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The AI Investing Pulse

February 20th, 2025

In this week’s edition:

1. Analysis - AI software stocks, can they deliver ROI in 2025?

2. Stock Ideas - 3 stocks for the next stage of the AI revolution

3. News - Warren Buffett’s next big move? The oracle eyes AI

4. Startups - Funding round secures $100M for AI cybersecurity startup Dream 

5. Trends - Agentic AI and the next evolution of enterprise AI

6. Other News - CEOs have a new skill to learn: managing AI employees

AI Software Stocks – Can They Deliver ROI in 2025?

Following last week’s focus on hardware, this week we turn our attention to software stocks. Over the past two years, the AI industry has experienced an unprecedented surge in investment in hardware and infrastructure. However, as the initial build-out phase stabilises, investor focus is shifting towards a more pressing question: where is the return on investment?

While AI hardware has established the foundation for innovation, the real challenge lies in AI software and applications proving their ability to translate this infrastructure into tangible financial gains. The industry is now moving from expansion to monetisation, where AI must demonstrate its capacity to drive cost efficiencies, enhance productivity, and generate measurable business value.

Below, we examine key sectors delivering results and highlight some of the leading companies at the forefront of AI-driven transformation, along with their respective revenue growth for 2024 (in brackets).

Where AI is Delivering Results

Finance

The financial sector has rapidly adopted AI-powered fintech solutions, trading algorithms, and risk analysis tools, transforming operations by improving fraud detection, automating lending decisions, and optimising portfolio management.

Notable players include Pagaya (PGY: 27%)*, Upstart (UPST: 23%), Lemonade (LMND: 22%), and Ameriprise Financial (AMP: 6.7%), which have leveraged AI to refine financial services. Upstart Holdings, for instance, has seen an extraordinary 232% surge in stock value over the past year. With revenue approaching $1 billion in 2025, AI-driven lending platforms are enhancing loan approval rates and reducing APRs, offering clear financial benefits and efficiency gains.

Healthcare & Biotech

AI is making significant advances in healthcare, particularly in drug discovery and diagnostics, revolutionising patient care and medical research.

Leading firms in this space include Tempus AI (TEM: 32%), Illumina (ILMN: -3%), Veracyte (VCYT: 25%), and Veeva (VEEV: 10%). The global AI healthcare market is projected to grow to $613.81 billion by 2034, fuelled by advancements in diagnostics and personalised medicine. However, regulatory hurdles and lengthy R&D cycles continue to pose challenges to immediate revenue generation.

Enterprise Productivity

AI-powered enterprise solutions are transforming workplace efficiency by automating workflows and optimising operations.

Key players include Microsoft Copilot (MSFT: 16%), Adobe Firefly (ADBE: 11%), Salesforce Einstein AI (CRM: 11%), and Snowflake AI Cloud (SNOW: 36%). Microsoft’s Azure AI-driven services have already recorded 34% year-on-year growth, underscoring strong adoption and significant revenue potential.

Retail & E-Commerce

Retailers and e-commerce platforms are leveraging AI to enhance recommendation engines, improve customer service, and optimise digital advertising.

Amazon (AMZN: 11%), Shopify (SHOP: 26%), Meta (META: 22%), and AppLovin (APP: 43%) are capitalising on AI’s ability to personalise marketing strategies and boost conversion rates. Meta, in particular, has reported a substantial increase in ad performance through AI-powered marketing, directly contributing to its rising revenues.

Automotive

AI is reshaping the automotive sector, enhancing driver assistance systems, predictive maintenance, and autonomous vehicle technology.

Companies such as Tesla (TSLA: 1%), Cerence (CRNC: 13%), and Mobileye (MBLY: -20%) are driving AI adoption in the industry. While full vehicle autonomy remains a long-term ambition, incremental AI-powered features are already generating financial returns.

AI Software Revenue – Delivering ROI or Just Hype?

Investors are keenly assessing whether AI applications can scale profitably and truly deliver the return on investment (ROI) that justifies their valuations. While some AI applications are already demonstrating clear ROI, particularly in finance and enterprise AI, others are still proving their long-term viability. High software costs, ambiguous monetisation strategies, and regulatory complexities remain challenges. However, AI startups are reaching revenue milestones at an accelerated pace, with post-2020 companies achieving $1 million in annual revenue within five months—a significant improvement over previous tech startups.

The global AI market is forecast to reach $1.81 trillion by 2030, expanding at a 36.6% compound annual growth rate (CAGR). The next phase of AI software growth will likely depend on enterprise adoption rates and the rise of AI agents capable of handling complex business workflows. If AI advances beyond task automation to decision-making, it could redefine productivity economics at scale.

Today, AI software is already delivering ROI in certain sectors, but the challenge remains in proving long-term profitability across industries.

^{*Revenue Growth for 2024 - Sources: Stock Analysis and Yahoo Finance}

_{Disclaimer - This content is provided for informational purposes only and does not constitute investment advice, personal recommendations, or an invitation to engage in any investment activity. The information presented is derived from publicly available sources and should not be solely relied upon for making investment decisions. Always consult with a qualified financial professional before making investment choices.}

TOP AI STOCKS

TOP AI ETFs

AI STOCKS IDEAS 

3 stocks for the next stage of the AI revolution - Yahoo Finance

2 Software stocks with potentially more AI upside than Palantir - 24/7 Wallst

1 Quantum stock that could be the biggest AI buy of 2025 - The Motley Fool

AI STOCKS & ETFs NEWS 

Warren Buffett’s next big move? The oracle eyes AI - MiValle - Warren Buffett is reportedly considering investments in the AI sector, marking a potential shift from his traditional value-based investment strategy.

AI stocks experience turbulence amid market shifts - MSN - The artificial intelligence sector is currently navigating a period of volatility, with stock performances reflecting a mix of investor optimism and emerging challenges.

Rigetti Computing (RGTI) stock faces heat from Chinese quantum Saartup - The Globe and Mail - RGTI is down more than 10% on Tuesday following reports that a China-based startup Origin Quantum has surpassed 20 million in remote visits to its prototype machine.

ARK Invest offloaded UiPath that had lost more than 40% of its portfolio value - Barchart - Cathie Wood sold 500,000 shares of UiPath (PATH) stock across both her ARK Innovation ETF and ARK Next Generation Internet ETF.

AI STARTUPS

Funding round secures $100M for AI cybersecurity startup Dream - SC Media - Israel-based AI startup catering to critical infrastructure organisations Dream has landed a $100 million investment from a Series B funding round, bringing its valuation to $1.1 billion.

AI startups shine in 2024, raising $89.7 billion; $10.4 billion in Q1 2025 sets a new benchmark - abc Money - In just 45 days, AI startups have raised one-third of the total funds from 2022 and 2023 combined.

Former OpenAI CTO Murati unveils plans for new AI startup -  BNN Bloomberg - The company, called Thinking Machines Lab, will focus on building artificial intelligence models and products that support more “human-AI collaboration”.

AI TRENDS

Agentic AI and the next evolution of enterprise AI - AI Business - The ability to process information, make decisions and execute tasks autonomously transforms AI from an assistant into an active problem-solver.

The future is solo: AI Is creating billion-dollar one-person companies - Forbes - You don’t need a full-time staff anymore, just the right problem to solve and the right mix of AI tools and freelancers.

The next big thing beyond Agentic AI? How smart glasses could be eta's masterstroke - The Globe and Mail - Anyone who listened to Meta Platforms' fourth-quarter earnings call a few weeks ago got a sneak peek at what AI advances could be on the way.

OTHER

CEOs have a new skill to learn: managing AI employees - MSN - The first step in working out how to manage these AI employees is, how do I deploy them and make them productive?

AI doomers versus AI accelerationists locked In battle for future of humanity - Forbes - Those two distinct perspectives are the latest sign of polarization in our modern-day world.

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_{Disclaimer - The information contained on this newsletter does not constitute investment advice or a personal recommendation, nor is it an invitation or inducement to engage in investment activity. You should seek independent financial and, if appropriate, legal advice as to the suitability of any investment decision. Past performance is not a guide to future performance. The value of investments, and the income from them, can fall as well as rise. You may not get back the full amount invested and, in some cases, nothing at all. The information presented is based on publicly available data and sources believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Market conditions can change rapidly, and the information provided may no longer be up to date. This content is for informational purposes only and should not be construed as financial, legal, or tax advice.}