Hedge Funds Loaded Up AI Stocks at the Fastest Pace Since 2021

Key Points

• Hedge funds are back into AI stocks at the fastest pace since 2021, reiterating the fact that there is much more upside to be had in them.
• Wall Street analysts agree, and three picks could greatly benefit from this theme today.
• Earnings growth and demand for chips will deliver investors a double-digit upside.

There are plenty of indicators investors can keep track of to determine the best opportunities in the market. However, there’s a way to save countless hours of work and research in one single sweep. This can be done by following what the so-called “Smart money” is already doing, and today, investors have a chance to read over the highest conviction trade there is.

It’s all focused on the technology sector, particularly with artificial intelligence stocks, as hedge funds have decided to go into them at the fastest pace not seen since 2021. This signals to investors that, even as the leaders in the space trade well into their 52-week highs today, there are still plenty of reasons left to believe that even higher prices could be had in the space.

Which is why today’s list of names could see their fair share of upside on this new hedge fund buying spree, names like NVIDIA Co. NASDAQ: NVDA, Advanced Micro Devices Inc. NASDAQ: AMD, and even Taiwan Semiconductor Manufacturing Co. NYSE: TSM. These stocks would make the perfect trifecta of the supply chain that’s needed in order to keep developing and expanding on today’s artificial intelligence themes.

NVIDIA’s Earnings Route Will Shock the Market

When it comes to sentiment today, the entire market seems to be invested in the future of NVIDIA’s earnings, which will be announced on February 26, 2025. The expectations are as high as the stakes, but it does look like Wall Street has a relatively set consensus on where the underlying earnings might be headed.

Today, the forecast stands for up to $3.28 in earnings per share (EPS) for NVIDIA during the second quarter of 2025. This would be a massive boost from last quarter’s reported $0.81 in EPS. Considering that stock prices are mainly driven by EPS growth, this is one reason for investors to keep an optimistic outlook on the name coming up.

Speaking of optimism, investors can note that UBS Asset Management boosted its holdings in NVIDIA by as much as 11.4% over the past quarter alone, bringing its net position to a high of $26.9 billion today. This is another bullish factor to consider before earnings.

More than that, there’s a reason why the broader market is willing to pay such a steep premium for NVIDIA stock today. A price-to-book (P/B) ratio of up to 80.8x is well above the computer sector’s average of 7.0x only. While some may call this expensive, seasoned traders will reiterate the fact that markets always pay up for stocks set to beat the market.

Advanced Micro Devices: The Discounted Pick

Advanced Micro Devices might be a better choice for those who are not as comfortable with paying a premium for a stock such as NVIDIA. Considering this stock now trades at 50% of its 52-week high, there is a lot more room for it to catch up in the coming months.

This is especially the case as the company is just as exposed to the artificial intelligence race for chips as NVIDIA. NVIDIA’s chips might be slightly superior or more broadly accepted, but that doesn’t justify Advanced Micro Devices stock trading this low.

Investors can take advantage of this divergence, almost discrepancy, and tap into the double-digit upside being forecast by Wall Street analysts today. Particularly those from Benchmark, who, as of February 2025, reiterated a buy rating for Advanced Micro Devices stock, this time also keeping a $170 per share valuation on it.

Not only would this bring the stock much closer to its 52-week high and make it a reasonable value compared to peers, but it would also mean a net upside of as much as 50.2% from where it trades today.

No NVIDIA Without Taiwan Semiconductor

As important as NVIDIA has become to the technology sector, it would not be able to meet its demand requirements without Taiwan Semiconductor’s help in supplying the components it needs to manufacture its chips. This is why investors should keep an eye on this stock today.

More than that, this company is one of the few that releases a monthly revenue statement to its investors, meaning it is easier to track where earnings might be headed in any given quarter. For January, Taiwan Semiconductor delivered up to 5.4% growth in monthly revenue, reiterating its strong position today.

Over the past 12 months, that number has looked much more like 35.9%, a massive boost to guide investors in the direction they need to consider for this company. Wall Street analysts now forecast up to 18% EPS growth coming up as well, reiterating not only the company's stability but also the underlying upside left in the stock.