The astonishing rally in U.S. stocks that started at the beginning of 2023 was predominantly driven by the technology sector. The prime factor was the unprecedented adoption of generative artificial intelligence (AI) technology worldwide.
Lately, a section of market analysts and financial researchers have raised concerns about the potential profitability of massive investments in generative AI by several technology giants. We believe that AI applications will continue to gather pace in the coming years, buoyed by the rapid penetration of digital technologies and the Internet.
At this stage, we recommend three technology behemoths with extensive applications of generative AI. These companies are - Alphabet Inc. GOOGL, Adobe Inc. ADBE and Broadcom Inc. AVGO.
These three companies have beaten their respective Zacks Consensus Estimate for both the top and bottom lines in third-quarter 2024. These stocks have solid price upside potential in the short term.
In the long term, these stocks have a higher earnings per share (EPS) growth rate than the broad-market S&P 500 index, which should drive their stock prices in the next 3 to 5 years. Each of these stocks currently carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
A deepening focus on generative AI technology is a major positive for GOOGL in this data-driven world. Google has been well-poised to capitalize on the growing proliferation of generative AI-backed chatbots on the back of Bard, which enables users to collaborate with experimental AI with new features that include image capabilities, coding support and app integration.
Alphabet is riding on strong cloud and search growth. Google Cloud is benefiting from accelerated growth across AI infrastructure, enterprise AI platform Vertex, generative AI (Gen AI) solutions and core Google Cloud Platform products. GOOGL's strong AI portfolio is helping it attract new customers, win larger deals, and deepen product adoption among existing customers.
Alphabet's expanding GenAI capabilities present a potential catalyst for future growth. GOOGL's dominant position in the search engine market is a strong growth driver. Major search updates and the removal of bad ads to enhance the search results continue to boost traffic on GOOGL's search engine.
GOOGL is cashing in on the increasing demand for Large Language Models with its most powerful AI model called Gemini. Google Bard and Search Generative Experience are powered by Gemini Pro to deliver an enhanced user experience. Google Cloud offers Duet AI, which provides pre-packaged AI agents that assist developers in writing, testing, documenting and operating software.