After plunging deeply into bear market territory in 2022, this year started in stark contrast to its predecessor. Each of the major market indexes charged more than 20% higher from their respective bear market lows and are currently taking a breather before attempting their next leg higher. Market watchers generally agree that excitement regarding recent advancements in artificial intelligence (AI) have helped fuel the rally, but the initial fervor has given way to more realistic expectations about the timeline, despite the accelerating adoption of AI.
With that as a backdrop, several of the biggest adopters of generative AI were rallying on Monday morning. Amazon (AMZN +2.05%) had jumped 2.9%, Meta Platforms (META +0.22%) had climbed 1.8%, and Alphabet (GOOGL 0.41%) (GOOG 0.21%) had risen 1.7% as of 12:56 p.m. ET.
While today's general market rally helped fuel the rise, the impact of AI on big tech is becoming increasingly evident.
Image source: Getty Images.
All eyes are on AI
Last week was particularly busy on the AI front, with a number of the biggest adopters of AI reporting their financial results. By and large, the results seem to add weight to the theory that big tech will expand its profits and be among the biggest beneficiaries of AI.
On Wednesday, Meta Platforms reported robust third-quarter results and AI was mentioned dozens of times on its earnings conference call. One of the biggest opportunities, according to CEO Mark Zuckerberg, is using AI to facilitate communications between companies and their customers. He went so far as to say that he believes this will "be the next major pillar of our business."
NASDAQ: AMZN
Key Data Points
Amazon CEO Andy Jassy was equally upbeat about the AI opportunity when the company reported its third-quarter results on Thursday. Amazon is taking a multipronged approach to profit from AI. First, the company is developing custom chips to train the large language models (LLMs) that are the foundation for generative AI. Second, Amazon will offer LLMs as a service via its Bedrock AI system, providing access to several of the most in-demand LLMs. Finally, the company will offer a host of AI-fueled apps to customers of its Amazon Web Services (AWS) cloud infrastructure service.
In the wake of Alphabet's third-quarter results Tuesday, CEO Sundar Pichai updated investors on the company's vast AI plans. This includes integrating generative AI into its industry-leading search and making digital advertising results more relevant with a boost from AI.
NASDAQ: GOOGL
Key Data Points
Of particular interest is Project Gemini, a set of LLMs under development with the assistance of experts from Alphabet's DeepMind AI. Initial tests suggest that Gemini is 5 times more powerful than the most advanced GPT-4 models, according to semiconductor research company SemiAnalysis. Pichai said Google plans to deploy Gemini "immediately across all our products internally." Furthermore, Gemini will form the foundation for "the next-generation series of [AI] models we'll be launching all throughout 2024."
Here's what AI investors should do now
Each of these technology stalwarts is hard at work tapping into the vast opportunity represented by AI -- and with good reason.
While it's difficult to pin down exactly how much the market for AI will be worth, the forecasts are eye-opening. Cathie Wood's Ark Investment Management estimates that AI could generate $14 trillion by 2030. More conservative prognostications from Morgan Stanley and Goldman Sachs peg the opportunity at $6 trillion and $7 trillion, respectively, by the end of the decade. If these estimates are even in the ballpark, investors will want to position themselves to benefit from the opportunity -- and each of these companies is a reasonable place to start.
Consider this: Amazon is the undisputed industry leader in e-commerce, Meta Platforms is without equal in the realm of social media, and Alphabet dominates global internet search. This gives investors a degree of safety by investing in industry-leading businesses, while they wait for the opportunity afforded by AI to play out.
Furthermore, each is selling at a discount to its historical valuation -- though Amazon stock is the clear bargain. Meta Platforms, Alphabet, and Amazon are selling for 5 times, 4 times, and 2 times forward sales, respectively. That said, each of these companies is a smart way to take part the AI revolution, even if it takes some time to play out.
