Three ‘Magnificent Seven’ artificial intelligence (AI) stocks will rush Apple to join the $3 trillion club, a Wall Street analyst says

By | December 20, 2023

A person looking at graphs and charts on a futuristic translucent interface

After a dismal performance last year, the stock market is roaring back, within striking distance of a new bull market. The market recovery is being driven in part by the viral excitement around artificial intelligence (AI).

This year’s list of top performers is littered with companies best positioned to benefit from these next-generation algorithms. This includes the companies that make up the so-called “Magnificent Seven” stocks (as of market close on Wednesday):

  • Nvidia: Up 229%

  • Metaplatforms: Up 178%

  • Tesla: 94% up

  • Amazon (NASDAQ: AMZN): 77% increase

  • Microsoft (NASDAQ: MSFT): An increase of 56%

  • Apple: An increase of 52%

  • Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL): 50% higher

Of these, Apple deserves a special mention as the first publicly traded stock in the US markets to reach a market cap of $1 trillion and $2 trillion benchmarks, and is currently the only one worth more than $3 trillion dollars. Despite being the first company to surpass each of these benchmarks, one analyst believes a changing of the guard will happen soon. three of the Magnificent Seven stocks that will leapfrog Apple’s valuation in the coming years.

A person looking at graphs and charts on a futuristic translucent interface.A person looking at graphs and charts on a futuristic translucent interface.

Image source: Getty Images.

The generative AI catalyst

There is a compelling argument that the spark that will take the market to the next level in 2023 is generative AI. These new AI models have the ability to generate original content and automate a wide cross-section of mundane and time-consuming tasks, improving processes and making employees more efficient.

The promise of these productivity gains has companies rushing to adopt AI to reap the expected financial rewards. Several companies at the forefront of AI have already staked their claim, making them front-runners to steal the crown from Apple.

Microsoft was perhaps one of the first to recognize the potential of generative AI. The company early last year took a $13 billion stake in ChatGPT maker OpenAI and quickly integrated productivity tools into Microsoft Office and its other software-as-a-service (SaaS) offerings. Copilot, the company’s AI-powered assistant, offers hundreds of time- and labor-saving features, including summarizing emails and composing replies, creating presentations using the data provided, writing and solving computer codes, and even generating original content.

Alphabet quickly jumped on the bandwagon and developed its Pathways Language Model (PaLM) LLM, which it says has the ability to “understand, generate and translate nuanced text – including idioms, poems and riddles – in a wide variety of languages. ”, which forms the basis for its Bard conversational AI.

Alphabet also quickly integrated a wide range of AI tools into Google’s most popular products and services, including Gmail, Google Docs and Google Sheets, among others. Alphabet has since released Gemini AI, which Google says outperforms ChatGPT in 30 of the 32 most commonly used performance benchmarks.

While some market commentators cited Amazon for being late to the party, the company has made many of the most popular generative AI models available to Amazon Web Services (AWS) customers, while also making a $4 billion investment in OpenAI rival Anthropic AI.

The company recently rolled out Amazon Q, an AI-powered assistant focused on business use cases. Q helps employees with many of the same tasks as its competitors: summarizing documents and emails, searching company databases, and submitting support requests.

The ‘Big Three’ cloud providers

Needham analyst Laura Martin says that Amazon, Microsoft and Alphabet, as the three largest cloud infrastructure providers, are uniquely positioned to offer AI services to cloud customers, eventually increasing their market capitalization to $3 trillion. “Generative AI will redefine the basis of competition for media and internet companies,” she wrote in a note to clients.

Martin went even further: “Don’t do it alone [Microsoft, Amazon, and Google’s] LLMs have the lowest cost structures and first-mover advantages, but their average lifetime value per Cloud customer is about to skyrocket due to the stickiness of apps built on their LLMs,” she says.

The figures seem to confirm this view. According to data from Statista, an estimated 60% of all business data is in the cloud. Additionally, 98% of companies worldwide store at least some of their data there, according to the cybersecurity solutions provider Checkpoint. AWS, Microsoft Azure and Google Cloud control 31%, 25% and 10% of the market respectively, according to data collected by research firm Canalys. Given the vast reach of the big three, it makes sense that they will be among the biggest beneficiaries of the AI ​​revolution.

That’s not to say Apple doesn’t have a lot to gain from recent developments in AI, but the company’s approach to deploying the technology will be different. Apple is more concerned about the iPhone’s continued relevance and is ensuring its AI solutions advance that goal.

There are trillions at stake

No one knows for sure how far AI will ultimately reach, but that hasn’t stopped Wall Street’s best and brightest from trying. Even the most conservative estimates run into the trillions of dollars, making it clear that there will be many winners from the AI ​​revolution.

Amazon, Microsoft, and Alphabet are not only using recent developments in AI to strengthen their primary business offerings, but they can also benefit by delivering to broad audiences through their cloud infrastructure platforms.

Finally, Microsoft, Alphabet, and Amazon are currently selling for nine times, four times, and two times forward (at the time of writing), making them relatively cheap when you consider the growing opportunities presented by AI.

Should You Invest $1,000 in Microsoft Now?

Before you buy shares in Microsoft, consider the following:

The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Microsoft wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.

Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor service has more than tripled the return of the S&P 500 since 2002*.

View the 10 stocks

*Stock Advisor returns December 11, 2023

Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Danny Vena has positions in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla. The Motley Fool holds positions in and recommends Alphabet, Amazon, Apple, Check Point Software Technologies, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.

Three ‘Magnificent Seven’ artificial intelligence (AI) stocks will leapfrog Apple and join the $3 Trillion Club, according to 1 Wall Street analyst originally published by The Motley Fool

Leave a Reply

Your email address will not be published. Required fields are marked *