We recently compiled Goldman Sachs’ list of 35 AI superstars. In this article, we’ll take a look at how Microsoft Corporation (NASDAQ:MSFT) stacks up against other AI superstars, according to Goldman Sachs.
U.S. technology stocks have rallied sharply this year, largely due to growing excitement around generative artificial intelligence (AI). But a study by investment firm Goldman Sachs says the rise is not indicative of a financial bubble like in the past. The performance of these companies is expected to continue to deliver solid returns to investors, boosted by the rise of smaller tech companies outside the grand seven and AI superstars in non-tech sectors. However, Peter Oppenheimer, the bank’s head of global equity strategy and head of European macro research, advised investors to diversify their portfolios to manage risk.
Tech stocks have dominated since 2010, accounting for 32% of global stock returns and 40% of U.S. stock returns, but these returns are driven by strong financial fundamentals, not speculative bubbles. Earnings per share in the tech sector are up 400% from their pre-financial crisis peak in 2008, far outpacing other sectors that have only grown by 25% combined. The main driving force behind the huge revenues in recent years has been a small group of hyperscale companies, especially software and cloud computing companies. These companies leverage vast resources and high profitability to dominate the market, and optimism about AI has fueled their recent performance.
To learn more about these developments, visit BlackRock’s 30 Most Important AI Stocks and Beyond the Tech Giants: 35 Non-Technology AI Opportunities.
This has resulted in valuation increases being primarily concentrated in a narrow group of market leaders. Peter Oppenheimer observes that this pattern reflects historical trends in technological innovation. From the construction of canals in the 18th century to the widespread use of the telephone, new technologies often attract large amounts of capital and competition. Although this does not always result in a financial bubble, there are usually periods when prices fall as competition increases, eventually leading to market consolidation. Over time, only a few large companies remain dominant, and growth shifts to secondary innovations that build on the original technology. The AI era is unique in that the leading AI companies were also at the forefront of previous waves of technology, particularly in software and cloud services.
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Due to its scale and profitability, it is well positioned to absorb the high costs of AI investments. But Oppenheimer points out that new competitors are emerging. The number of AI patents has jumped from about 8,000 just four years ago to more than 60,000 in 2022, suggesting that AI is following the typical pattern of massive capital growth and competition. are. Oppenheimer also points out that the companies that pioneer a new technology may not derive the most value from that technology in the long run. For example, during the Internet boom, telecommunications companies received significant investment, but it was companies like social media and ride-sharing that leveraged Internet infrastructure to achieve the greatest success. Similarly, as AI evolves, new companies may emerge as the next wave of tech superstars, reshaping industries beyond the current giants.
Next, take a look at our list of 35 AI superstars that major banks are eyeing. We compiled this list based on bank reports on the AI industry. These stocks are also popular among elite hedge funds, and hedge fund sentiment is a key indicator that Insider Monkey pays close attention to.
Why are we interested in stocks that hedge funds invest in? The reason is simple. Our research shows that by mimicking the top stock picks of the best hedge funds, you can outperform the market. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, outperforming the benchmark by 150 points (Learn more here Please take a look).
A development team working together to create the next version of Windows.
Microsoft Corporation (NASDAQ:MSFT)
Number of hedge fund holders: 279
Microsoft Corporation (NASDAQ:MSFT) is a technology company based in Washington. Morgan Stanley analyst Keith Weiss recently wrote an investor note on the company, setting an “overweight” rating on the stock with a price target of $508. The analyst said in a note that tech giant investors’ patience appears to be wearing thin when it comes to generating AI revenue, with questions about the return on investment of GPU spending and the environmental impact of increased data center demand. He emphasized that it was being thrown at him. Weiss emphasized that with Microsoft recognized as a leader in the GenAI opportunity, investors are looking for a metric for the right time frame to start seeing returns.
Weiss also touched on the return on investment from Microsoft Corporation (NASDAQ:MSFT) as capital expenditures, including capital leases, increased 75% year-over-year to $55.7 billion. It is expected to further increase by 41% to $78.4 billion in 2025. According to analysts, the spending question should be split into two parts, with one focused on the gross profit potential of GenAI-related solutions and the other focused on future model training costs. I did.
According to Goldman Sachs, MSFT ranks second overall on the list of AI superstars. While we appreciate MSFT’s potential as an investment, we believe some AI stocks have a better chance of delivering higher returns over shorter time periods. If you’re looking for AI stocks that are more promising than MSFT but trade at less than 5x earnings, check out our report on the cheapest AI stocks.
Read next: A $30 trillion opportunity: 15 humanoid robot stocks to buy as NVIDIA has ‘become a wasteland’, according to Morgan Stanley and Jim Cramer.
Disclosure: None. This article was originally published on Insider Monkey.
