There's a great deal of uncertainty on Wall Street right now. After the major stock market indexes kicked off 2023 with a sharp rise up, stocks took a breather in August and September. Investors got a bit nervous, citing macroeconomic concerns about the Federal Reserve's ongoing battle with inflation and rising Treasury yields.
These macro concerns are "overshadowing the biggest technology revolution in the last 30 years," claims Wedbush managing director and senior tech analyst Dan Ives. He asserts that the opportunity wrought by artificial intelligence (AI) will push stocks much higher in the months and years to come. Investors should ignore the noise and seize the opportunity to buy "the best-quality tech stocks" out there.
Here are seven stocks Ives believes are ripe for the picking.
Image source: Getty Images.
1. Apple
With the largest market cap on the planet, some investors sold off thinking that Apple (AAPL -0.35%) has no worlds left to conquer. Yet Ives believes the next opportunity is hiding in plain sight.
The recent release of the iPhone 15, complete with upgraded processor and camera technology and deeply infused with AI, is driving strong demand. The iPhone 15 Pro and Max models have been in short supply, with wait times pushed out until mid-November, suggesting consumers are upgrading to the latest and greatest Apple devices.
Ives estimates that 250 million iPhones haven't been upgraded in more than four years, resulting in a large base of pent-up demand. That, coupled with strong consumer interest in the highest-priced models, illustrates the enduring power of the iPhone, which remains the most popular phone in the world and could drive Apple stock higher.
2. Microsoft
AI made plenty of headlines in 2023, and Microsoft (MSFT 1.82%) remains one of the companies best positioned to benefit from the shift to AI, according to Ives.
Microsoft was among the first to recognize the trend, making a sizable investment in ChatGPT creator OpenAI. The result of that collaboration is a host of generative AI tools -- led by Microsoft 365 Copilot -- that are deeply integrated into Microsoft's Azure Cloud and Office suite of products.
While estimates vary, some on Wall Street calculate that Microsoft will generate $100 billion in incremental revenue annually by 2027, which would no doubt send its stock higher.
3. Palo Alto Networks
Investors only need to check the headlines to understand the clear, growing need for cybersecurity, and Palo Alto Networks (PANW 0.91%) remains "a top pick in the sector," according to Ives. Fueling his enthusiasm about Palo Alto is the company's expanding total addressable market and innovation across its "entire product portfolio," leveraging the latest generative AI tools.
Indeed, Palo Alto Networks recently updated its guidance and estimates its total addressable market at $213 billion, up from just $38 billion five years ago. This helps to illustrate the large and growing opportunity as the company expands its zero-trust model into adjacent markets.
Palo Alto Networks increased its revenue by 198% over the past five years, driving its stock price up by 327%. Given the company's track record, there's no reason to believe this trend won't continue.
4. Palantir
As one of the few pure-play AI companies out there, Palantir (PLTR 3.73%) is well positioned to "garner a meaningful share" of the estimated $1 trillion global AI opportunity, according to Ives.
Ives is probably on to something. While Palantir is a pioneer in the field and has long been the go-to for large-scale data mining that leverages AI, the company quickly pivoted to include generative AI tools that deeply integrate with customer data, courtesy of its Artificial Intelligence Platform (AIP). CEO Alex Karp noted that "demand for AIP is unlike anything we have seen in the past 20 years," noting the platform "already has users across 100 organizations," and Palantir is in discussions to deploy with 300 more.
Palantir's steadily improving financial results and credibility in the field give it a massive edge in a quickly growing marketplace.
5. Zscaler
Given the magnitude of the opportunity in the cybersecurity market, it isn't surprising Ives would have several companies in the industry among his favorites, and Zscaler's (ZS 1.28%) place on the list is well earned. The company's software-as-a-service (SaaS) applications and cloud workload protections, fueled by AI, provide real-time insights -- making it a "top name in this space," according to Ives.
Zscaler, which boasts the world's largest security cloud platform, has an impressive track record of "beat and raise" -- beating analysts' consensus estimates while simultaneously raising guidance. As a result, the company generated revenue of $1.6 billion for fiscal 2023 (ended July 31), which pales in comparison to its addressable market of $72 billion.
Furthermore, a recent collaboration with CrowdStrike (CRWD 2.03%) to create a zero-trust cybersecurity solution customized for medical institutions helps expand its market opportunity even further.
6. CrowdStrike
Speaking of CrowdStrike, the cybersecurity specialist, which provides cloud-delivered protection for endpoints, cloud workloads, identity, and data, also made Ives's short list of top cybersecurity picks. CrowdStrike's Falcon platform began using AI before it was fashionable, helping it stay well ahead of the next cyberattack. The company recently hosted an Analyst Day, which left Ives even more bullish.
The company laid out plans to increase its addressable market from its current level of $100 billion to $225 billion by 2028. This will come courtesy of an increasing product pipeline, expanding solutions, and geographical expansion. CrowdStrike also released its updated target operating model, which is expected to increase its operating margin to roughly 21% and free cash flow margin to 31% over the coming three to five years.
CrowdStrike's consistently improving financial results help illustrate why this AI innovator is a buy.
7. MongoDB
While legacy databases are limited by what fits neatly into rows and columns, MongoDB's (MDB 4.83%) cloud-native Atlas platform handles a much greater variety of both structured and unstructured data. This includes things like audio and video files, social media posts, and even entire documents. Ives and colleague Taz Koujalgi cite the company's industry-leading product, consistent execution, and large addressable market.
MongoDB is a developer favorite, providing tools that help them infuse AI into applications. The company has been selected as a Leader in Gartner's Magic Quadrant for Cloud Database Management Systems. The company also recently launched Atlas for Industries, a comprehensive set of industry-specific tools to help customers succeed.
Management estimates the company's current market opportunity at $81 billion, growing to $136 billion by 2027.
The opportunity is vast
While estimates vary wildly, most experts agree the opportunity represented by AI is likely in the trillions of dollars. Much of that will come from top companies that can strategically integrate the technology into their existing offerings, making them even more attractive.
I have no doubt each of these companies will find compelling ways to benefit from AI. In fact, even before Ives posted his latest ponderings, I owned all but one of these stocks.
