Is the artificial intelligence stock market boom still wired or tired amid the emergence of China's DeepSeek? Top AI stocks such as Microsoft (MSFT) and Nvidia (NVDA) face high expectations. For many companies — such as Google parent Alphabet (GOOGL), Amazon.com (AMZN) and Facebook parent Meta Platforms (META) — the rise of generative AI poses both risk and opportunity.
Amid the rise of generative AI — which generates text, images, and video — it's a good time to be cautious amid the hype, especially given recent developments at Super Micro Computer (SMCI).
Many companies suddenly tout AI product roadmaps. In general, look for AI stocks that use artificial intelligence to improve products or gain a strategic edge.
Cloud computing titans and tech giants plan big increases in artificial-related capital spending in 2025. They updated plans on earnings calls with Wall Street analysts.
On the earnings front, chip maker Nvidia reports on Feb. 26.
For Nvidia, ramping up production of next-generation Blackwell AI chips in 2025 has been a key issue.
"The next important test for AI bulls comes when Nvidia reports Q4 results," said Bank of America analyst Vivek Arya in a report. "We expect a modest Q4 beat but the Q1 outlook could face headwinds from Blackwell transition, Hopper declines and China restrictions. The stock could be volatile post results, but we expect positive momentum to resume as investors look forward to Nvidia's leading new product pipeline."
Also, Nvidia stock has gained 4% in 2025. The chip maker hosts the Nvidia GTC AI Conference from March 17 to March 21.
DeepSeek Shakes Up AI Trade
Further, China startup DeepSeek has roiled AI stocks, including Nvidia.
DeepSeek came out of nowhere to release a powerful AI training model developed with much less computing power. AI stocks sold off amid new questions over the outlook for capital spending on artificial intelligence infrastructure.
Here's IBD's take on the key questions involving DeepSeek, including U.S./China competition in artificial intelligence and the pursuit of human-like AGI (Artificial General Intelligence).
The commoditization of AI models could spur application development. While "training" AI models has been the biggest driver of capital spending, the market will shift to "inferencing," or running AI applications, in the long run.
Having struggled to generate new revenue from "copilots," software companies are now turning to AI agents. One big issue for software companies is how fast customers ramp up pilot programs to commercial deployment.
What's more, data analytics software maker Palantir (PLTR) has bucked the trend that chipmakers and data center plays are the best AI stocks. PLTR stock has jumped 64% in 2025 after soaring 340% last year.
↑ X Nvidia Has Dominated The AI Revolution. Can The Chipmaker Stay At The Front Of The Pack?Key Issues For Top AI Stocks
Amid worries over capital spending, Google stock is down 3% in 2025, while Microsoft has shed almost 3%. Amazon has gained 3%. Meta sticks out with its 22% advance.
Further, Meta AI now has over 700 million monthly average users , and management believes it is now the No. 1 leading AI assistant. Meta expects to reach 1 billion users in 2025. With AI, the social media giant plans to deliver more personalized and relevant responses for users across apps, including Thread.
And, Meta could release its own AI-driven search engine in 2025, posing a new worry for Google. Meta last year hired away Salesforce's (CRM) top AI executive, Clara Shih, to head a new "Business AI" group.
To be sure, competition is heating up. Amazon is expected to announce a new "AI Alexa" at an event in New York City on Feb. 26. Amazon's Echo smart home devices feature the Alexa voice assistant.
Among AI stocks to watch, Apple (AAPL) has lagged in 2025. Apple stock has shed 2%. The big question has been whether Apple Intelligence features in iPhone 16 models will spur a big upgrade cycle. Based on Apple's December quarter results, a big AI-driven upgrade cycle has not yet kicked in.
U.S. Chip Export Restrictions A Wild Card
In general, semiconductor plays have out-performed software companies as the best AI stocks.
The 2025 capital spending plans of cloud computing giants could boost chip makers.
But AI chip export restrictions remain an overhang on Nvidia stock as well as Advanced Micro Devices (AMD). AMD stock is down 6% in 2025.
Rival Broadcom (AVGO) soared on its AI chip demand outlook. Broadcom makes custom AI chips for cloud computing titans.
Qualcomm (QCOM), ARM Holdings (ARM), and Marvell Technologies (MRVL) are other AI chipmakers to watch.
Intel's (INTC) artificial-intelligence boss, Justin Hotard, is leaving to become CEO of telecom network gear maker Nokia (NOK).
What's clear is that AI stocks are under more scrutiny.
"We expect AI to transition from a 'tell me' to a 'show me' story, with any disconnect between investments and revenue generation to come under increased scrutiny," said a Bank of America report. "
Arista Networks (ANET) reported fourth-quarter earnings and revenue that topped Wall Street targets. Full year 2025 revenue guidance for Arista stock underwhelmed.
Best AI Stocks: Will Software Emerge?
Microsoft is the biggest investor in generative AI leader OpenAI, having spent some $14 billion on the startup. But Oracle will now be a big provider of data center capacity to OpenAI for training AI models.
Most of Microsoft's new AI revenue comes from its cloud computing business, not software upgrades.
Palantir — as well as Snowflake (SNOW) and privately held Databricks — are focused on helping companies use proprietary data to build their own AI models. Here's a look at Databrick's strategy.
In an IBD interview, ServiceNow (NOW) Chief executive Bill McDermott explained about how the enterprise software maker aims to be an AI winner.
Meanwhile, startups OpenAI and Anthropic are battling Google, Meta and others in developing large, multimodal and small language foundation models.
Also, AI technology uses computer algorithms. The software programs aim to mimic the human ability to learn, interpret patterns and make predictions.
Until recently, machine learning was largely limited to models that processed data to make predictions. The AI models focused on pattern recognition from existing data. Corporate spending on AI projects was modest as companies mulled return on investment.
AI Stocks To Watch By Industry Group
| Company | Symbol | Comp Rating | Industry name | AI angle |
|---|---|---|---|---|
| Nvidia | (NVDA) | 98 | Elec-Semiconductor Fabless | Cloud computing giants buying more chips to train AI models or run AI workloads. Big lead over rival Advanced Micro Devices (AMD). |
| CrowdStrike | (CRWD) | 99 | Computer Software-Security | AI chatbots expected to automate more functions in security-operations centers and reduce the time to detect computer hacking. |
| Arista Networks | (ANET) | 98 | Computer-Networking | Sells computer network switches that speed up communications among racks of computer servers packed into "hyperscale" data centers. With AI growth, internet data centers will need more network bandwidth. |
| Microsoft | (MSFT) | 62 | Computer Software-Desktop | Biggest investor in generative AI startup Open AI, whose ChatGPT users require Azure cloud services. Microsoft's business AI assistant, Office 365 Copilot, will have general availability on Nov. 1. |
| Salesforce | (CRM) | 94 | Computer Software-Enterprise | Integrating conversational AI assistants within the user interfaces of all Salesforce apps. Expected to use a mix of subscription and consumption-based pricing. |
| Amazon.com | (AMZN) | 97 | Retail-Internet | Alexa smart assistant lags in chatbot technology. Cloud computing unit working with OpenAI rivals Anthropic, Hugging Face and Falcon 40B. |
New generative AI models process "prompts," such as internet search queries, that describe what a user wants to get. Generative AI technologies create text, images, video and computer programming code on their own.
Companies will aim to boost productivity by developing customized AI for specific industries. Proprietary company data will be used to train AI models.
AI systems require massive computing power to find patterns and make inferences from large quantities of data. So the race is on to build AI chips for data centers, self-driving cars, robotics, smartphones, drones and other devices.
For chipmakers, analysts expect a market for "edge AI" — on-device processing of AI apps to emerge.
Will AI Startups Challenge Tech Giants
What's more, one key question for investors is whether tech industry incumbents will be the big generative AI winners. Or, will a new wave of AI startups eventually dominate? OpenAI has told employees its now on an annual revenue run-rate of $3.4 billion, up from $2 billion in January.
OpenAI has raised $6.6 billion in new funding, valuing the startup at $157 billion, up from $86 billion early this year. The new round was led by venture-capital firm Thrive Capital. Microsoft again invested. New investors include SoftBank and Nvidia but not Apple as rumored.
Further, OpenAI recently laid out more details of its plans to adopt a for-profit business structure in 2025.
Further, Nvidia-based CoreWeave is a new AI cloud infrastructure provider that plans an IPO in 2025.
Large language models provide the building blocks to develop applications. Further, LLMs help AI systems understand the way that humans write and speak. Also, LLMs require training data for specific tasks. Companies with access to troves of data hold an edge.
OpenAI is part of a wave of LLM startups that includes AI21 Labs, Anthropic and Cohere. Anthropic introduced Claude 3, the newest version of its chatbot, and claimed its performance is better than OpenAI's GPT-4.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
YOU MAY ALSO LIKE:
Want To Trade Options? Here Are The Basics To Get You Started
IBD Digital: Unlock IBD's Premium Stock Lists, Tools And Analysis Today
Learn How To Time The Market With IBD's ETF Market Strategy
Monitor IBD's "Breaking Out Today" List For Companies Hitting New Buy Points
