Google stock, Meta and Microsoft are vying for investor dollars as each promotes a different path to generative AI. Advertising, user data and enterprise customers are all at stake.
"Will they be able to sell (generative AI) software to businesses and consumers well enough to cover what they're paying for all the infrastructure — and make some money for investors on the other end?" said Jeremy C. Owens, tech editor at MarketWatch, on Investor's Business Daily's "Investing with IBD" podcast.
Google Stock Takes A Hybrid Approach
Owens says each of these companies has laid out a distinctive approach to generative AI: Microsoft hopes to rise on pitching AI to its enterprise clients. Meta stock could rise if its AI offerings can harness the quality and depth of its user data. And Alphabet is hoping for a boost through a hybrid approach with AI applications in both enterprise and advertising.
Audio Version Of Podcast Episode
Generative AI is having its moment in the tech spotlight: Meta has aggressively rolled out its homegrown generative AI offering, Llama 3, across its range of products including WhatsApp and Messenger. Companies like Salesforce and Adobe are rolling out AI-enabled products as part of their wider suite of offerings. Google stock recently shot higher on earnings, with investors cheering its AI efforts. Even industry giant Apple was forced to acknowledge generative AI when it claimed its new stable of M4 processors were designed to handle AI-powered applications.
But AI's biggest impact on tech giants comes from the amount of money companies are plowing into the new technology in the hopes of becoming the next dominant player. Microsoft and Google recently announced an increase in AI-related capital spending, boosting chipmakers like Nvidia and Super Micro Computer.
Microsoft Stock Hopes For Enterprise Demand
Investors are scrutinizing Microsoft for signs of whether businesses can use generative AI — and how much they might pay for enterprise-grade AI tools.
"If we're trying to figure out if this next leg of the AI revolution is really going to be lucrative, Microsoft Copilot is the canary in the coal mine," said Owens. He says Microsoft's existing customer base is a prime target for generative AI, potentially seeing a first-mover advantage — if a market can be found.
"If we see that taking off, that tells us there is a demand on the enterprise side for what they're developing," said Owens. "We can have a little more faith in some of these other enterprise software companies that are following Microsoft."
Microsoft stock is currently forming a flat base and is trading roughly 4% below its late-March high of 430.82. Shares are continuing to consolidate, but resistance at the key 50-day line looms large. Microsoft stock is ranked No. 1 in the Computer Software-Desktop industry group with a Composite Rating of 82, according to IBD research.
Meta Stock Seeks Better AI Models
Meta stock is hoping for a generative AI boost by developing a potentially better AI model than its competitors with the terabytes of personal information it has access to. "Remember that Apple cut off Facebook's data access to iPhone users, and that really hurt Facebook," said Owens. He says the company potentially could use generative AI to replace that missing data and target users more accurately.
Meta stock slid on its latest earnings report last month. The stock has since recovered a bit but remains more than 10% below its early April highs. Meta stock retains a Composite Rating of 96 and is ranked No. 6 in the Internet-Content group, according to IBD research.
Meta stock also comes with a big cash cushion. The social media giant is an example of what Owens calls "The Trillionaires," the short but growing list of mostly tech companies with valuations of more than $1 trillion. High valuations allow companies like Meta to pursue generative AI, even if the path to revenue may not be immediate. "Facebook went public and there were doubts about whether it could make money off of mobile (apps)," said Owens. "It did."
Google Stock Looks For Hybrid AI Approach
But while Microsoft stock could prove that generative AI is profitable — and Meta stock could show the power of personal data in generative AI — Google stock combines the strengths of both.
"Alphabet is basically those two things jammed together," said Owens. "They have this huge advertising business that they can use AI to optimize to make more productive, they can use AI to improve their consumer services like search, but they also have a big enterprise business in terms of Google Cloud, which is growing very strongly."
Google stock is trading 11% above a 153.78 pivot point, with much of its recent move due to a bullish earnings reaction on April 26. Google stock holds a Composite Rating of 98, and is ranked No. 2 in the Internet-Content group.
Watch this week's podcast featuring Jeremy C. Owens to learn why Microsoft matters to generative AI.
Follow Mike Juang on X at @mikejuangnews and on Threads at @namedvillage.
