Top 10 Holdings: 5
- QoQ Market Cap Change: -1.31%
- Put/Call Ratio: 1.34
IonQ
Hedge Fund Interest
- Quantum computing company IonQ (NYSE:IONQ) is the least popular AI stock, with less than 3% of hedge funds holding it. It's a top 10 holding of only two hedge funds.
- IonQ is exploring quantum AI, the use of quantum computing to build more powerful AI models. The timeline for a breakthrough and monetizable application is unclear.
- It's collaborating with many leading AI companies, including Nvidia, Amazon, Microsoft, and Dell (NYSE:DELL).
Key Metrics
- Net Change in Holdings: -1,478,884
- Percent of Hedge Funds Holding: 2.67%
- Appearances in Top 10 Holdings: 2
- QoQ Market Cap Change: 36.02%
- Put/Call Ratio: 1.85
ASML Holding
Hedge Fund Interest
- ASML Holding (NASDAQ:ASML) hasn't caught on as much as other AI stocks, being part of only 15% of hedge funds' portfolios.
- This manufacturing company supplies the semiconductor industry, providing chipmakers, including those who make chips for AI, with equipment.
Key Metrics
- Net Change in Holdings: -3,214,819
- Percent of Hedge Funds Holding: 15.11%
- Appearances in Top 10 Holdings: 14
- QoQ Market Cap Change: -23.35%
- Put/Call Ratio: 1.73
Mobileye Global
Hedge Fund Interest
- Mobileye Global (NASDAQ:MBLY) hasn't caught on as much as other AI stocks, being part of only 4% of hedge funds' portfolios. Funds that do own the stock are shedding shares.
- The autonomous driving company faces stiffening competition from Chinese firms.
- It aims to leverage AI in its Advanced Driver Assistance Systems (ADAS) and autonomous vehicle projects.
Key Metrics
- Net Change in Holdings: -4,383,512
- Percent of Hedge Funds Holding: 3.90%
- Appearances in Top 10 Holdings: 2
- QoQ Market Cap Change: -59%
- Put/Call Ratio: 0.63
What Can Individual Investors Learn From How Hedge Funds Are Investing in AI Companies?
Hedge fund interest in AI companies demonstrates the value that this technology has. Since it's a relatively new technology that's changing rapidly, investors can still get in early. That's one of the reasons hedge funds have been pouring money into AI stocks. The growth potential for emerging opportunities like this one is much higher than that of established products and services.
A range of companies are involved with AI, and hedge funds are investing in a diverse mix of them, from online retailers like Amazon to car companies like Tesla (NASDAQ:TSLA). Investors could benefit by following the same approach and adding different types of AI stocks to their portfolios.
The AI companies that are most popular with hedge funds are integrating new AI tools into their business models, core products, and technologies. Microsoft, Amazon, and Google have all incorporated AI throughout their businesses, and AI is at the center of Nvidia’s products. Investors who want to capitalize on the growth of AI should consider tech companies that have made it a key part of their overall strategy.
On the other hand, hedge funds are less bullish about companies with strong but niche capabilities that they’re using AI to boost, like cybersecurity, chip design, and quantum computing.
Those preferences may shift in coming quarters with the realization that industry-standard LLMs can be integrated more cheaply and efficiently. That revelation, fuelled by DeepSeek’s release of R1, suggests that hyperscalers may be less dependent on proprietary AI models and hardware. DeepSeek’s success could point to more opportunities to be found in companies leveraging AI for specific, high-value applications at lower cost than previously thought.
Hedge fund interest is a useful metric to see where professionals are investing their clients' money. While investors shouldn't base their decisions entirely on what hedge funds are doing, hedge fund holdings can provide ideas of companies to research.
