Artificial intelligence was the main force that drove the US stock market to record highs last year. While major indices have since pulled back, the big question is whether the AI trade is fully priced in. Nothing could be further from the truth, as we are still in the early stages of AI development and revolution.
Tech giants pumping billions of dollars into data centres, building AI platforms and investing in startups affirm that AI growth is all but starting. According to former OpenAI chief scientist Ilya Sutskever, we are still in the early stages of the AI revolution, and significant changes are on the horizon.
“We’re in the beginnings of this generative AI revolution as we all know. And we’re at the beginning of a new generation of foundation models that are able to do reasoning and able to do long thinking,” Sutskever said.
After years of building the foundation to support the AI revolution, generative AI is entering a new phase of advanced foundation models that should take AI reasoning and thinking to new heights. Likewise, Sutskever insists we are on the cusp of super-intelligent, self-aware AI capable of reasoning like humans as tech giants work on game-changing innovations.
Nvidia CEO Jensen Huang shares similar sentiments, who insists there is about $1 trillion worth of computers that need updating for accelerated computing. Consequently, AI is looked upon to bring about much-needed changes by improving business efficiency and developing game-changing products. This implies that there is plenty of room for AI-driven revenue growth that should benefit many companies.
Amid the stock run-up experienced in 2024, investment professionals are also optimistic that the trend will persist in 2025. Companies should start reaping the rewards of adopting generative AI as others start generating some returns from their AI investments.
Similarly, Wedbush analyst Daniel Ives expects a 25% rise in tech stocks in 2025, keeping up with the momentum enjoyed last year. While most of the gains will be driven by reduced regulatory pressure under President Donald Trump's administration, a more AI-friendly environment will also significantly impact the upward momentum.
"We believe tech stocks will be robust in 2025 on the shoulders of the AI Revolution and $2 trillion+ of incremental AI cap-ex over the next 3 years,” analysts led by Daniel Ives said in a note.
Some cracks are starting to emerge amid the expected growth around artificial intelligence. Although generative AI has advanced rapidly over the last two years, Silicon Valley has grown increasingly concerned in recent weeks that the pace of advancement is slowing. The lack of advancement between models published by the industry's major players is one early sign. The primary issue might be that AI firms are running out of data on which to train their models.
For this article, we selected AI stocks by going through news articles, stock analysis, and press releases. These stocks are also popular among hedge funds.
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Pegasystems Inc. (NASDAQ:PEGA) is a technology company that develops, markets, licenses, hosts, and supports enterprise software. On January 4th, analysts at RBC Capital reiterated an outperform rating on the stock and raised the price target to $115. The upgrade came amidst growing optimism that Pegasystems is one of the software companies well poised to benefit from multiple catalysts in the software sector.
According to analysts, software spending trends are improving, and generative artificial intelligence has the opportunity to drive new innovations. The upgrade also comes on Pegasystems Inc. (NASDAQ:PEGA) unveiling a next-generation version of its market-leading Pega Smart Dispute offering. Coming with new generative AI and automation features, the software helps banks accelerate the resolution of disputes and fraud claims for any type of payment.
The unveiling of the new AI-powered solution paves the way for Pegasystems Inc. (NASDAQ:PEGA) to entrench its software in the financial services sector by helping banks resolve complex disputes and claims. The company should play a pivotal role in an industry where customers disputed over $11 billion of charges last year according to research firm Datos Insights.
Overall PEGA ranks 6th on our list of the unlikely AI stocks with tremendous upside potential. While we acknowledge the potential of PEGA as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PEGA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
