The Tech Titans Leading the Generative AI Revolution
As we make our way through 2023, the U.S. stock market has witnessed an extraordinary rally, largely fueled by the technology sector. The driving force behind this remarkable trend? The rapid global adoption of generative artificial intelligence (AI). However, a growing chorus of market analysts and financial experts is beginning to voice concerns regarding the potential profitability of the significant investments that major tech companies are pouring into generative AI. Despite these worries, many believe that the rate of AI application adoption will only continue to surge in the coming years, propelled by the widespread integration of digital technologies and the internet.
So, which tech giants are smart investments right now? We shine the spotlight on three of the biggest players in the generative AI space: Alphabet Inc. (GOOGL), Adobe Inc. (ADBE), and Broadcom Inc. (AVGO). Each of these companies has not only surpassed earnings expectations in the third quarter of 2024 but also demonstrates strong short-term price upside potential. Moreover, over the long haul, their projected earnings per share (EPS) growth rates surpass that of the broader S&P 500 index, setting the stage for robust stock performance over the next three to five years. They also carry a Zacks Rank of #2 (Buy).
Alphabet Inc. (GOOGL): A Beacon in the Data-Driven World
Alphabet remains at the forefront of the generative AI trend, well-positioned to leverage the growing adoption of AI-driven chatbots, particularly with its innovative Bard tool. Bard not only allows users to interact with experimental AI but also comes packed with new features that range from image capabilities to coding support and app integration.
The company’s growth in cloud services and search metrics has been impressive, with Google Cloud reaping benefits from accelerated developments across AI infrastructure and enterprise solutions such as Vertex. GOOGL’s extensive AI portfolio is drawing in new clientele while deepening relationships with existing customers through significant product adoption. With a dominant search engine market position, Alphabet’s recent performance in search traffic—which includes enhancing results and eliminating undesirable ads—further bolsters its growth prospects. Its most powerful AI model, Gemini, powers cutting-edge features within Google Bard and the Search Generative Experience, ensuring enhanced user engagement. On top of that, tools like Duet AI and Vertex AI are helping developers effectively integrate generative AI models into their work.
Brokerage firms project a 21.6% increase in GOOGL’s average short-term price target, hovering between $170 and $235, indicating a remarkable potential upside of 38.9%. With expected revenue and earnings growth rates of 12% and 11.4% for 2025, GOOGL’s long-term EPS growth rate of 17.6% outpaces the S&P 500’s 13.1%.
Adobe Inc. (ADBE): Creativity Meets Innovation
Adobe has masterfully woven AI into its renowned products like Photoshop, Illustrator, and Acrobat. This year, the launch of Adobe Firefly has showcased the power of generative AI in creative tools. Furthermore, the AI Assistant in Adobe Acrobat and Reader makes document handling quicker by summarizing content and answering user queries.
Adobe’s leverage of AI also extends into digital marketing. Its Marketing Cloud employs data analysis to deliver personalized experiences across devices, targeting professionals like marketing executives and digital marketers. The company’s growth trajectory is evident, spurred by rising subscription revenues and a strong demand for its suite of applications. New offerings, such as the mobile app for quick editing effects, aim to capitalize on short-form video trends, underlining Adobe’s innovative spirit.
Analysts forecast a 26.2% rise in ADBE’s average price target, ranging from $440 to $703, which offers a remarkable potential upside of 46%. With anticipated earnings growth of 12.4% and a long-term EPS growth rate aligned with the S&P 500 at 13.1%, Adobe remains solidly poised for future success.
Broadcom Inc. (AVGO): Powering the Future of Networking
Broadcom, a giant in networking solutions, is surfing the wave of heightened demand for custom AI technologies. In its second quarter, the company reported robust sales in AI networking and data center solutions, underscoring its pivotal role in addressing the burgeoning demands of AI workloads. The acquisition of VMware has played a crucial role in expanding Broadcom’s software solutions portfolio, benefiting from a client base that includes tech behemoths like Alphabet and Meta Platforms.
Predicted AI revenues for Broadcom in fiscal 2024 stand at $12 billion, offering impressive growth avenues. With an average short-term price target increase of 14.9%, currently set between $150 and $240, Broadcom presents a potential upside of 42.4%. The company boasts staggering expected revenue and earnings growth rates of 16.7% and 27.1%, respectively, for fiscal 2025.
Conclusion: The Future is Bright
In a world increasingly driven by digital transformations and AI innovations, companies like Alphabet, Adobe, and Broadcom are leading the charge. They have positioned themselves strategically, adapting quickly to industry’s demands and demonstrating solid potential for growth. For investors seeking exposure in the tech sector, these firms represent a compelling opportunity.
The AI Buzz Hub team is excited to see where these breakthroughs take us. Want to stay in the loop on all things AI? Subscribe to our newsletter or share this article with your fellow enthusiasts.
