Steven Cress' Top 10 AI Stocks (Recap & Update)

Key Concepts

• AI Sector Volatility: The AI sector is experiencing significant volatility, reminiscent of a previous downturn in early 2025, despite strong underlying fundamentals in many companies.
• Quant Investing: Utilizing a quantitative (Quant) investment approach based on fundamental analysis, incorporating factors like value, growth, profitability, momentum, and analyst revisions.
• Magnificent 7 vs. Broader AI Adoption: While the "Magnificent 7" initially drove the AI trade, adoption is broadening across various industries, creating opportunities beyond these large-cap stocks.
• Geopolitical & Macroeconomic Influences: Geopolitical events (Greenland, Venezuela, Middle East tensions, tariffs) and macroeconomic factors (inflation, interest rates, labor market) are contributing to market confusion and volatility.
• Strong Buy vs. Hold/Sell Signals: Understanding the implications of Quant ratings – a "Hold" is not a sell signal, while "Sell" or "Strong Sell" indicate a need to exit a position.
• AI Market Growth: The global AI market is projected to reach $3 trillion by 2033, driven by investments in big tech, data centers, and broader industry integration.
• PEG Ratio: A valuation metric combining Price-to-Earnings (P/E) ratio with growth rate, offering a more holistic view of a company's value.
• Insider Trading: Insider selling is often a normal part of compensation and doesn't necessarily indicate negative sentiment about the company.

---

Market Overview & AI Sector Analysis (Early February 2026)

The market in early February 2026 is characterized by significant volatility and confusion, mirroring a similar downturn experienced in early 2025 following the emergence of DeepSeek. Despite strong fundamentals and positive earnings reports from many semiconductor and chip companies, these stocks are experiencing substantial declines. This volatility is attributed to overstretched valuations, high beta stocks, and broader macroeconomic and geopolitical uncertainties. The AI trade, while still promising long-term, is currently facing headwinds. The speaker emphasizes this is a “tale of two cities” – broad market rallies interspersed with “safe haven” rallies, complicated by unusual movements in traditionally safe assets like gold and silver.

Macroeconomic & Geopolitical Factors

Several factors are contributing to the current market uncertainty. Geopolitical events, including tensions in Greenland, Venezuela, and the Middle East, alongside tariff threats, are driving investment towards safe-haven assets. However, even these assets are exhibiting erratic behavior, with gold and silver experiencing sell-offs despite their typical inverse correlation with broader market declines. The Federal Reserve’s monetary policy is also a key concern. Initially, concerns about the labor market prevented rate cuts, but the potential appointment of a new Fed chair by President Trump suggests a possible shift towards lower rates. This creates further confusion and volatility.

The Broadening AI Landscape

The AI sector is evolving beyond the initial focus on the “Magnificent 7” tech giants. AI integration is expanding into manufacturing, healthcare, and everyday applications (e.g., chatbots, code generation), creating efficiencies and driving demand for energy and data center infrastructure. This broadening adoption suggests the AI trade will be long-lasting and pervasive. The speaker highlights that the market often reacts negatively to announcements of increased AI efficiency from software or equipment providers, fearing reduced demand for existing solutions.

Quant Investing Methodology

The speaker advocates for a quantitative (Quant) investment approach, emphasizing fundamental analysis using data and algorithms. Seeking Alpha’s Quant system analyzes over 5,000 stocks daily, evaluating factors like value, growth, profitability, momentum, and analyst EPS revisions. This approach allows for a more comprehensive and timely assessment of investment opportunities compared to traditional analyst research, which typically covers a limited number of companies. The model is described as a GARP (Growth at a Reasonable Price) strategy. The system’s daily updates are crucial, as analyst reports can quickly become outdated. Historical performance data demonstrates the Quant system’s strong returns compared to Wall Street analyst recommendations and the S&P 500 (Quant strong buys up 203% over 5 years vs. 17% for Wall Street strong buys and 67% for the S&P 500).

Quant Rating Interpretation

Understanding the meaning of Quant ratings is critical. A “Hold” rating does not signify a sell recommendation; stocks with a “Hold” rating should be maintained for at least 180 days. “Sell” or “Strong Sell” ratings, however, indicate a need to exit a position, as they signal deteriorating fundamentals. The Quant system is data-driven, identifying changes in a company’s fundamentals relative to its sector.

Top 10 AI Stock Picks (as of February 2026)

The speaker presented a list of 10 AI stocks identified through a process combining professional ETF manager vetting (using the four largest AI-focused ETFs) with Seeking Alpha’s Quant system. These stocks, on average, were down almost 6% on the day of the discussion, presenting a buying opportunity. Key observations:

• Strong Growth: The top 10 AI stocks exhibit significantly higher revenue (38%) and EPS (99%) growth rates compared to the S&P 500 (6% and 10.6%, respectively) and the Magnificent 7 (17% and 20%, respectively).
• Individual Stock Highlights:
  • Lumenum Holdings (LIT): High growth (A+), but relatively expensive valuation (D+). PEG ratio offers a more favorable valuation.
  • Micron Technology (MU): Improving valuation (B-), strong growth (A+).
  • Sienna (CIN): Strong growth (A-), improving profitability (B), positive analyst revisions (A-).
  • General Motors (GM): Attractive valuation (B-), significantly improved growth (A-), positive analyst revisions (B+). AI integration in vehicle connectivity and hands-free driving.
  • Taiwan Semiconductor Manufacturing (TSM): Strong across all factors (A grades), attractive PEG ratio.
  • HUT 8 Corp (HUT): Improving valuation, strong profitability (A+).
  • Celestica (CLS): Strong growth and profitability, positive analyst revisions.
  • Credo Technology (CRDO): High beta, experiencing a significant pullback, but strong earnings and positive analyst revisions. The speaker emphasized the importance of taking advantage of the dip.
  • Apploven (APLV): Exceptional historical performance, strong growth and profitability.
  • Globus Medical (GMED): Outside the IT sector (healthcare equipment), strong growth and improving analyst revisions.
• Earnings Performance: All 10 stocks recently beat earnings expectations, with significant positive surprises.

Addressing Concerns: Insider Selling & Alphabet/Amazon Earnings

The speaker addressed a question regarding insider selling at Credo Technology, explaining that it often represents compensation for executives rather than a negative signal about the company’s prospects. He reiterated the importance of looking at broader trends and fundamentals. Regarding upcoming earnings reports from Alphabet and Amazon, he noted that while these companies are important, the selected AI stocks demonstrate superior growth potential and more attractive valuations.

Resources for Further Research

The speaker promoted two Seeking Alpha products:

• AlphaPix: Provides two strong buy recommendations per month, focusing on conservative, well-established stocks. Historical performance significantly outperforms the S&P 500.
• ProQuant Portfolio: A more active portfolio of 30 equally weighted stocks, rebalanced weekly, offering higher potential returns but also greater risk.

---

Conclusion

The AI sector presents a compelling long-term investment opportunity despite current volatility. A disciplined, data-driven approach using quantitative analysis, like that offered by Seeking Alpha’s Quant system, is crucial for identifying fundamentally strong companies poised for growth. The speaker emphasized the importance of taking advantage of market dips to acquire these stocks at attractive valuations and highlighted the broadening adoption of AI across various industries, suggesting a sustained and pervasive trend. He encouraged investors to focus on companies demonstrating strong earnings growth, positive analyst revisions, and attractive valuation metrics.