As Wall Street looks out into the future, artificial intelligence is expected to be a major factor that pushes our mega-cap tech names higher over the long run. A number of analyst calls on Monday looked at how current work in AI at Alphabet (GOOGL), Amazon (AMZN) and Meta Platforms (META) is impacting their businesses in both positive and negative ways. “Advances in AI are coming faster than we’ve ever seen,” former Google CEO Eric Schmidt told CNBC Monday. “I used to think it would take 20 years. Now I think it’s 5 to 10.” The broader market performance this year says it all. The tech-heavy Nasdaq has rallied 28% year to date, outperforming the S & P 500 ‘s 13% gain during the same period. “There are people who want to kill artificial intelligence and all of its future successes. But they don’t have the power to stop AI.” Jim said in his Sunday column . Here are Monday’s analyst calls and our take, too. Alphabet The news: Analysts at UBS lowered their rating on Alphabet to neutral from buy but increased their price target to $132 per share from $123. The firm’s downgrade stems from concerns that generative AI responses to Google Search inquiries could displace traditional results that have ads on them. Analysts said the company can figure out how to monetize its new search engine over time — but for now, they see “medium-term revenue risk.” Shares of Alphabet on Monday fell more than 3% to under $119 apiece. GOOGL YTD mountain Alphabet stock’s year-to-date performance. The Club’s take: We understand UBS’ concern that new AI-powered technology could challenge search ads. However, it’s difficult to say whether that will be the case. In the note, the analysts seem to take both sides of the argument by saying, “over time, GenAI could expand engagement and unlock new monetization opportunities but visibility here remains low today and may see near term headwinds.” In the long-term, generative AI should be an asset to Google and Alphabet as a whole. We took profits in Alphabet in early May but still have plenty left. We’re not looking to sell more now but would not buy at these high levels either. We’d rather wait for the stock to come in more. The Justice Department’s antitrust lawsuit concerning Google’s dominance in the online ad market has been an overhang on the stock in addition to competition from fellow Club name Microsoft (MSFT), which has been leading the charge in AI this year. Meta Platforms The news: UBS also raised its price target on Meta Platforms to $335 from $300 while keeping a buy rating on shares. Analysts expect the company’s use of generative AI to be the “next leg to shares,” and its use of AI tools should help the company “be viewed as an AI winner.” Meta has been integrating gen AI across its platforms to boost user time spent on its apps. UBS also highlights Meta’s upcoming releases of more chatbots or “AI Assistants” which will help users create more content, and engage with audiences and businesses. Analysts predict chatbots could increase full-year 2024 revenue by $7.5 billion if the company monetizes just 5% of search queries on Facebook alone. Meta remains a top pick at UBS as the tech giant’s gen AI push in advertising provides a huge value proposition to its advertising customers. META YTD mountain Meta stock’s year-to-date performance. The Club’s take: Meta CEO Mark Zuckerberg has gone all in on AI in his year of efficiency. He has been using AI-powered technology to adeptly counter the impact of Apple ‘s (AAPL) privacy changes. As a result, there’s been a huge acceleration in ads and a surge in user activity on Facebook and Instagram as Reels (Meta’s answer to TikTok) are being pushed to social media audiences. Zuckerberg has also been keen on keeping costs down with several rounds of layoffs this year and spending cutbacks in the metaverse. These are two factors which are expected to improve its financial results in coming quarters. These efficiency moves have also been major wins for the stock, which has gained 134% in 2023. Though Meta shares fell 3.5% to $278 each Monday. We also see the tech giant’s Monday release of Meta Quest+, its new virtual reality subscription service, as another positive. We love subscription services for their recurring revenues because they are predictable and easy to forecast. It’s what we value about the ecosystem of Club name Apple, which recently released its first mixed reality headset: Vision Pro. Amazon The news: Roth MKM named Amazon as its No. 1 mega-cap pick, in a research note Monday followed by Meta and Alphabet. All three mega caps, the analyst said, will benefit from the “ongoing GenAI wave.” The firm increased its price target on AMZN stock to $155 from $130 based on a sum of the parts (SOTP) valuation. It kept its buy rating. Reacceleration of revenue growth at Amazon’s cloud unit, Amazon Web Services (AWS) into the fourth quarter of this year, should be a catalyst for the stock, analysts said. They also characterized Amazon’s retail operating margins as underappreciated due to cost cuts and workforce reductions. Shares of AMZN dropped 1.5% lower to just over $127 each. AMZN YTD mountain Amazon stock’s year-to-date performance. The Club’s take: While coming out of a cyclically lower year, Amazon’s AWS business should accelerate closer to the end of the year because of its advancements in AI. The multifaceted mega cap will get better at increasing efficiencies through cost cutting measures across its business in areas that don’t have a clear vision on return on investment. We also expect operating leverage to improve as the company grows into the excess warehouse and logistics capacity that was built during the Covid pandemic when e-commerce demand was off the charts. Like the analysts at Roth, we also anticipate reaccelerating AWS growth into next year, which should make the stock more valuable. (Jim Cramer’s Charitable Trust is long GOOGL, META, AMZN, NVDA, MSFT, AAPL. 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. 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As Wall Street looks out into the future, artificial intelligence is expected to be a major factor that pushes our mega-cap tech names higher over the long run.
A number of analyst calls on Monday looked at how current work in AI at Alphabet (GOOGL), Amazon (AMZN) and Meta Platforms (META) is impacting their businesses in both positive and negative ways.
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