2 (Add) Artificial intelligence (AI) growth stocks will surpass Apple and enter the $3 trillion club, according to one Wall Street analyst.

It wasn’t that long ago apologize It seemed invincible. The iPhone maker was the first publicly traded company in the U.S. to surpass $1 trillion in market capitalization, and has continued to check subsequent benchmarks with seemingly ease. They are the first companies to surpass $2 trillion and $3 trillion, respectively.

However, over the past year or so, the competition for the throne has become more intense, with Apple trading places with Apple several times. microsoft (MSFT 1.84%)Currently ranks first in market capitalization, with a market capitalization of $3.1 trillion, ahead of Apple’s $2.87 trillion. One analyst believes this could be the new order. more The stock is expected to surpass Apple’s valuation in the coming years.

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All about AI

At the end of 2022, a sudden leap in artificial intelligence (AI) capabilities caught many people by surprise. To be clear, these sophisticated algorithms have been around in some form for decades, but 2023 seemed to mark a turning point in interest in the technology.

The advent of generative AI has taken technology a step further with the ability to not only search for patterns in data, but also create entirely new content from scratch with only the slightest prompt from the user. Perhaps more importantly, these AI models can increase worker productivity by automating menial tasks and improving processes.

The resulting gold rush of AI adoption has led to a paradigm shift, especially among the companies best positioned to bring AI to the public.

Microsoft first held a $13 billion stake in OpenAI, which created ChatGPT. The company quickly developed AI tools for its software-as-a-service (SaaS) products, including Microsoft Office and 365.

The headliner is Copilot, the company’s AI-powered digital assistant, which brings more than 150 new features designed to save you time and increase productivity. These capabilities include summarizing email messages, drafting potential responses, creating presentations from existing data, and writing and debugging computer code.

alphabet (google 0.86%) (GOOG 0.58%) Also, you’re off target quickly. The Pathways Language Model (PaLM) has given way to Gemini, which the company describes as “Google’s most capable AI model.” The company said its high-end Gemini Ultra model outperforms ChatGPT and “outperforms current state-of-the-art results on 30 of 32 widely used academic benchmarks used in large language model (LLM) research and development.”

So as not to fall behind, Amazon (AMZN 7.87%) Amazon Web Services (AWS) has launched Q, a business-focused AI assistant designed to help users of its cloud infrastructure streamline the same routine tasks as its competitors, such as searching the Internet and corporate databases, summarizing emails and documents, and completing internal support. This includes requests, among other routine tasks. Amazon also announced a $4 billion investment and strategic collaboration with Open AI competitor Anthropic AI.

Smart investors will notice a common thread here. In other words, Microsoft, Google, and Amazon are collectively referred to as the “big three” cloud computing providers.

strategic advantage

Late last year, Needham analyst Laura Martin reiterated her view that the trio of cloud infrastructure providers (Microsoft Azure, AWS, and Google Cloud) are the gatekeepers to LLMs and could benefit most from generative AI, suggesting they could seize the opportunity. . Percentage of all new generated AI apps created. “Generative AI will redefine the competitive basis for media and internet companies,” she wrote in her note to her clients.

Martin believes AI is a natural fit for cloud providers.

Not only will LLM (from Microsoft, AWS, and Google Cloud) have the lowest cost structure and first-mover advantage, the average lifetime value per cloud customer will skyrocket due to the stickiness of apps built on top of LLM.

There is evidence that seems to support her conclusion. By some estimates, as much as 60% of all enterprise data resides in the cloud, according to online data provider Statista. Approximately 98% of companies worldwide have at least part According to cybersecurity solutions providers, data in the cloud checkpoint. Given the broad reach of the three companies, it’s reasonable to conclude that they are best positioned to benefit from continued AI adoption.

The news isn’t all bad for Apple shareholders. The company is reportedly developing its own AI, including generative AI models. However, according to Martin, the technology is expected to focus on “protecting the installed base” of iPhones. This makes sense, considering that 52% of Apple’s $383 billion in fiscal 2023 revenue came from iPhone sales.

Trillions of Dollars at Risk

Estimates of the market opportunity for AI vary widely, but even the most conservative estimates project the impact to reach $1 trillion over the next decade. many higher.

The benefits of generative AI are two-fold for Amazon, Microsoft, and Alphabet. Not only do they have the opportunity to improve their existing businesses with the help of AI, but they can also benefit by leveraging extensive cloud infrastructure to sell AI services to the public.

There are also valuation issues to consider. Amazon, Microsoft, and Alphabet are currently selling at 33x, 31x, and 20x forward earnings as of this writing, making them relatively cheap in terms of the tremendous opportunity ahead. Don’t expect this sale to last long.