🤖 AI Stocks to Watch

our the impact of DeepSake

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A.I., Crypto & Tech Stocks

AI Stocks to Watch as the Sector Gains Momentum

As artificial intelligence (AI) continues to drive technological innovation, with both big and small companies trying to join the race.

While some argue that it is too late to invest in names like Microsoft and Nvidia, we think the game is still on. Other experts like William Blair seem to agree as well and the firm has identified some top AI players to invest in.

The announcement of Stargate, an ambitious AI infrastructure project, has further ignited investor enthusiasm. Unveiled by President Donald Trump, the initiative aims to attract up to $500 billion in private investments, beginning with an initial $100 billion over the next four years. This development has rejuvenated the AI market, with notable stock gains among leading players in the industry.

Stargate Sparks Renewed AI Optimism

Nvidia, often regarded as a market bellwether for AI, saw its shares rise nearly 7% the week of the announcement. Similarly, Meta Platforms and Alphabet, the parent company of Google, added 4% and 1% to their stock values, respectively, in the same week. Oracle, however, emerged as the standout performer, with its stock surging almost 16% that week amid renewed investor enthusiasm.

William Blair’s analyst Jason Ader emphasized the significant opportunity AI presents, stating, “We are still in the early innings when it comes to AI development and usage, and the risks of not investing in AI substantially outweigh the risks of investing in it.” He likened the potential impact of AI to transformative innovations such as the steam engine, the transistor, and electricity.

But Then Came News From China (DeepSake)

The news sent almost all major AI players down with Nvidia being the biggest loser, shedding roughly $600 billion in market cap while its stock dropped 17% as part of a broader rout of the tech sector.

Wedbush Securities’ Dan Ives, a well-known tech analyst, acknowledges DeepSeek's technological advancements but argues that the company lacks the infrastructure and ecosystem that define America’s leading tech giants. According to Ives, no major U.S. company is likely to rely on DeepSeek to develop AI architectures or applications.

There are signs that DeepSeek may have leveraged outputs from OpenAI’s o1 model to enhance the reasoning capabilities of its R1 model. This practice, often referred to as "reverse engineering," involves analyzing and learning from another model’s outputs. AI developer and consultant Reuven Cohen noted that open-source developers have been reverse-engineering OpenAI’s closed models like o1 for months.

DeepSeek's approach underscores how AI models can evolve by learning from existing models developed by OpenAI, Anthropic, and others. This dynamic challenges the traditional business models and cost structures of leading AI firms. Proponents of open-source AI have long argued that AI models will become increasingly commoditized. If open-source models prove both capable and cost-effective, companies may shift away from proprietary models like OpenAI’s at scale, according to William Falcon, CEO of Lightning AI.

However, not everyone sees this as a major threat to OpenAI and its peers. Vaibhav Srivastav, a researcher at Hugging Face, believes the true competitive advantage lies in the application layer—the integration of AI into real-world use cases. While DeepSeek’s advancements may serve as a wake-up call, he does not foresee a fundamental disruption to the industry’s leading players.

DeepSake Might Not be a Danger

Predictions of Nvidia’s downfall at the hands of DeepSeek appear premature, as do suggestions that DeepSeek’s progress should prompt the U.S. to rethink its policies restricting China’s access to advanced AI chips.

Ironically, DeepSeek’s advancements could actually drive higher demand for cutting-edge AI chips—not just from Nvidia but also from its competitors. This aligns with the Jevons Paradox, which suggests that as technological efficiency increases, overall consumption of a resource tends to rise.

One of the biggest barriers to AI adoption in large enterprises has been the high cost of running these models, often making it difficult to achieve a strong return on investment. DeepSeek’s models, however, are significantly cheaper to operate, enabling companies to deploy them across a wider range of applications. This could lead to a surge in overall computing power demand, even as individual computations require less energy.

For Nvidia, the impact is mixed. While its GPUs are optimized for training massive AI models, it faces tougher competition in inference—the process of using trained AI models for real-world tasks. Rivals such as AMD and Groq have developed strong alternatives, while major cloud providers like Google and Amazon are building their own AI chips tailored for inference. While these players could chip away at Nvidia’s market share, the company’s dominance is unlikely to disappear overnight.

If the Jevons Paradox holds and overall AI chip demand expands, Nvidia’s revenues may continue to rise despite losing some market share, as it would still control a smaller slice of a rapidly growing industry.

Given this, if the U.S. remains committed to limiting China’s ability to compete in AI for national security reasons, continuing to restrict access to the most advanced chips still appears justified. As AI policy expert Miles Brundage noted in a recent podcast, American companies are well-positioned to maximize AI performance thanks to their superior access to cutting-edge chips.

Five AI Stocks You Should Consider

The section below was written a week ago, based on William Blair’s recommendations, thus numbers may be different.

Alphabet: Riding High on AI Advancements

Alphabet has gained nearly 34% over the past year and continues to build momentum in the AI race. The company’s large language model, Gemini, has been a key driver of its success.

Some analysts even highlighted the model’s growing strength and the incremental use cases it enables. Alphabet’s Waymo division, focused on automated driving, is also making strides, with planned expansions into Austin and Atlanta this year and Miami by 2026. Additionally, Alphabet’s investments in AI-focused data centers are expected to secure its position as a leader in the space.

Meta Platforms: Leveraging Proprietary Data

Meta Platforms has seen its stock soar over 64% in the past year, solidifying its position as a key player in AI development. Meta’s large language model, Llama, is a crucial asset, backed by one of the largest proprietary datasets among tech companies.

Llama’s base model will likely continue to be leveraged by other firms to fine-tune their own AI systems. Meta’s advancements in AI are also yielding benefits for advertisers, further strengthening its competitive edge.

Toast: Transforming Restaurant Management with AI

Cloud-based restaurant management company Toast has been another standout performer, with shares surging over 145% in the past year. The company’s extensive customer base of more than 172,000 restaurants serves as a significant advantage. By integrating AI capabilities, Toast is empowering restaurant owners to gain actionable insights and streamline operations. This differentiation makes Toast’s platform unparalleled in the industry.

Other Notable Names

Chipmaker Broadcom and electric vehicle giant Tesla also feature prominently on William Blair’s list of top AI stocks. These companies, like the others mentioned, are leveraging AI to drive innovation and maintain their competitive advantages in rapidly evolving markets.

Lessons for Investors

The AI sector remains in its early stages, offering considerable growth potential. Companies with strong AI strategies and investments are well-positioned to capitalize on this trend. For investors, identifying firms with a proven ability to innovate and adapt will be key to benefiting from AI’s transformative impact on the global economy.

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