Former House Speaker Kevin McCarthy joined CNBC’s “Squawk Box” on Nov. 26, where he highlighted the need for a new group he created, the Alpha Institute, which aims to advocate for technology-friendly proposals. He stressed the importance of focusing on long-term technological advancements, particularly in the areas of AI and quantum technology, which he said are critical to America’s future competitiveness.
McCarthy noted that lawmakers often get bogged down in day-to-day issues and fail to consider the long-term implications of their policies. He shared that three years ago he launched a course to educate members of Congress about AI and quantum technologies, recognizing their importance in various sectors such as energy and defense. He argued that without reforming processes such as permitting and improving the energy grid, the United States risks falling behind in the AI race.
Later on December 2, Jay Jacobs, head of BlackRock U.S. Thematic and Active ETFs, joined “Halftime Report” with CNBC’s Bob Pisani to discuss key themes to watch in the ETF space at approaching 2025. Jacobs highlighted that a major trend for 2025 will be the acceleration of AI infrastructure and its integration into consumer issues. He outlined three distinct stages of the AI theme: the construction phase, during which significant investments are made in infrastructure; the mass adoption phase by businesses and individuals; and the transformation phase, which will see entirely new industries emerge thanks to advances in AI.
Jacobs pointed out that during the construction phase, ETFs focused on semiconductors, such as SOXX, and digital infrastructure like IDTT will benefit significantly. As companies adopt AI technologies, software names are expected to gain traction, leading to a transformation that could create new market opportunities over the next five to 10 years.
Methodology
We sifted through media reports and ETFs to find AI companies trading less than $5 billion. This is our definition of small cap stocks. We then selected the 12 most popular stocks among elite hedge funds that analysts were bullish on. Stocks are listed in ascending order of the number of hedge funds with stakes in them, as of Q3 2024. Hedge fund data comes from the Insider Monkey database which tracks the movements of more than 900 elite fund managers .
Why are we interested in stocks that hedge funds are piling into? The reason is simple: our research has shown that we can outperform the market by imitating the stocks selected by the best hedge funds. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (ssee more details here).
A technician inspecting a newly manufactured semiconductor product.
Market capitalization as of December 2: $3.29 billion
Number of hedge fund holders: 23
Synaptics Inc. (NASDAQ: SYNA) specializes in human interface solutions, including touchpads and touchscreens. Recently, the company has turned its attention to advanced AI, with the aim of improving device intelligence. By integrating AI into its products, it enables devices to better understand and respond to user interactions.
It delivered strong quarterly performance, with revenue up 8.41% in the first quarter of 2025 compared to the same period last year. One of the main drivers of this growth is the company’s focus on AI-based solutions. One such solution is the AI Hub, an innovative product that connects multiple devices, reducing the need for cloud connectivity, designed to equip edge devices with advanced AI capabilities, allowing them to perform complex tasks locally . This approach offers significant benefits, including reduced latency, improved privacy, and reduced power consumption.
This shift toward edge computing aligns with industry trends and meets the growing demand for intelligent, autonomous devices. The AI Hub is poised to revolutionize the way devices interact and operate, opening up new opportunities for growth and innovation. The company’s commitment to innovation and focus on AI-based solutions enables it to enjoy continued success.
TimesSquare Capital US Small Cap Growth Strategy said the following regarding Synaptics Incorporated (NASDAQ: SYNA) during its first quarter 2024. investor letter:
“Among the wide variety of information technology companies, we prefer suppliers of mission-critical systems, designers of specialized components and systems that improve the productivity or efficiency of their customers. Incorporated Synaptics (NASDAQ: SYNA), a developer of human interface semiconductor solutions for electronic devices and products, fell -14%. The revenue picture for the fiscal second quarter was mixed with a strong rebound in mobile offsetting declines in Internet of Things as well as enterprise and automotive. Profits were better than expected thanks to tight control of operating expenses.
Global SYNA ranks 3rd on our list of the best small-cap AI stocks to buy according to hedge funds. While we recognize the potential of SYNA as an investment, our conviction lies in the belief that AI stocks hold great promise in terms of high returns and in a shorter time frame. If you’re looking for an AI stock that’s more promising than SYNA but is trading at less than 5x earnings, check out our report on cheapest AI stock.
