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Wall Street roundup: We unpack bullish calls on 6 Club stocks, including Alphabet, Meta and Microsoft

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3 months ago

March 4, 2023

Wall Street published a slew of positive research on longtime Club holdings late this week, examining the potential of artificial intelligence to drive growth at companies like Alphabet (GOOGL), Meta Platforms META), Microsoft (MSFT) and more. Here’s a closer look at the notes, and our take on the analyst calls. AI can lift Big Tech higher GOOGL 1Y mountain Alphabet (GOOGL) one-year performance. The news: Morgan Stanley said Alphabet, Amazon (AMZN) and Meta are among the stocks that are best positioned to capture long-term gains from maturing artificial intelligence (AI) capabilities. AI has the ability to “accelerate digital transformation, change consumer behavior and drive more durable multi-year digital growth,” Morgan Stanley analysts wrote in a research note this week. AI will push consumers to continue shifting their activity online in a $5.9 trillion addressable market, the analysts argued. Moreover, this “AI Effect” could create a $780 billion online advertising opportunity, with “GOOGL and META as the largest beneficiaries,” according to Morgan Stanley. The analysts also believe AI will lead to “more interactive and comprehensive shopping experiences” that could spur a $3.3 trillion e-commerce opportunity, with Amazon best positioned to benefit. And AI could drive spending in cloud services, putting Alphabet’s Google Cloud and Amazon Web Services in a “strong position to capture incremental AI spend.” The Club take: We are pleased that Morgan Stanley’s analysis on AI shows massive multi-year growth opportunities for numerous Club stocks in ecommerce, advertising and the cloud. The recent corporate AI push has shown Big Tech has more room for growth, which could mean further upside to their stocks. We believe AI can create monetization opportunities, but given it’s a newer tool we’re not sure how long it will take to implement and execute at each company. The tech giants have been on the right path in terms of cutting back on overspending, so we hope the AI push doesn’t increase capital expenditures. Two tech holdings are top picks NVDA 1Y mountain Nvidia (NVDA) one-year performance. The news: Credit Suisse on Thursday called Microsoft (MSFT) its top pick in U.S. software, while reaffirming Nvidia (NVDA) as its No. 1 pick in the semiconductor industry. Generative AI is “broadly transformative and predominantly a productivity, cost-cutting, and efficiency tool versus a revenue-generating tool today as it pertains to most industries,” Credit Suisse analysts wrote in a research note. Following an “extensive assessment” of the monetization opportunities open to Microsoft via its stake in OpenAI — the research laboratory that developed viral chatbot ChatGPT — the analysts believe the technology giant’s ability to integrate OpenAI technology into their product suite could amount to roughly $40 billion in sales and a more than $2-per-share monetization opportunity over the next five-plus years. That would amount to a roughly 20% increase in Microsoft’s sales compared with fiscal year 2022 and a more than 20% boost on earnings-per-share on last year. Credit Suisse also emphasized that Nvidia’s chips are growing in popularity to run AI workloads. The company’s graphics processing units (GPUs) were used to train and run ChatGPT, and can be applied to other large language models. The company dominates the AI training market, but its products are now gaining a foothold in what’s known as inference workloads — essentially, putting the model into action. Nvidia’s effort to monetize its AI software “has only just begun” and can help fuel top-line growth, the analysts wrote. MSFT 1Y mountain Microsoft (MSFT) one-year performance. The Club take: The Morgan Stanley note is further validation of just how real the generative AI opportunity is. We understand the skepticism around the AI buzz, but think real attention needs to be paid to the opportunity that lies ahead. The technology, though still in the infancy stage, is here and has real-world applications today. And Nvidia and Microsoft both stand to be big winners in the nascent AI arms race . ‘Unappreciated catalysts’ for Apple AAPL 6M mountain Apple’s stock performance over the past 6 months. The news: Apple has five “underappreciated catalysts” that can boost the company’s stock over the next 12 months, Morgan Stanley analysts wrote in a research note Friday. Those catalysts — which include pent up iPhone demand, reacceleration of services revenue growth and potential margin expansion as supply-chain hurdles normalize — make Apple the analysts’ top pick for 2023. The firm also raised its price target to $180 per share, up from $175, representing about 23% upside from where the stock closed Thursday, at $145.91 apiece. Morgan Stanley’s other looming catalysts for Apple are the potential launch of a virtual reality headset later this year, a new iPhone model and a potential hardware subscription program . The analysts were particularly bullish on the impact an iPhone subscription offering would have on Apple’s valuation. The Club take: Apple continues to be an own-it, don’t-trade stock, a mantra Jim Cramer has preached for years. So, it’s encouraging to see Morgan Stanley paint a positive picture about Apple in the near-to-medium term. It’s no secret Apple has faced some challenges in recent months, including the strong U.S. dollar , Covid-related production challenges in China, and general macroeconomic uncertainty. But those issues have not been enough to shake our core belief in Apple, knowing that, in time, headwinds would recede and tailwinds would emerge. The Club also has been incredibly optimistic on the potential impact of an iPhone subscription program. Jim has long urged Apple to disclose the lifetime value of its customers, and a subscription offering goes a long way in determining that figure. Investors like us would likely be willing to pay a premium for the stability associated with recurring subscription revenues. (Jim Cramer’s Charitable Trust is long AAPL, GOOGL, META, AMZN, MSFT, NVDA. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

The logos of Google, Apple, Facebook, Amazon and Microsoft displayed on a mobile phone and a laptop screen.

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Source: CNBC

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