Three big tech companies will experience a tremendous growth spurt in the years to come for their early adoption of generative artificial intelligence, according to a noted Wall Street analyst. We agree and add to that list of AI beneficiaries. Needham’s Laura Martin sees Club names Amazon (AMZN), Alphabet (GOOGL) and Microsoft (MSFT) as “front-runners” in the race of tech firms competing in generative AI. In a research note Thursday, the analyst said these three companies will grow their market capitalizations beyond $3 trillion due to their deep pockets to invest in large language models (LLMs) — artificial intelligence algorithms trained to deliver human-like text responses. Apple (AAPL), also a Club name, was the first ever company to eclipse a $3 trillion market value. It happened over the summer. The stock has since pulled back below that milestone and accelerated its decline over the past two sessions due to rumors about a Chinese crackdown on government workers using iPhones. While positive on Apple, Martin thinks it will be “dwarfed by generative AI” firms. AAPL NDAQ YTD mountain Apple vs. Nasdaq YTD performance The massive rally in Big Tech this year, despite a bit of a stumble of late, stemmed from AI hype that pushed the Nasdaq up more than 31% in 2023. Jim Cramer has been a believer in AI along the way as a transformative technology and not a flash in the pan. Earlier this year, Jim elevated Club holding Nvidia (NVDA) to “own it, don’t trade it” status given the incredible demand for its high-speed semiconductors that power AI tasks and services such as ChatGPT from Microsoft-backed OpenAI. Nvidia’s latest quarter did not disappoint . Shares of Nvidia have more than tripled in 2023. Jim has also been high on the AI potential at Amazon and Alphabet as well as chip designer Broadcom (AVGO) and enterprise software companies Oracle (ORCL) and Salesforce . He thinks Apple — the Club’s other “own it, don’t trade it,” stock — can benefit further from AI, saying Thursday that many people falsely think Apple isn’t developing the technology. On Apple’s latest earnings call, CEO Tim Cook stressed the importance of AI and talked about how the company has been researching it for years. At Needham, Martin singled out Amazon, Alphabet and Microsoft for their “first mover advantage” in generative AI, citing their ownership of the cloud environments to run LLMs. Furthermore, each firm has its own proprietary data, which is the bedrock of AI. “High-quality data that is most relevant will allow generative AI to create the best new content and products and or save costs faster through better online customer service,” Needham wrote. We see these three Big Tech names as AI enablers that are going to be winners in the nascent AI industry because they’re the ones making it possible for other companies to easily adopt generative AI into their businesses and workloads. Here are some recent developments that show how each is progressing in its AI capabilities. GOOGL YTD mountain Alphabet YTD performance During a recent AI conference, Alphabet announced advancements to its AI infrastructure portfolio with a series of new products to help companies train models in its cloud. This included a partnership with Nvidia to allow developers to build and train their own models for the best infrastructure. In the second half of 2023, Google Cloud, which Jim has previously said “is still in its infancy” is expected to grow at a minimum of 20% year-over-year, and at least 15% in 2024, according to Baird. That would surpass YouTube as the company’s second-largest revenue segment, the analysts note. MSFT YTD mountain Microsoft YTD performance In the coming quarters, Microsoft will increase capital expenditures to invest in Microsoft Cloud growth and demand for AI services. That may stifle earnings growth toward the back half of the year as we previously wrote but Jim is encouraged by the company’s new generative AI subscription service, which will likely bring in recurring revenue from enterprise customers. He has called out Microsoft as the No. 2 AI stock in the portfolio, followed by Nvidia), and would consider adding to the Club’s MSFT position on a pullback as indicated by the Club’s 1 rating . AMZN YTD mountain Amazon YTD performance We also expect Amazon’s “highly profitable” Amazon Web Services cloud unit to reaccelerate as the company adds AI-powered AWS tools, Jim has previously said. Amazon’s enterprise tools in the cloud help make customers and businesses more productive. Later this year, Amazon will host a cloud computing conference called re:Invent . Morgan Stanley is expecting Amazon to announce new partnerships across AI as well as AI-powered AWS tools that should “drive future growth.” (Jim Cramer’s Charitable Trust is long AMZN, NVDA, GOOGL, MSFT, AAPL, AVGO, ORCL, AVGO. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
A person walks next to the Google Cloud logo at the Mobile World Congress (MWC) in Barcelona, Spain February 27, 2023.
Nacho Doce | Reuters
Three big tech companies will experience a tremendous growth spurt in the years to come for their early adoption of generative artificial intelligence, according to a noted Wall Street analyst. We agree and add to that list of AI beneficiaries.
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