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Macro

AI Revolution Picks: Nvidia, Alphabet Among Undervalued Giants

Evercore ISI identifies 'AI revolutionaries' as long-term investments, highlighting a significant growth opportunity with under 5% U.S. firm adoption.

By Alex P. Chase

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4/23, 15:28 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
Amazon.com, Inc.
Booking Holdings Inc. Common Stock
Salesforce, Inc.
Alphabet Inc.
Goldman Sachs Group, Inc.
MongoDB, Inc.
Meta Platforms, Inc.
NVIDIA Corporation
Uber Technologies, Inc.
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Key Takeaway

  • Evercore ISI highlights "AI revolutionaries" like Nvidia, Alphabet, Amazon, and Meta as undervalued investments amid the AI boom.
  • Stocks such as Uber, Goldman Sachs, and Booking Holdings are recommended for their strong AI focus and potential for long-term growth.
  • Despite short-term volatility, these companies are seen as core holdings with significant upside potential in the evolving AI landscape.

AI Revolution Gains Momentum

The artificial intelligence (AI) revolution is increasingly becoming a focal point for investors, as highlighted by Evercore ISI's recent analysis. Despite the explosive entrance of OpenAI's ChatGPT into the market, adoption among U.S. firms remains below 5%, indicating a significant growth runway ahead. Julian Emanuel, senior managing director at Evercore ISI, draws parallels between the AI revolution and transformative periods such as the Internet boom of the 90s and the electrification and mass production wave of the 1920s. This comparison underscores the potential for generative AI to reshape economies fundamentally. Emanuel also notes the critical role of AI in addressing efficiency demands amid demographic shifts and a tightening labor market.

Investment Opportunities Identified

Evercore ISI's research has pinpointed "AI revolutionaries" within the Russell 1000 index, focusing on companies with increasing mentions of AI, positive earnings revisions for 2024, and favorable price/earnings-to-growth (PEG) ratios. Notable tech giants like Nvidia, Alphabet, Amazon, and Meta are joined by Salesforce, Uber Technologies, Goldman Sachs, Booking Holdings, and Five9 as firms poised to benefit significantly from the AI wave. These companies, despite potential short-term volatility, are seen as long-term core holdings. Evercore ISI suggests a strategic approach to investing in these high-potential AI stocks, recommending a combination of direct investment and protective options strategies to navigate the expected corrections.

Spotlight on AI Pioneers

Uber Technologies, Goldman Sachs, and Booking Holdings are highlighted as companies deeply integrating AI into their operations. Uber's AI-driven platform, Goldman Sachs's focus on AI for infrastructure financing, and Booking Holdings' use of AI in customer service exemplify the diverse applications of AI across sectors. These companies have not only mentioned AI significantly in their communications but have also demonstrated tangible commitments to leveraging AI for operational efficiency and growth. Their stock performance, with notable gains since the S&P's October low, reflects investor optimism about their AI strategies.

Analysts Bullish on Tech Giants

Recent analyst ratings and sector adjustments further emphasize the bullish outlook on AI and technology stocks. Companies like MongoDB, Nvidia, and Amazon have received strong buy ratings and price target upgrades, reflecting their potential in cloud and AI technologies. Meanwhile, adjustments in ratings for companies like Sunnova and Warner Brothers indicate a nuanced view of the market, recognizing both opportunities and challenges within the tech and consumer sectors. The focus on AI, cloud computing, and generative AI workloads by analysts underscores the sector's critical role in driving future growth.

Street Views

  • Julian Emanuel, Evercore ISI (Bullish on AI sector):

    "Generative AI’s productivity potential is similar to the Revolutions that transformed economies from the Internet in the 90s to electricity/mass production that fueled the Roaring 20s... Every occupation in every sector is exposed. Beneficiaries will ultimately broaden substantially from those enabling the technology to those effectively adopting it."

Management Quotes

  • Dara Khosrowshahi, CEO of Uber Technologies:

    "People are going out to dinner, they’re going out to concerts, sports events, etc. And when people go out and they spend money, or when they want anything delivered to their home, Uber benefits."

  • David Solomon, CEO of Goldman Sachs:

    "We are focused on enhancing productivity, particularly for our developers and increasing operating efficiency while maintaining a high bar for quality security and controls."

  • Glenn Fogel, CEO of Booking Holdings:

    "We have early indications that using generative AI enhances the productivity of our software developers and are encouraged by the results so far... We look forward to experimenting with these and other ways GenAI tools might make our business more efficient in the future."