A lot has changed in the last two years. It is fair to say that we no longer live in the same world as we did in 2022. The changes are varied, but for the combination of economy and digital technology, they have taken the form of creative AI. While AI tech, in various forms, has been with us since almost the dawn of the computer age, creative AI is relatively new. Able to mimic human responses to human gestures, creative AI has already changed the digital landscape forever.
In a recent Goldman Sachs report, the firm’s chief economist, John Hatzeus, described the ways in which AI has affected the economic outlook, writing: “Earlier this year, we estimated that generative The efficiency gains promised by artificial intelligence (AI) could deliver a significant increase in global labor productivity. Although considerable uncertainty remains about the timing and magnitude of AI’s impact, our primary expectation is that that creative AI will affect productivity within our ten-year forecast horizon. We are therefore upgrading our global GDP forecasts from 2027 onwards to include the impact of creative AI.
As investors seek to capitalize on this wave of change, the spotlight falls on stocks that drive the creative AI revolution. With Alphabet ( NASDAQ:GOOGL ) and Super Microcomputer ( NASDAQ:SMCI ) leading the way, Goldman Sachs analysts haven’t stopped short of picking top AI stocks to buy. While both companies have their boosters, Goldman definitely has a preference, so let’s take a closer look at both.
the alphabet
The first stock we’ll look at is Alphabet, the parent company of Google – and one of the most prominent names in the tech world. In addition to its flagship ventures, Alphabet’s diverse portfolio encompasses projects deeply integrated with AI. These include Waymo, autonomous vehicles. Wing, specializing in drone-based airfreight; DeepMind is dedicated to advancing AI research. And, of course, Bard, an innovative creative AI chatbot. Together, these add up to a solid exposure to AI, which has paid off handsomely for Alphabet.
The fruits of Alphabet’s strategic investment are undeniable. Alphabet is one of the ‘Magnificent 7’, the largest tech firms, and companies that have been leading market gains for the past several years. With its $1.66 trillion market cap, Alphabet is one of only a handful of trillion-dollar-plus companies on Wall Street — and the world’s fifth largest.
Alphabet has achieved this elevation on the back of solid performance, particularly from Google, its biggest revenue generator. Overall, the company earned $86.3 billion in fiscal 4Q23, resulting in 13% year-over-year growth, a larger than expected 12% growth margin. In dollar terms, Q4 revenue beat forecasts by more than $1 billion. On the bottom line, Alphabet showed lower EPS of $1.64, up significantly from the $1.05 reported in last year’s fourth quarter, and 5 cents per share better than expected.
For Goldman Sachs’ Eric Sheridan, a 5-star analyst ranked in the top 5% of the Street’s stock pros, the key point here is Alphabet’s use of AI, and the technology it’s taking further down the road. Has the ability to benefit.
“Looking long-term, we continue to view Alphabet management as taking a positive approach to balancing investment against AI’s long-term growth potential, deployment of AI tools in consumer/enterprise computing and a multi- is moving forward in a responsible manner in managing its existing core products. The year transitions to more AI-infused layers in its existing core products. Although questions remain about the impact of AI on core products (for example, if such (may be disruptive in the short term) or cost structure (eg, if computing costs per search will increase), we see Alphabet as a leader in blended AI. Over the past 5-6 years, investments and is well positioned to capitalize on this trend in the coming decade,” Sheridan opined.
As for the bottom line on his recommendation, Sheridan added, “In summary, we reiterate our positive outlook on GOOGL and see Alphabet expanding across a number of segments, including consumer desktop, consumer mobile and enterprise cloud computing. is positioned to take advantage of the increased efficiencies in computing platforms.”
Of course that’s the backdrop for the Buy rating, and Sheridan backs it up with a $171 price target that suggests a 28 percent upside potential over a one-year horizon. (To see Sheridan’s track record, click here)
Like many large and mega-cap tech stocks, Alphabet doesn’t lack for Wall Street analyst reviews – the stock has a record 37 recommendations, including 29 buys and 8 holds, with a strong buy consensus rating. For closure. The stock is trading at $133.35, and its average target price of $164.59 implies a 12-month upside of 23%. (See GOOGL Stock Forecast)
Super Microcomputer (SMCI)
The next stock we’ll look at is Super Microcomputer, a tech firm operating out of Silicon Valley. The company provides solutions for server and storage needs, applicable to a variety of computation-intensive work systems. Supermicro’s product lines are designed to fully meet the needs of end users and integrate scalable installations with high-performance computing. The company has the ability to build complex server systems in-house, from initial design through manufacturing to delivery and installation. Customers can choose from custom or off-the-shelf servers and storage systems, and select a wide range of subsystems and accessories, even in unique configurations.
Which means Super Micro offers its customers unparalleled choice in the dynamic computer market. The company’s product lines have applications in edge/5G systems, data centers, public and private clouds and AI – where they bring the advanced computing power required for new generative AI tech. That’s big business, and Super Micro raked in $7.2 billion in total revenue during its last fiscal year, 2023.
Turning to the company’s financial results, we see that Super Mirco’s total sales for fiscal 2Q24 – the quarter ended December 31 – were $3.66 billion. This was up from $2.12 billion in the fiscal first quarter and up from $1.8 billion reported in fiscal 2Q23. 2Q24 revenue also beat forecasts of $400 million. The company generated solid earnings from earnings, which in non-GAAP measures were $5.59 per share. The EPS figure was 43 cents per share compared to pre-release estimates.
Despite all of SuperMicro’s strengths — its strong product line, its exposure to AI through the data center segment, and its financial results — the stock still has a hold (ie, neutral) rating from Goldman Sachs.
Explaining this, analyst Mike Ng writes: “SMCI is a provider of server and storage systems (92% revenue in F2023) and other IT solutions that will benefit from the growing demand for AI data center infrastructure. should and should gain competitive advantage in its competitive AI. supplier partnerships (eg, Nvidia) and design innovations (eg, modular system optimization, global presence). That said, we value the stock at 32X NTM sees substantial value on the P/E, which is in line with other IT hardware and semiconductor stocks that can be seen as AI enablers (eg, ANET, NVDA, AMD). Early 2023 The stock has risen over 1,000% (11X) since, leading to 3X growth in earnings (NTM EPS) and nearly 3.5X expansion in value (NTM P/E) to 32X (v. 9x).
In addition to his hold rating, Ng has a $941 price target on SMCI shares, indicating he sees a 12% downside for the stock over the coming year. (To see Ng’s track record, click here)
In total, the stock has 9 recent analyst ratings, and includes 5 buys, 3 holds and one sell. The consensus rating is a moderate buy, and the average price target, $824.11, implies the stock will decline 23% this coming year. (See SMCI Stock Forecast)
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Disclaimer: The opinions expressed in this article are solely those of prominent analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.