One of the best-performing investment themes of 2023 has been artificial intelligence. From AI chatbots and search features to AI enterprise optimization software to generative AI applications that can create digital art, literature, movies and other media, the world seems to have AI fever. Wall Street is taking notice in a major way, and analysts anticipate a wave of AI investment in 2024 and beyond.
With artificial intelligence technology still in its infancy, it’s unclear at this point which companies will be major players in the long term. Most mega-cap tech companies have invested heavily in developing and integrating AI software into their businesses, and they have the resources to continue to prioritize AI technology in the future.
If one or two AI companies make major breakthroughs in creating artificial general intelligence, or AGI, technology in 2024 or beyond, those companies could jump out to an insurmountable first-mover advantage and potentially snuff out the majority of the competition. AGI is an AI system that surpasses human intelligence and utility in most economically valuable tasks.
Jay Jacobs, BlackRock U.S. head of thematics and active equity ETFs, says commercialization of AI will be one of the biggest investing themes of 2024. In fact, Jacobs says the AI trade is just getting started.
“2023 was the year AI exploded onto the scene, but we believe AI adoption is just beginning. In the coming year, enterprise AI adoption and product integration will leap forward, multi-modal AI will move closer to reality and hardware opportunities will grow to expand beyond graphics processing units (GPUs),” Jacobs says.
Seth Carpenter, global chief economist for Morgan Stanley, says generative AI will be one of the most disruptive technologies since the smartphone.
“It is impossible to know for sure, but current generative AI technologies could affect as much as a quarter of the occupations that exist today, meaning that AI has the potential to augment them now or in the future, with associated labor costs that could reach at most $2.1 trillion,” Carpenter says.
“Within three years, this might rise to 44% of occupations affected and $4.1 trillion of associated labor costs,” Carpenter says.
It’s too early to say at this point which company could win a winner-take-all AGI arms race. However, here are four stocks to buy with the AI expertise and resources to potentially dominate the AI market, according to Morgan Stanley:
Microsoft is the world’s largest software company and is a market leader in enterprise software applications and public cloud services. Microsoft has also aggressively invested in AI technology and owns a 49% stake in ChatGPT maker OpenAI. Microsoft also recently announced Microsoft Copilot, an everyday AI companion integrated across Windows 11, Bing, Edge and Microsoft 365. OpenAI has experienced some major drama surrounding the departure and quick return of CEO Sam Altman, but analyst Keith Weiss says the OpenAI turmoil should have little financial impact on Microsoft. Morgan Stanley has an “overweight” rating and $415 price target for MSFT stock, which closed at $378.91 on Nov. 30.
Alphabet is the parent company of Google and YouTube and is one of the world’s leading online search and advertising companies. In 2023, Google launched its Bard AI chatbot, and it has already begun integrating AI features into Google Cloud and its Workspace business products. Google’s AI-enabled advertising products, such as Video View and Demand Gen, help its customers optimize their advertisements to ensure the best performance. Analyst Brian Nowak says Alphabet’s AI investments will ultimately drive durable revenue and free cash flow growth. Morgan Stanley has an “overweight” rating and $150 price target for GOOGL stock, which closed at $132.53 on Nov. 30.
Nvidia designs the high-end semiconductors that are required to deliver the intense processing power to train and run AI applications. Nvidia’s data center revenue is booming as companies invest in computing infrastructure to handle AI workloads. Regardless of which big tech company is first to make an AGI breakthrough, they will likely need Nvidia processors and other technology to train and operate it. Analyst Joseph Moore says Nvidia will be a prime beneficiary from a “remarkable” growth trajectory for AI data center supply and demand. Morgan Stanley has an “overweight” rating and $603 price target for NVDA stock, which closed at $467.70 on Nov. 30.
Meta Platforms Inc. (META)
Meta Platforms is an online advertising leader, and it is the parent company of Facebook, Instagram and other popular social media and messaging platforms. Meta has begun rolling out its Meta AI assistant, which users can access across all the company’s messengers and smart glasses. Meta is incorporating AI into its feeds, ads and Reels, and the company is reportedly developing an updated AI system that is as powerful as OpenAI’s most advanced model. Nowak says Meta’s next-generation AI offerings could drive long-term engagement and monetization growth. Morgan Stanley has an “overweight” rating and $375 price target for META stock, which closed at $327.15 on Nov. 30.
