The Top 6 AI Stocks For 2025

The AI frenzy continues to rage on Wall Street…

According to data provider EPFR, investors have poured more than $5 billion into technology sector funds during the past 15 months. This trend was driven higher by three consecutive interest rate cuts by the Federal Reserve in 2024 as well as Donald Trump’s presidential victory as investors flooded the stock market with more than $140B in fresh capital, hoping that tax reforms boost profits across corporate America. Much of that activity has been powered by investor interest in artificial intelligence, as shares of AI-leveraging companies have fueled a blistering +25% rally of the S&P 500 this year. AI bellwether Nvidia (NVDA) has surged 149% over the past year. Meanwhile, big tech companies, including Microsoft’s (MSFT) partnership with OpenAI and Google’s (GOOG)(GOOGL) Gemini rollout, have also pushed stocks higher.

The AI market is projected to grow from around $538B last year to more than $1.8t by 2030, producing an estimated 19% CAGR through 2032. In his final weeks in office, President Joe Biden’s administration unleashed new regulations that would block the export of American-made semiconductors to adversaries, including Russia and China. It was the latest development in a fierce AI arms race as the U.S. fights to retain its dominance in manufacturing the chips crucial to powering AI technology.

…Is it Still Worth the Hype?

According to Precedence Research, North America commanded the largest share of the global AI market, at nearly 37% in 2023. Europe, Asia-Pacific (APAC), and Latin America followed at 25.5%, 24%, and 13.6%, respectively. As exhibited below, APAC is the fastest-growing AI market over the forecast period.

The message is clear: Whoever wields the AI, wields the power. The same can be said in the corporate sphere. AI stocks, including Palantir Technologies (PLTR) and Nvidia, posted triple-digit returns and dominated the market in 2024. Rising interest has paved the way for more trading access via targeted AI exchange-traded funds (ETFs). These allow investing in broader themes instead of specific companies, but performance will vary.

Take, for example, the Defiance Quantum ETF (QTUM) and the Invesco Semiconductors ETF (PSI). Both have performed similarly since 2020, beating the market, as illustrated in the chart below.

AI ETFs Register Mixed Performance

Meanwhile, the iShares Future AI & Tech ETF (ARTY) is down compared to the S&P 500. So, how can you pinpoint which AI stocks are currently leading the market if certain ETFs are underperforming? That’s where our Quant Rating System comes in. Seeking Alpha Quant Ratings are a powerful combination of proprietary computer processing technology and what I call “quantamental” analysis, allowing you to cut through the AI noise and focus on stocks with solid fundamentals that are expected to grow earnings at an above-average rate compared to the market.

Biggest AI Companies in the World

Big tech behemoths, including Amazon (AMZN), Google, Apple (AAPL), Meta (META), Microsoft (MSFT), and IBM (IBM) have poured billions into AI research to entrench themselves in the highly lucrative space and get the edge on their competitors, whether it’s investing in the most sought-after start-ups such as MSFT’s more than $11B stake in ChatGPT maker OpenAI, or positioning themselves as a critical cog in the AI supply chain such as NVDA’s AI-critical graphic processing units (GPUs).

But while generative AI tools like ChatGPT’s influence over the global economy is unquestionable, the potential to reap gains from AI stocks today is more nuanced. PLTR, for example, has lost more than 20% from its record high in December, receiving a “hold” rating from our Quant system and analysts across Wall Street as of Jan. 9, 2025, as the company founded by venture capitalist Peter Thiel looks increasingly frothy. Despite its blockbuster year in 2024, fellow AI heavyweight NVDA’s stock is similarly beginning to stall. Elsewhere in the market, potential bubbles are brewing: SoundHound AI (SOUN), for example, plummeted more than 16% on Tuesday as its valuation has grown unsustainable given its poor fundamentals. SA analyst Richard Durant explains the situation in detail here.

How I Picked the Top AI Stocks

Silicon Valley’s culture of hype and hubris can make it difficult to tell which AI players have real staying power and which could be at risk of overblown valuations. But, as SA’s Quant system shows, plenty of gems still have excellent fundamentals, strong momentum, and solid valuations.

Our data-driven Quant system leverages powerful computer processing and our proprietary algorithm to analyze thousands of stocks across a diverse range of sectors in real time. It ranks them based on hundreds of metrics across value, growth, profitability, EPS revisions, and momentum, lending unique insights about their performance and long-term outlook only available to SA Premium and PRO subscribers. To identify the top-performing stocks in the AI universe, I’ve used the Quant system to analyze securities from three of the largest AI ETFs – the Global X Robotics & Artificial Intelligence ETF (BOTZ), the Robo Global Robotics and Automation Index ETF (ROBO) and the Global X Artificial Intelligence & Technology ETF (AIQ) – and selected three top-performing large-cap stocks and three top-performing small-to-medium – SMID – cap stocks to represent the full spectrum of AI opportunities. They include tech companies that sell AI-powered solutions as well as non-tech firms that employ AI to boost productivity, improve products, and streamline operations. The top six AI-leveraging stocks have an average levered free cash flow margin of ~18.6% and have returned an average of ~60% more than the past 12 months.

1. Twilio Inc. (NYSE: TWLO)

• Market Capitalization: $16.6B
• Quant Rating: Strong Buy
• Quant Sector Ranking (as of 1/13/25): 10 out of 550
• Quant Industry Ranking (as of 1/13/25): 2 out of 23

Ranking second only to Kingsoft Cloud Holdings (KC) among Top Internet Services and Infrastructure Stocks and included within Quant’s top tech stocks for 2025, cloud communications company Twilio returned nearly 51% over the past 12 months. The customer engagement platform is poised to keep riding the AI wave well into 2025, its shares more than doubling since May thanks to improved revenues, reduced losses, increased cash flow, and the completed sale of high-profile ETF investor Cathie Wood’s stake in the group—all reflected in its strong Q3’24 earnings results.

Like many other cloud computing companies, the San Francisco-based company rose to prominence during the COVID-19 pandemic but quickly lost money due to high expenses and slow revenue growth. However, explosive demand for generative AI, like Twilio’s CustomerAI platform, which uses large language models (LLMs) and natural language processing (NLP) to analyze customer data, has helped fuel its impressive turnaround.

TWLO Revisions, Momentum, and Valuation

With a staggering 23 up EPS revisions and 27 revenue revisions from analysts in the last 90 days, Wall Street has also registered TWLO’s financial comeback in recent months. The turnaround is reflected in its ‘A’ Momentum Score, with six- and nine-month price performance of 93.5% and 81.3%, respectively. These are both more than a 1000% difference from the sector medians as the AI-leveraging software group has grown to outperform the S&P 500 by nearly double in recent months.

TWLO also maintains strong growth prospects with a forward EBITDA growth rate of 50.6% (783% higher than the sector median), YoY operating cash flow growth of 520.8% (3,348.45% above the sector median), and a levered free cash flow margin of 107% (603% higher than the sector median). An average forward price-to-earnings (P/E) ratio of 30x indicates that TWLO trades slightly higher than its peers, nearly 20% above the sector median. This brings us to Celestica, one of the top-performing stocks in the Alpha Picks portfolio.

2. Celestica Inc. (NYSE: CLS)

• Market Capitalization: $12B
• Quant Rating: Strong Buy
• Quant Sector Ranking (as of 1/13/25): 7 out of 550
• Quant Industry Ranking (as of 1/13/25): 1 out of 66

A two-time Alpha Pick included among Quant’s Top Stocks for 2025, Celestica’s stunning 255% rise over the past year can be attributed to its highly lucrative pivot to focusing on AI infrastructure manufacturing. Carving itself a niche in making networking switches for data centers, CLS’ Connectivity & Cloud Solutions segment represents 67% of total revenues and has grown 42% YoY as more tech companies shell out for data center space for AI computing power. Highlights from its impressive Q3 ’24 financial results include a 22% YoY revenue increase to $2.5B and record adjusted EPS of $1.04.

CLS Valuation, Momentum, and Growth

Unlike some overvalued competitors, CLS has maintained an attractive valuation despite posting blockbuster returns in 2024, with forward price-to-earnings growth (PEG) of 0.87. A PEG below one typically indicates that a stock is undervalued compared to its peers. CLS has crushed the broader market with its ‘A+’ Momentum Grade and has garnered six EPS upward revisions and eight revenue revisions from analysts over the past 90 days. Its Growth Grade has also improved, rising from a ‘C+’ to a ‘B+’ thanks to key metrics, including forward EPS growth of 49% and YoY EPS diluted growth of 88%, more than 1000% higher than the sector median.

Like CLS, this next stock has evolved to incorporate AI into its operations in new and innovative ways.

3. DocuSign, Inc. (NYSE: DOCU)

• Market Capitalization: $18.3B
• Quant Rating: Strong Buy
• Quant Sector Ranking (as of 1/13/25): 27 out of 550
• Quant Industry Ranking (as of 1/13/25): 10 out of 196

Over the past year, electronic signature company DocuSign has introduced novel AI features, which have since become a go-to for businesses to streamline the once arduous and complex process of contract agreements. The revved-up focus on AI helped its stock surge more than 21% following its expectation-beating Q3 ’24 earnings, a performance poised to continue in 2025 as it taps into new markets both domestically and in Europe.

Writes SA Analyst Noah’s Arc Capital Management:

“DocuSign’s AI features are already playing an instrumental role in helping businesses review and simplify long contract agreements. I continue to believe DocuSign AI is a breakthrough product that can help users review, manage, create, negotiate, and summarize contracts that would otherwise be expensive to analyze with attorneys.”

DOCU Growth, Valuation and Profitability

Compelling growth metrics, including ‘A+’-rated EBIT growth of 239.21%—10,710.48% above the sector median—and YoY diluted EPS growth of 1,852.2%—a whole 24,971% higher than its peers—underscore DOCU’s rise over the past few quarters, though its overall ‘C+’ Growth Score is weighed down by an F-rated ‘-29.58%’ forward return on equity growth.

Despite its banner performance, DocuSign’s trailing and forward P/E GAAP ratios of 18.6 and 17.9 are 38.6% and 41.5% below the sector medians, respectively, indicating that the San Francisco group’s shares are significantly undervalued. Its ‘A+’-Rated PEG (TTM) of 0.01, a 99% difference from the sector median, also indicates a strong value proposition.

DOCU has beaten earnings expectations for eight quarters running, a feat reflected in its ‘A+’ Profitability Grade. Among other high-scoring factors, it has a 34.7% net income margin (TTM) and 38.9% levered FCF margin (TTM).

Our next selection has similarly staged an impressive turnaround by leveraging AI.

4. FARO Technologies, Inc. (NASDAQ: FARO)

• Market Capitalization: $478.2M
• Quant Rating: Strong Buy
• Quant Sector Ranking (as of 1/13/25): 43 out of 550
• Quant Industry Ranking (as of 1/13/25): 4 out of 47

FARO Technologies, a Lake Mary, Fla.,-headquartered company, designs and develops 3D measuring technology. Leveraging AI to be the leader in “smart factories” and “intelligent automation,” its scanning technology helps increase productivity and fast-track production. The company has returned nearly 54% over the past six months, building on the momentum of the global 3D scanning market, which is poised to grow to $11.85B by 2032 at a CAGR of 13.11% during the forecast period 2022-2032.

FARO posted strong results in Q3, generating $0.21 of non-GAAP EPS, its sixth straight quarter of exceeding expectations as it continues its strategic plan which involved unveiling a new line of laser scanners.

FARO Growth and Valuation

To understand FARO’s “Strong Buy” status, look no further than its growth metrics, with forward EBIT growth of 112.48%—a 1,410.71% difference from the sector median—and astounding YoY levered FCF 24,214.19%, 164,037% above the 7.45% sector median. Forward EBITDA growth of 42.76%, a 639.9% increase from the sector median, also indicates more growth to come.

FARO stock is also undervalued according to its metrics, with an EV/sales ratio (TTM) of 1.41, 59% lower than the sector median, and a price/book ratio (TTM) of 1.9, 45% below the sector median.

SA Quant’s next selection is also making waves in its sector with the power of AI.

5. Proto Labs, Inc. (NYSE: PRLB)

• Market Capitalization: $897.3M
• Quant Rating: Strong Buy
• Quant Sector Ranking (as of 1/10/25): 42 out of 613
• Quant Industry Ranking (as of 1/10/25): 4 out of 73

PRLB could be a compelling opportunity to buy the dip. Despite falling around 16% over the past month, the company reported industry-leading profitability and $24.8M in cash flows in Q3’24, the highest seen since its 2020 acquisition of 3D-printing parts manufacturer 3D Hubs. Headquartered in Minnesota, Proto Labs specializes in on-demand manufacturing solutions for a wide range of companies, eliminating the need for them to stock large quantities of products.

Proto Labs has registered five upward EPS revisions and five upward revenue revisions over the last 90 days. The more professional analysts’ earnings per share revisions associated with a stock, the more it’s deemed to have higher-than-expected earnings growth compared to its sector in the long term. Strong sector tailwinds are also on PRLB’s side: The global print-on-demand market size was valued at $6.18B in 2022 and is expected to grow at a CAGR of 25.8% through 2030.

PRLB Valuation

PRLB has a long-term growth rate of 25%, over 119% higher than the sector’s 11.4%, and YoY capital expenditure (capex) growth of 74.4%, 1,612.85% higher than the sector’s 4.3%—suggesting that it’s reinvesting significant cash back into its operations.

The company is fairly valued with a forward PEG of 0.06, indicating that it comes at a significant discount to its peers at a 49.3% difference from the sector. Its price-to-book ratio (TTM) of 1.36 is also a green flag at a -52.83% difference from the sector, while its ‘D’-rated forward and trailing P/E figures of 39.9 and 48.8, respectively, reflect its dipping share price, bringing the overall Valuation Grade to a ‘C’.

Our next pick is also a great opportunity to buy the dip, given recent tailwinds in the AI sphere.

6. Freshworks Inc. (NASDAQ: FRSH)

• Market Capitalization: $4.9B
• Quant Rating: Strong Buy
• Quant Sector Ranking (as of 1/10/25): 58 out of 549
• Quant Industry Ranking (as of 1/10/25): 24 out of 196

Another potential “buy the dip” opportunity, shares in cloud-based software-as-a-service company Freshworks are swiftly on the rebound following a rocky 2024. The India-founded company offers AI-enabled software solutions to more than 68,000 customers across various sectors, serving global brands including American Express, Shopify, and Airbus. Its Q3’24 financial results were chock-full of positive signals:

• 22% YoY increase in revenue to $186.6M
• 21% YoY increase in free cash flow
• raise of its full-year guidance
• $400M buyback plan
• debt-free balance sheet with strong liquidity.

Freshworks recently announced a ~13% decrease in headcount, which could help further boost margins alongside its share repurchasing program. FRSH is also primed to reap the benefits from a boom in demand for AI SaaS, a market expected to accelerate at a CAGR of more than 30% by 2031.

FRSH Growth, Valuation, and Momentum

Fueling FRSH’s ‘A-’ Growth Score is the same impressive revenue growth mentioned above, including forward revenue growth of 17.8%—a 221.8% difference from the sector. It also touts a 3-5 year long-term CAGR of 27.5%— 824.2% higher than its peers and year-over-year capex growth of 83.3%.

Regarding valuation, a 1.51 forward PEG suggests that the stock comes at a slight discount to its peers, with (similar to PRLB) higher-than-average P/E multiples likely attributed to its shares falling around 9.3% over the past month. Among FRSH’s most attractive Quant indicators is its ‘A’ Revisions Score, with 17 EPS up revisions and 16 revenue up revisions over the past three months.

Conclusion

As AI hysteria continues to sweep Wall Street, the valuations of some of the biggest AI-leveraging companies are teetering on overblown. However, SA’s Quant System shows that there are still plenty of AI ‘Strong Buy’-rated stocks with strong fundamentals. Our top-6 list is up ~60% on average in the past year, with bullish momentum and strong valuations. Consider these six stocks an opportunity to integrate AI into a portfolio, without all the froth.

Alternatively, consider exploring Alpha Picks if you’re seeking a limited number of Seeking Alpha Quant’s best monthly ideas from the hundreds of top quant Strong Buy-rated stocks.

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