Hedge Funds Quietly Pile Into This Overlooked AI Power Play

Smart money is sending contradictory signals on Advanced Energy Industries (NASDAQ: AEIS), and the disagreement is more instructive than either side alone. Insider Monkey’s database shows the number of hedge funds holding the stock jumped 52% in the second quarter — from 45 funds to 70 — with D.E. Shaw increasing its stake by more than 36,000% and AQR Capital adding 135%. Meanwhile Baron Capital, a long-time believer in the story, sold roughly 60% of its position near $375 a share. Neither camp thinks the business is broken. They disagree on what growth is worth paying for, which is exactly the question long-term investors should be asking about every AI-adjacent stock in their portfolio right now.

The underlying business explains the enthusiasm. Advanced Energy makes power delivery systems that sell into two AI-driven markets at once: data center computing and semiconductor manufacturing equipment. Second-quarter revenue rose 30% year over year to $574 million, while semiconductor-related revenue climbed 33% to a record. Management now expects data center computing revenue to grow at least 50% for the full year as hyperscalers keep building out capacity. A newer product line — modular power conversion hardware for 800-volt data center architectures — is in customer evaluation now, with meaningful revenue not expected until 2028. That’s a real future catalyst, but it’s also a reminder that today’s valuation is being paid mostly on hope for tomorrow’s product cycle.

That gap between current fundamentals and future promise is precisely what spooked Baron. The fund didn’t turn bearish; it trimmed because the position had grown to nearly 4% of its portfolio and the stock was approaching its internal price target. Short interest sits at 4.75% of the public float, a sign the market itself is split on how much of that 2028 opportunity is already priced in. For patient investors, that’s the real lesson here: a company can have genuinely strong operating momentum — record semiconductor revenue, accelerating data center demand, two independent ways to benefit from AI capex — and still be a poor risk-adjusted bet if the stock has already run ahead of what near-term earnings can support.

So what for long-term investors: Advanced Energy is a legitimate second-order AI beneficiary worth tracking, not chasing. The disciplined move is to let the 800V product cycle actually generate revenue before assuming it’s baked into fair value, and to size any position with Baron’s math in mind — a great business and an expensive stock aren’t mutually exclusive, and knowing the difference is what separates compounding wealth from compounding regret.