The artificial intelligence revolution has caused a significant stir in the stock market, with certain stocks being at the forefront of this trend. According to Evercore ISI, investing in these stocks and holding onto them for the long term could prove to be a wise decision. The excitement surrounding AI has propelled Nvidia to a fresh record high, resulting in the stock reaching a valuation of $3 trillion. While this may sound like a promising opportunity, it is essential to delve deeper into the analysis provided by Evercore to understand the rationale behind their recommendations.
Evercore has identified a group of companies that they refer to as “AI revolutionaries,” which are deemed as enablers of the broader AI trend. These companies have embraced AI technology to build their competitive advantage in the market. To compile this list, Evercore scanned the Russell 1000 for companies whose executives have mentioned AI more frequently in their call transcripts in 2023 compared to their peers. Additionally, these companies have demonstrated growth potential, with upward revisions in their earnings per share estimates for 2024. Moreover, they have a price-to-earnings growth ratio for the next 12 months that is discounted compared to the Russell 1000.
While Evercore rates the identified companies as outperformers, it is crucial to critically analyze the reasons behind their recommendations. Nvidia, being one of the top picks, has garnered significant attention for its AI mentions in company transcripts. The stock has seen a surge of over 140% in 2024, fueled by the announcement of its latest suite of AI chips. However, the recommendation to invest in Nvidia based on its stock split history may come across as speculative and not entirely grounded in fundamental analysis.
Meta Platforms is another stock on Evercore’s list, with a focus on AI initiatives. The company has witnessed a commendable increase in its stock price and earnings estimates. Nevertheless, the concerns raised regarding a lower-than-expected revenue forecast post a strong earnings report suggest potential risks associated with investing in the stock. Despite CEO Mark Zuckerberg’s assurance of successful scaling and monetization of AI projects, the market reaction to the revenue forecast indicates underlying uncertainties.
Alphabet, the parent company of Google, is also highlighted as an AI revolutionary by Evercore. With a substantial number of AI mentions and a positive stock performance in 2024, Alphabet seems to be on track with its AI initiatives. However, the emphasis on Alphabet’s suite of AI products may overshadow the potential risks associated with overreliance on AI for revenue generation. The recent announcement of the company’s first dividend payment raises questions about its growth strategy and capital allocation in the long run.
While the AI revolution presents lucrative opportunities in the stock market, it is essential to approach investment decisions with caution and due diligence. Recommendations provided by research firms like Evercore should be critically analyzed, taking into account both the upside potential and inherent risks associated with investing in AI-centric stocks. As investors navigate the evolving landscape of AI technologies, a balanced approach that incorporates thorough research and risk assessment is paramount for long-term success in the stock market.