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Although macroeconomic factors and geopolitical tensions are weighing on investor sentiment today, the stock market typically gains momentum after the start of earnings season. Wedbush analyst Dan Ives, for one, predicts that tech earnings this month will boost the sector by 12% to 15% for the remainder of the year.
Smart investors generally take advantage of a distressed market to buy high-quality growth stocks at a dip. The majority of the tech stocks that Wedbush analyst currently favors are the ones that have so far fueled the market's huge gain in 2023 amid the artificial intelligence (AI) boom. Crowdstrike Holdings (CRWD), Meta Platforms (META), Amazon (AMZN), Microsoft (MSFT), and Alphabet (GOOGL) have stood out this year with their AI-driven efforts to gain a competitive edge in this fast-paced niche - and that's reflected in their stock returns, as follows:
- Crowdstrike is up 78.8%
- Meta Platforms is up 165%
- Amazon is up 53%
- Microsoft is up 39%
- Alphabet is up 56%
Additionally, the tech sector-dominated Nasdaq Composite ($NASX) has risen year-to-date by 27.8%.
AI Could Transform Cybersecurity and Cloud Platforms
Wedbush's Ives thinks Wall Street is likely underestimating the profound growth that AI could bring to cloud and cybersecurity in the upcoming year.
Cybersecurity firm Crowdstrike is already experiencing phenomenal growth, thanks to its AI-powered Falcon platform - which enables businesses to react quickly to cyber threats and breaches. Its revenue has jumped at a rapid rate from $481 million in fiscal 2020 to $2.24 billion in fiscal 2023.
With its strong fundamentals, the company has the potential to cash in on AI-driven opportunities in the cybersecurity market – which could be worth $266 billion by 2027.
Analysts' Estimate for CRWD: For Q3 fiscal 2024, revenue could be around $777.3 million, a 34% year-over-year increase. For the full fiscal year, revenue could increase to $3.04 billion, a 36% year-over-year increase.
Furthermore, Q3 FY 2024 EPS could be $0.09, versus a loss of $0.24 per share in the prior quarter. Full-year EPS is expected at $0.32, compared to a loss of $0.79 per share in FY 2023.
Analysts rate CRWD a “strong buy.” However, its average price target of $190.65 is only 1% above its current trading price.
The Big Players of Cloud Platforms Could Get Bigger
Turning to the cloud platform, Amazon, Microsoft and Google are the three big players in the global cloud computing market, holding around 65% of the market share.
Alphabet has been using AI in its products since long before the current hype started. Though Google Search contributes the most to its revenue, Google's cloud platform has substantial growth opportunities. Cloud brought in $8 billion in sales in Q2, up 27% year-over-year, with an operating profit of $395 million for the second consecutive quarter.
Alphabet’s CEO Sundar Pichai discussed in the Q2 earnings call, “Our AI-optimized infrastructure is a leading platform for training and serving generative AI models. More than 70% of gen AI unicorns are Google Cloud customers, including Cohere, Jasper, Typeface, and many more.”
Analysts' Estimate for GOOGL: Wall Street foresees Alphabet’s Q3 EPS to jump by 37% to $1.45, while 2023 EPS could be around $5.68, up 25% from 2022. Total revenue for Q3 is expected to jump by 9.4% to $75.7 billion, while 2023 revenue could be around $304.4 billion, up 8% from 2022.
GOOGL has a “strong buy” rating, with a target price of $149.18, representing implied upside of only 7.7% from current levels.
As for Microsoft, it's well-known for adapting to the ever-evolving tech industry. It made a considerable investment in Open AI in 2019. Since then, it has upgraded its flagship Office products and enterprise cloud platform Azure with AI. In its fiscal 2023 (ended June 30), cloud services revenue grew by 19% year-over-year, led by Azure.
Talking about the results, Microsoft’s management stated, “We have great momentum across Azure OpenAI Service. More than 11,000 organizations across industries, including Ikea, Volvo Group, Zurich Insurance, as well as digital natives like Flipkart, Humane, Kahoot, Miro, and Typeface, use the service."
What’s more, the company also launched its AI-powered Bing and the Edge browser this year.
Analysts' Estimate for MSFT: For its upcoming Q1 fiscal 2024, revenue could grow by 9% to $54.5 billion, and EPS by 13% to $2.65.
MSFT has a “strong buy” rating, with the average target price of $384.71 representing expected upside of 16% from current levels.
Meanwhile, Amazon has already integrated AI into its AWS (Amazon Web Service) platform and its voice assistant Alexa to provide its customers with more advanced technologies. The company plans to invest $4 billion in a collaboration with the AI start-up Anthropic to integrate more AI tools into its products and services.
Analysts' Estimate for AMZN: Amazon’s revenue for Q3 could increase by 11.3% to $141.5 billion with an EPS of $0.58. For 2023, revenue could increase to $570 billion from $514 billion last year, with an annual profit of $2.23 per share, compared to a loss of $0.27 per share the prior year.
The Street rates AMZN a “strong buy,” with the mean target price of $168.21 representing expected growth of nearly 31% from current levels.
The global computing market could grow at a compound annual growth rate of 20% between 2023 and 2030, ultimately reaching $2.4 trillion. With AI integration, GOOGL, MSFT, and AMZN can all benefit from this massive expansion. These three big tech players are reporting their earnings next week.
A Good Bet for The Long Haul
Wedbush is also bullish on Meta Platforms, which is betting big on AI. Overall, Meta has a “strong buy” rating from analysts, with a target price of $366.08, implying a 14% upside from current levels.
Dan Ives’ other favorite tech stocks also include Apple (AAPL), Palo Alto (PANW), Palantir (PLTR), and a few more.
All in all, Ives believes, “The macro story is overshadowing the biggest technology revolution in the last 30 years with AI a ‘1995 Moment’ and we believe the fundamental tech growth stories/use cases are accelerating and will be front and center in 3Q earnings season over the coming weeks.”
With expectations for the AI market to be a multi-trillion dollar market in less than a decade, these top tech titans could be the AI era's frontrunners. All of them are trading below their 52-week highs, making it a good opportunity to consider these excellent growth stocks now.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
