From household names like Meta META to relative unknowns like Nebius Group NBIS, the managers of the top-performing, $2.4 billion Alger Focus Equity Fund ALZFX are investing in the artificial intelligence industry from every angle.

“This is probably the biggest trend and theme that we have seen in our lifetime,” says Ankur Crawford, executive vice president at money manager Fred Alger Management and one of the fund’s two portfolio managers. “The reason we’re leaning so hard into this is because we don’t usually see such big changes that span the economy.”

While AI stocks fell along with the rest of the stock market earlier this year in the wake of President Donald Trump’s trade war, the portfolio managers of the Alger Focus Equity Fund are unperturbed. This year’s volatility hasn’t dimmed their belief in the importance of AI, both now and in the years ahead.

“We’re still in very early days,” says Patrick Kelly, executive vice president at Fred Alger Management, and the fund’s other manager. “We’re just continuing to be bullish on the secular trend.”

Since then, AI stocks have made a comeback, with the Morningstar Global Next Generation Artificial Intelligence up 4.3% for the year to date, compared with 1.1% for the Morningstar US Market Index and 4.4% for the Morningstar Global Markets Index.

We asked the Alger Focus Equity Fund’s managers to identify five stocks—two stocks that have paid off for the fund, one that has underperformed, and two others of their choice. All five stocks are a play on AI, but each offers a different angle on this major trend.

Alger Focus Equity’s Process

The Alger Focus Equity Fund has ranked in the top 5% of funds in the large-cap growth Morningstar Category over one-, three-, five-, and 10-year trailing periods. It is currently up 4% in 2025 compared with a 1.1% average loss for the large-growth category.

The fund is one of 27 mutual and exchange-traded funds run by Fred Alger Management. The firm also runs European funds and separately managed accounts, with a total of $25.6 billion in assets under management.

The managers work with stock analysts to identify companies that are undergoing major changes that they believe will spur growth, whether it be a new product, new management, or something else entirely.

“Our competitive edge is identifying these companies and capitalizing on the change before it is recognized by the market,” says Kelly.

AppLovin and Meta: Two Firms With Concrete Returns From AI Investment

AppLovin APP and Meta Platforms have invested heavily in AI like many other businesses, but unlike many other firms, they’ve already realized tangible returns.

“One of the biggest areas that AI is having an impact is on the advertising sector, and leveraging AI to deliver much more targeted advertisements,” says Kelly. “AppLovin was a company that we identified that was making significant advancements in AI to deliver much better target advertisements.”

AppLovin operates a platform that helps mobile app and game developers acquire users through other mobile ads, as well as helping those apps and games monetize ads themselves.

In addition, AppLovin was undergoing another change that the Alger Focus Equity Fund managers liked. Kelly says that, in 2024, the firm expanded its base of ad sales from ads for other apps and mobile games to broader e-commerce ads, allowing them to broaden their revenue stream. As a result, AppLovin’s stock is up more than 350% in the past year.

Meta, parent company of Facebook, has also seen substantial returns on its own AI investment despite this year’s economic turmoil, which usually curtails ad-spending. Meta’s most recent earnings report showed that its investment in AI-based ad-targeting made it more resistant to the economic slowdown than other firms.

Meta’s stock is up 34% in the past 12 months, ahead of many other big tech firms like Alphabet GOOG, which is down 1.3%, or Microsoft MSFT, which is up 7.1%.

Pinterest: Not All AI Bets Pay Off

The Alger Focus Equity Fund’s investment rationale for social media firm Pinterest PIN is similar to that of both Meta and AppLovin: It is a tech firm using AI to improve ad-targeting. But unlike the other two stocks, Pinterest’s investments in AI haven’t yielded anywhere near the same returns, with its stock having lost nearly a fourth of its value over the past year.

According to Crawford, one potential reason for its poor performance is that Pinterest’s advertisers are more concentrated in the consumer staples industry, which has struggled over the past year. In addition, many of them produce goods in China and so have been disproportionately affected by Trump’s trade war.

However, despite the stock’s recent losses, Crawford is still optimistic.

“Their CEO, Bill Ready, is pushing forward on technology and is embracing AI,” says Crawford. “They are a smaller company that has less scale … which is why it gets deployed a bit later than everyone else.”

Talen Energy: Powering the AI Boom

While the tech sector is an obvious beneficiary of AI, the growth of AI has also spurred growth in the normally sleepy utility sector, as all the new data centers required for AI have led to a large increase in electricity demand.

Talen Energy is a firm that is undergoing what Kelly calls a “a growth renaissance,” which is when a mature company that has had stable earnings enters a period of renewed growth due to a change in the market.

“US electricity demand was essentially flat for 20 years, and now we’re seeing strong demand growth of power markets,” says Kelly, pointing to not just AI but also reshoring of industry and demand for electricity from electric cars.

This new electricity boom has caused Talen’s stock price to more than double in the past year.

Talen is positioned well to take advantage of this surge in demand as an independent power producer, they say. Because of the huge energy demands of data centers, large tech firms have been making long-term deals with power providers in which they pay a premium to have first dibs on reliable electricity. Independent energy producers can make these kinds of deals in a way that traditional regulated utilities can’t, the managers say.

In addition, Talen operates nuclear power plants, which have been a favorite power source for data centers because of their extremely high reliability and virtually zero carbon emissions once in operation.

A major advantage of these long-term contracts is that they make the firm’s outlook more predictable, and investors are willing to pay more for companies that have more predictable future profits, Kelly says.

In addition to Talen, the Alger Focus Equity Fund also holds two other independent power producers, NRG Energy NRG and Vistra VST.

“We actually like all of them,” says Kelly.

Nebius: A Virtual Unknown With Backing From Nvidia

Nebius is significantly less well known than some of the other names on the list, despite having originally gone public in 2011.

The company was founded in 1989 as a holding company for Yandex, the main search engine in Russia, similar to Google-owner Alphabet. But following the Russian invasion of Ukraine in 2022, Nasdaq suspended the stock from trading.

“Arkady [Volozh], the CEO, kind of spoke out very publicly against the war,” says Crawford. Volozh and several hundred engineers working for the firm have since left Russia, and Yandex was sold off at a substantial discount. This left Nebius with the rest of the firm’s assets, which include an autonomous vehicle and delivery robot business called Avride that announced a partnership with Uber in 2024 and an educational technology platform, TripleTen.

However, its biggest business is an AI-focused data center business, which provides computing power and services for AI firms. The business received a major vote of confidence from chip titan Nvidia when it sold Nebius a number of its highly sought-after Blackwell GPU chips and purchased a stake in the company.

Crawford compares Nebius to the newly public AI data center firm CoreWeave CRWV. While Nebius has a market cap of $9.5 billion, compared with CoreWeave’s $60 billion valuation, she says part of the reason is that Nebius remains relatively unknown, so its large team of talent, experienced CEO, and assets are all currently trading at a discount.