20 Artificial Intelligence Stock Picks, and 10 AI Predictions, From RBC
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RBC says valuations of companies that fail to embrace AI will fall.
DreamstimeIf there is one thing the market is starving for, it is more plays on artificial intelligence, so plenty of Wall Street analyst have weighed in with lengthy notes on which stocks will be winners in the generative AI revolution. On Friday, the research team at RBC Capital added to the pile.
The analysts, including Rishi Jaluria and Matthew Hedberg, who cover software; Rishi Jaluria, who handles internet stocks;, and a few others cranked out a 189-report about the implications of generative AI and ChatGPT. They offered a list of their 20 best plays on the technology.
In software, the names include Microsoft (ticker: MSFT), HubSpot (HUBS), Nice (NICE), Veeva Systems (VEEV), MongoDB (MDB), CrowdStrike Holdings (CRWD), Elastic (ESTC), GitLab (GTLB), Cloudflare (NET), ServiceNow (NOW), and Adobe (ADBE).
RBC’s favorite internet plays on AI include Alphabet (GOOGL), Amazon.com (AMZN), Meta Platforms (META), Snap (SNAP), and Pinterest (PINS), “and to a lesser degree,” Booking Holdings (BKNG), Expedia Group (EXPE) and Airbnb (ABNB). Another pick, in the datacenter sector, is Digital Realty Trust (DLR).
The analysts also offered 10 predictions:
- Companies that fail to embrace generative AI “will see their multiple compress by 50% over the next five years.”
- Generative AI will be “negative for software companies and stocks that have previously benefited from AI tailwinds.” That includes recent popular AI picks like C3.ai (AI) BigBear.ai (BBAI), and SoundHound.ai (SOUN).
- Accelerated adoption of AI will drive growth in the public cloud players, including Amazon Web Services, Microsoft Azure, and Alphabet’s (GOOGL) Google Cloud.
- Governments and regulatory bodies will increasingly scrutinize the technology. “We believe governments throughout the world will create legislation around generative AI, including the use of generative AI systems, preventing malicious use, and the use of customer data.”
- Generative AI will lead to the next generation of start-ups.
- Security attacks will become more complex. “We believe malicious groups will be able to use generative AI to create more complex and creative cyberattacks, which can serve as a tailwind for security companies.”
- The market’s worries about Alphabet will fade as the company releases new tools, shows incremental revenue from AI, and avoids boosting capital spending in response to a potential surge in resource-intensive AI queries.
- Amazon will begin publicizing more of its own generative AI progress; RBC notes that it has AI integrated on its cloud far longer than Azure or Google Cloud.
- Meta brings new generative AI tools to market that result in cost savings for advertisers.
- Online travel plays Airbnb, Booking, and Expedia will get louder about their own AI solutions, “to get out in front of any negative narrative that may arise surrounding customer acquisition headwinds as search discoverability becomes more challenging.”
Write to Eric J. Savitz at eric.savitz@barrons.com