According to Bank of America, all eyes will be on AI stocks this earnings season. The financial firm noted that markets are now focusing on how investments in AI are paying off. Indeed, analyst Savita Subramanian mentioned that although the AI investment cycle will continue, the hype phase is ending.
Interestingly, the expected capital expenditures for AI investments by major players such as Microsoft (MSFT), Meta Platforms (META), and Amazon (AMZN) have increased by $18B, while sales forecasts have only risen by $2B since March. This translates to $9 in AI spending for every $1 in sales growth. She also pointed out that, historically, companies in reinvestment cycles tend to underperform.
Currently, Alphabet (GOOGL), Microsoft, Meta Platforms, and Amazon are the primary contributors to the S&P 500’s (SPY) capex growth in 2024, which is expected to be $198B. This implies that they may underperform in the medium term if the history repeats itself.
However, Subramanian also emphasized that companies successfully monetizing AI, like ServiceNow (NOW) and Adobe (ADBE), will lead the way in terms of share price performance.
Which AI Stock Is the Best Buy?
Of the AI stocks mentioned above, analysts expect the most upside potential from AMZN. In fact, its $224.71 per share price target implies over 22% upside potential. Interestingly, ADBE and NOW seem to have the least upside potential when looking at Wall Street’s consensus estimates. This suggest that Savita Subramanian is making somewhat of a contrarian call.
