Technology stocks have rocketed over the past seven months, with the S&P 500 Technology Sector index surging 31%.
Tech stalwarts Alphabet (GOOG) , Amazon, Microsoft, Meta Platforms (META) and Nvidia (NVDA) have dominated the S&P 500’s ascent. Earnings for these companies have soared.
Much of the increase in share prices stems from the market’s mania for all things artificial intelligence. Those five tech titans are starting to enable, provide and utilize AI in a major way. For example, Microsoft and Alphabet enable users to make inquiries to their AI platforms. Nvidia is the biggest maker of chips that enable AI technology.
Economic experts are excited about AI, too. “If one takes a view over the next generation, this could be the biggest thing that has happened in economic history since the Industrial Revolution,” says the Harvard economist and former Treasury Secretary Larry Summers, according to Fortune.
“This offers the prospect of not replacing some forms of human labor, but almost all forms of human labor.” AI will be particularly good at performing white-collar workers’ “cognitive labor,” he said.
To be sure, Summers, like many others, injects a note of caution. “I don’t think that this is going to drive a productivity miracle in the next three to five years,” he said.
“The general rule with respect to technological innovation is that things take longer to happen than you think they will, and then they happen faster than you thought they could.”
Goldman Sachs’s top-pick list
As for internet-related equities, Goldman Sachs tech analyst Eric Sheridan sees a positive backdrop.
“Our main takeaway from this earnings season was that the internet consumer is continuing a theme … of settling into a normalized behavior, with consumer spending growing,” he said in a report cited by CNBC.
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Goldman Sachs put together a list of top tech stocks that includes some highly recognizable names, such as Alphabet, Amazon, Expedia (EXPE) , Instacart (CART) and Meta.
Morningstar analysts are quite high on Amazon (AMZN) , Alphabet and Meta, too, giving the companies wide moats. That means the analysts see them maintaining competitive advantages for at least 20 years.
Morningstar assigns Expedia a narrow moat, meaning it sees the company with competitive advantages for at least 10 years. And it gives Instacart no moat.
As for Alphabet, “it dominates the online search market with 90%-plus global share for Google,” wrote Morningstar analyst Michael Hodel.
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“The business generates very strong cash flow. We expect continuing search growth as we remain confident that Google will maintain its leadership.”
Alphabet’s first-quarter earnings were strong, he said. “The cloud business delivered impressive growth, with revenue up 28%,” buoyed by AI demand.
Hodel puts Alphabet’s fair value at $179, matching Tuesday’s quote.
Morningstar’s take on Amazon, Meta
Looking at Amazon after its first-quarter-earnings report, Morningstar analyst Dan Romanoff said “it dominates its served markets, notably for e-commerce and cloud services. Overall demand continues to trend favorably across business units.
“Many positive trends from the last several quarters continued with notable improvement in AWS demand and additional cost savings arising from fulfillment and cost to serve.” AWS, or Amazon Web Services, is the company’s cloud division.
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Romanoff puts Amazon’s fair value at $193, compared with Tuesday’s quote of $182.
Turning to Meta, Hodel wrote, “it has attracted users and increased engagement by providing additional features and apps within its ecosystem.
“With more user interaction among friends and family and the sharing of videos and pictures … the firm will steadily compile more data.” Meta and its advertising clients can then use the data to target specific users for ad campaigns.
Hodel puts Meta’s fair value at $400, compared with Tuesday’s quote of $464.
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