Analysts See A.I. as a Double-Edged Sword for 3 Big Tech Stocks

Introduction

As Wall Street looks to the future, artificial intelligence (AI) is expected to play a major role in driving the success of mega-cap tech companies. However, recent analyst calls have highlighted both positive and negative impacts of AI on companies like Alphabet, Amazon, and Meta Platforms. While some concerns have been raised about the potential displacement of traditional results and revenue risks, others see AI as a significant opportunity for growth and innovation.

Analyzing the Analyst Calls

Alphabet

UBS analysts lowered their rating on Alphabet to neutral from buy due to concerns about generative AI responses in Google Search. They worry that these new AI-powered technologies could displace traditional search results that contain ads. While the analysts acknowledge that GenAI could bring new monetization opportunities over time, they see “medium-term revenue risk.” As a result, Alphabet shares fell by more than 3% on Monday. However, the long-term potential of generative AI remains positive, and it could ultimately benefit Google and Alphabet as a whole.

Meta Platforms

UBS raised its price target on Meta Platforms and maintained a buy rating. Analysts believe that Meta’s use of generative AI will be the next catalyst for the company’s growth. The integration of AI tools across Meta’s platforms is expected to increase user engagement, content creation, and interaction with audiences and businesses. UBS predicts that if even just 5% of search queries on Facebook alone are monetized through chatbots, it could result in a $7.5 billion increase in full-year 2024 revenue. Meta CEO Mark Zuckerberg’s focus on AI has been beneficial, leading to increased ad revenue and user activity. Additionally, Meta’s recent release of Meta Quest+, its virtual reality subscription service, is seen as a positive move.

Amazon

Roth MKM named Amazon as its top mega-cap pick, followed by Meta and Alphabet. The firm sees all three companies benefiting from the ongoing wave of AI. It increased its price target on Amazon stock and maintained a buy rating. The analysts expect a reacceleration of revenue growth at Amazon Web Services (AWS), its cloud unit, in the fourth quarter of this year, which should serve as a catalyst for the stock.

Our Take

While concerns have been raised about the potential negative impacts of AI on these tech giants, we remain more optimistic. AI has the potential to bring significant benefits, including improved search results, increased user engagement, and new monetization opportunities. It’s important to remember that the field of AI is rapidly evolving and companies like Alphabet, Meta, and Amazon are at the forefront of innovation.

Related Facts

• The tech-heavy Nasdaq has outperformed the S&P 500 this year, with a 28% rally compared to a 13% gain.
• Former Google CEO Eric Schmidt believes that advances in AI are happening faster than expected, with a timeframe of 5 to 10 years rather than 20 years.
• The use of AI has helped Meta Platforms counter the impact of Apple’s privacy changes and has led to increased ad revenue and user activity.
• Amazon Web Services (AWS) is expected to experience reacceleration in revenue growth in the fourth quarter of this year.

Key Takeaway

While concerns about the impact of AI on tech stocks are valid, they should not overshadow the potential benefits that AI can bring to these companies. The ongoing wave of AI presents opportunities for growth, innovation, and improved user experiences. As long-term investors, we believe that these tech giants are well-positioned to leverage AI for their future success.

Conclusion

The analyst calls on Alphabet, Meta Platforms, and Amazon have highlighted both the challenges and opportunities of AI for these companies. While there may be short-term concerns about revenue risks and displacement of traditional results, the long-term potential of AI remains positive. As AI continues to advance, these tech giants are well-positioned to adapt and capitalize on the opportunities it brings.