Entering the home stretch of February 2024, the realm of artificial intelligence (AI) stocks stands strong, following a commanding performance in 2023.
Leading the pack is the chip giant Nvidia (NVDA), surging 17% since February 21 on the heels of another stellar quarter. While Nvidia maintains its grip as the market favorite, other players are making waves in the ever-evolving AI landscape.
Even before the AI boom, tech titans Microsoft (MSFT) and Alphabet (GOOGL) were fortifying their foundation, reaping rewards with Microsoft’s stock soaring 963% in the past decade and Alphabet’s by 352%.
Capturing the essence of AI in their offerings, these companies brace for yet uncharted growth territories and unseen opportunities.
Unveiling Microsoft (MSFT)
Amidst the cacophony of success stories, Microsoft emerges as a beacon of excellence, riding high on its AI-driven cloud prowess. In 2023, Microsoft’s stock notched a remarkable 56.8% upswing, outpacing the tech-laden Nasdaq Composite’s growth of 44.5%.
Microsoft’s strategic investment in OpenAI back in 2019 marked its foray into AI, infusing AI elements across its flagship products. Azure, Microsoft’s cloud computing platform, now poses a formidable challenge to the dominant player Amazon’s AWS with a 24% market share closing in on AWS’s 31% stronghold.
AI-powered growth in Azure spurred Microsoft to report yet another robust quarter, with Azure AI witnessing a 30% surge in the second quarter of fiscal 2024. The Intelligent Cloud segment contributed 42% to the total revenue of $62 billion, marking an 18% revenue uptick and a 26% climb in adjusted earnings Year-on-Year.
Foreseeing a bright future, Microsoft eyes a 10%-12% surge in Productivity and Business Processes segment revenue in fiscal Q3 and anticipates an 18%-19% rise in the Intelligent Cloud segment for the same period. The revival in the Personal Computing segment is also on the horizon, poised for an 11%-14% growth in Q3.
Additionally, Microsoft’s recent acquisition of Activision Blizzard unveils promising prospects in the gaming domain. With a substantial $81 billion cash reserve, Microsoft stands robustly poised for further AI expansion.
Market analysts project a 19.3% earnings uptick and a 15.3% revenue growth in fiscal 2024, with fiscal 2025 hinting at a 13.7% earnings escalation alongside a 14.2% revenue surge.
Insights from Wall Street
Steering their gaze towards Wall Street evaluations, Microsoft continues to garner favor, with 32 out of 36 analysts rating it a “strong buy,” three advocating a “moderate buy,” and one suggesting a “hold.”
The average target price for MSFT stock stands at $438.97, reflecting a 7.8% potential upswing, while the high estimate of $600 foreshadows a robust 47% surge in the ensuing 12 months.
Investing in AI Revolution: Analyzing Alphabet’s Position in the Market
Alphabet faced a sharp decline in its stock this month following Gemini AI-related mishaps, resulting in a fractional decrease in year-to-date performance compared to Nasdaq’s 8% increase.
Gemini AI Episode and Market Response
After a significant drop in GOOGL’s share price on Feb. 26, analysts like Daniel Ives believe the market may have reacted excessively, underestimating Google’s potential in the AI landscape. Despite the setback, Alphabet plans to relaunch its Gemini AI tool in the coming weeks, showcasing a resolve to overcome challenges.
Alphabet’s Strong AI Foundation
Alphabet’s long-standing integration of AI in its products highlights its commitment to innovation. This dedication has heightened over the years, especially in response to competitors like Microsoft, propelling Alphabet into a more aggressive stance in the AI domain.
Financial Performance and Market Position
Despite challenges, Google Search’s revenue surge in the fourth quarter of 2023 demonstrates resilience and growth. The company’s Cloud services also showed a significant rise, positioning Alphabet as a major player in the market, leveraging AI-driven solutions for revenue boosts.
Analyst Projections and Investor Sentiment
Analysts foresee positive earnings and revenue growth for Alphabet, indicating a promising outlook for investors. Wall Street’s strong buy rating and optimistic price targets reflect confidence in the company’s potential to rebound and thrive in the AI sector.
In comparing Alphabet to Microsoft, both leaders in AI development, Alphabet’s forward valuation appears more attractive, presenting a compelling investment opportunity with high growth potential. The combination of legacy strengths, AI integration, and capable leadership positions Alphabet for sustained success in the AI realm.