Generative AI burst onto the scene last November, and fueled a rally in tech stocks — a boom that effectively ended last year’s bear market and sparked this year’s market rally.
But some headwinds are starting to pile up, and some market bigwigs are predicting danger on the horizon. Ken Griffin“I want to believe this rally has legs,” the billionaire tycoon and Citadel founder gushed recently. [but] I’m a little worried that we’re in the seventh or eighth grade of this rally.
Specifically, Griffin, who has a net worth of ~$35.4 billion, points to the Federal Reserve’s interest rate policy. For the past year and a half, the central bank has been raising rates, and it believes the rising rate will outpace the AI boom. “We’re at the point where we’re going to see the impact of these hikes really start to play out,” he said. “We’re seeing the labor market start to weaken.”
This did not cause Griffin to retreat from the stock market. Instead, it has doubled down – and more – on the vast resources of two of the market’s ‘tech titans’ to survive and thrive even in a recession. We used it. TipRanks Griffin recently took the stage to release details on two of the tech giants who made big bets; Here they are, along with comments from street analysts.
Microsoft Corporation (MSFT)
The first stock on our list today is Microsoft, one of the most recognizable names in personal computing and software. The company has a hand in every aspect of the home and business computer industry, and its $13 billion investment in OpenAI paid off last year, when the company released ChatGPT and sparked a rally in the market.
Microsoft’s long history of innovation and success has placed it at the top of the list of publicly traded companies. Microsoft currently has a market cap of $2.44 trillion, and is expected to generate approximately $212 billion in revenue in fiscal year 2023. But the company didn’t just walk away. It’s using ChatGPT as the AI behind Bing’s search engine, and by adding natural language capabilities to Bing, it’s trying to challenge Google for market share in the search field. Microsoft is using AI in more products, including its Edge web browser and office products, and the company’s Azure business cloud infrastructure platform is incorporating the new technology.
Bottom line, any investment is about return, and in its most recent quarterly report — Q4 of fiscal year 2023, which ended June 30 — Microsoft had a top line of $56.2 billion and non-GAAP earnings per share of 2.69. Revenue was up more than 8 percent year-over-year and beat forecasts by $710 million, while the bottom line was 14 cents better than expected. The company’s intelligent cloud segment accounted for $24 billion of total revenue, up 15%.
For Griffin, Microsoft’s strengths are clear. The billionaire stock maven added 2,041,023 MSFT shares to his portfolio in Q2, expanding his current holdings of the stock by 150%. Griffin’s total stake in Microsoft is ~$1.12 billion.
Also appearing on Microsoft is Tigress analyst Evan Feinz, who specifically cites the company’s large and growing AI exposure as a key point. A 5-star analyst wrote: “MSFT is at the forefront of the AI revolution by leveraging AI functionality through continuous integration and incorporating ChatGPT across all business and product lines, accelerating digital global transformation and highlighting investment opportunities. MSFT is leading the AI revolution in every aspect of enterprise IT and computing processes, driving the need for operational efficiency, technology-enabled competitive edge, and increasing productivity and innovation. MSFT’s growing presence as a dominant AI services provider will continue to drive revenue growth and price gains.
These comments support a buy rating on MSFT, and a $433 price target suggests a 32% upside for the shares over a one-year horizon. (To see Feinset’s story, Click here.)
Tech titans tend not to draw attention from the Street, and Microsoft has 34 current analysts on file, including 30 buys, 3 holds, and 1 sell – a consensus rating for a strong buy. The shares have a $328.65 average price target of $392.41, indicating a potential downside of 19% over the next 12 months. (look out Microsoft stock forecast.)
Next up is another instantly recognizable name, Amazon. This global e-commerce leader started as an online book dealer in the late 1990s, survived the dot-com bubble burst and has since become the fourth largest company in the public markets, with a market capitalization of $1.44 trillion. In the year By 2022, Amazon’s online retail operations will generate $690 billion in gross merchandise volume.
But leadership in online retail isn’t the only story here. Amazon combines hands-on online technology expertise with deep pockets to take full advantage of generative AI in developing new products. These additions to the AI-powered product line include a chatbot, an image-building platform, and a software code development platform. Amazon’s cloud software service AWS also makes extensive use of AI — and is generating $22 billion in annual revenue. Underneath it all and to support it, Amazon has built a fulfillment network of brick-and-mortar physical infrastructure with more than 541 million square feet of warehouse space.
Like Microsoft above, Amazon beat its forecast in its last quarterly report. According to the 2Q23 results, the company’s revenue was $134.4 billion, $3 billion more than expected and about 11% higher than last year’s results. The revenue beat was powered by AWS, which posted 12% y/y growth to hit $22.1 billion, and the giant’s North American retail division, which rose 11% y/y to total $82.5 billion. Amazon’s bottom-line earnings, reported as EPS of 65 cents per share, were up sharply from a 2Q22 net loss of 20 cents per share, and beat estimates by 31 cents.
As for Griffin, he made a big move to acquire Amazon shares in the second quarter of this year and bought 3,676,582 shares. This increased his holdings of AMZN by 258%; The exposure to Amazon now stands at $702.6 million.
Barton Crockett of Rosenblatt Securities is another bull when it comes to Amazon. Analysts are impressed with the company’s growing results, and believe AIIN can use it to its advantage in the long run. In a recent note on the stock, he said, “Our past concerns — the consensus was too optimistic — have receded. With business restarting, a new focus on retail efficiency, and AI as an emerging driver in the cloud, the threat of coming economic headwinds seems less of a concern, opening the door to more consumer growth stories… Amazon is trading at EV near 13x 2023E. Below the rules of the 20s. Meanwhile, margin improvements are accelerating EBITDA growth.
Looking ahead, Crockett gives AMZN a Buy rating at $184, which represents a 12-month gain of 34%. (To see Crockett’s track record, Click here.)
The 40 most recent analyst ratings here support a consensus rating of Strong Buy, divided into 39 Buys per holding. Shares in Amazon are currently trading at $137.63, a 28% increase from their average price target of $175.63. (look out Amazon stock forecast.)
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Disclaimer: The opinions expressed in this article are those of the featured analysts only. The content is intended for informational purposes only. It is very important to do your own analysis before making any investment.