Since the 1990s, investors have clung to big technology companies, and with good reason. While capable of making massive errors (see Meta’s losses on the metaverse), big technology stocks often have big protective moats around their core business lines that allow them to expand into new areas. This is critical, as even big technology has to constantly innovate and grow, or they can be overtaken by their mega-cap brethren.
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For years, the buzz was that artificial intelligence was the next big thing. As usual when it comes to technology innovation, the opening salvos from private equity and others took quite a while to catch up with reality. That all changed last year with the introduction of OpenAI’s ChatGPT, and then the company offered expanded access to OpenAI’s DALL-E 2 AI image and art generator.

As usual, mega-cap technology companies are likely to benefit first, as they have been embracing the onslaught of AI applications for years. They have the deep pockets to go get or make deals with the companies that are providing breakthrough technologies, like OpenAI, C3.ai and others.

With artificial intelligence now officially part of our lexicon and, depending on whom you ask, ready to dominate the world in years to come, we decided to screen the Goldman Sachs technology research universe looking for Buy rated mega-cap technology leaders that also pave the way for investors to be involved in AI. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Alphabet

There should be no surprise that the Google parent and search giant is all-in on the AI revolution. Alphabet Inc. (NASDAQ: GOOGL) provides various products and platforms in North America, Europe, the Middle East, Latin America and elsewhere.

Its Google Services segment offers products and services, including ads, Android, Chrome, hardware, Gmail, Google Drive, Google Maps, Google Photos, Google Play, Search and YouTube. It is also involved in the sale of apps and in-app purchases and digital content in the Google Play store, as well as Fitbit wearable devices, Google Nest home products, Pixel phones and other devices, and in the provision of YouTube non-advertising services.

The Google Cloud segment offers infrastructure, platform and other services; Google Workspace that includes cloud-based collaboration tools for enterprises, such as Gmail, Docs, Drive, Calendar and Meet; and other services for enterprise customers. The Other Bets segment sells health technology and internet services.

Alphabet is reported to be using AI applications in almost all the firm’s central business silos, from ad pricing to content to spam filters. Alphabet is the parent company for software subsidiary DeepMind and autonomous vehicle company Waymo.

The Goldman Sachs price target for Alphabet stock is $128. That compares with the $124.64 consensus target and Tuesday’s closing print of $104.50.

This company is very possibly the best value for investors, after taking a harsh beating this year. Amazon.com Inc. (NASDAQ: AMZN) engages in the retail sale of consumer products and subscriptions globally. It sells merchandise and content purchased for resale from third-party sellers through physical and online stores.
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The company also manufactures and sells electronic devices, including Kindle, Fire tablets, Fire TVs, Rings and Echo and other devices. It provides Kindle Direct Publishing, an online service that allows independent authors and publishers to make their books available in the Kindle Store, and it develops and produces media content.

Amazon also offers programs that enable sellers to sell their products on its websites, as well as its stores, and its programs allow authors, musicians, filmmakers, Twitch streamers, skill and app developers, and others to publish and sell content. Further, the company provides computing, storage, database, analytics, machine learning and other services, as well as fulfillment, advertising, publishing, and digital content subscriptions.

Its Amazon Prime membership program provides free shipping of various items, access to streaming movies and series, and other services.

Given the incredible logistical needs for Amazon, the company has incorporated AI hybrid applications across much of its overall business for years. From e-commerce algorithms for search to the popular Alexa personal assistant and AWS advancements for customers that include advanced text analytics, automated code reviews and chatbots, AI has provided the company with a massive leg up.

Goldman Sachs has a $145 target price, while the consensus target for Amazon.com stock is $133.64. The stock closed on Tuesday at $102.30.

Meta Platforms

The Facebook and Instagram parent remains a social media destination for millions daily. Meta Platforms Inc. (NASDAQ: META) develops products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, wearables and in-home devices worldwide.

Its Family of Apps segment offers products such as Facebook, which enables people to share, discover and connect with interests; Instagram, a community for sharing photos, videos and private messages, as well as feed, stories, reels, video, live and shops; Messenger, a messaging application for people to connect with friends, family, groups and businesses across platforms and devices through chat, audio and video calls and rooms; and WhatsApp, a messaging application that is used by people and businesses to communicate and transact privately.

The Reality Labs segment provides augmented and virtual reality products, comprising virtual reality hardware, software and content that help people feel connected, anytime and anywhere. The company was formerly known as Facebook and changed its name in October 2021.

Goldman Sachs has set its price target at $245. The $225.49 consensus target is nearer Tuesday’s $217.89 closing share price for Meta Platforms stock.

This is a more conservative way for investors to participate in the massive cloud growth. Microsoft Inc. (NASDAQ: MSFT) develops, licenses and supports software, services, devices and solutions worldwide. The company operates in the following three segments.
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The Productivity and Business Processes segment offers Office, Exchange, SharePoint, Microsoft Teams, Office 365 Security and Compliance, Microsoft Viva, and Skype for Business; Skype, Outlook.com, OneDrive and LinkedIn; and Dynamics 365, a set of cloud-based and on-premises business solutions for organizations and enterprise divisions.

The Intelligent Cloud segment licenses SQL, Windows Servers, Visual Studio, System Center and related Client Access Licenses. GitHub provides a collaboration platform and code hosting service for developers, while Nuance provides health care and enterprise AI solutions, and Azure is a cloud platform. It also offers enterprise support, Microsoft consulting and nuance professional services to assist customers in developing, deploying and managing Microsoft server and desktop solutions, as well as training and certification on Microsoft products.

The More Personal Computing segment provides Windows original equipment manufacturer (OEM) licensing and other non-volume licensing of the Windows operating system; Windows Commercial, such as volume licensing of the Windows operating system, Windows cloud services and other Windows commercial offerings; patent licensing; and Windows Internet of Things.

This segment also offers Surface, PC accessories, PCs, tablets, gaming and entertainment consoles and other devices; Gaming, including Xbox hardware and Xbox content and services; video games and third-party video game royalties; and Search, including Bing and Microsoft advertising. The company sells its products through OEMs, distributors and resellers, as well as directly through digital marketplaces, online stores and retail stores.

The ChatGPT AI deal had been in the news in a big way after it was disclosed that Microsoft had invested an additional $10 billion in the AI module after starting off with a $1 billion investment in 2019. Many feel that the venture into AI could be a huge tailwind for the company’s surging cloud business. It has been reported that Microsoft will receive 75% of OpenAI’s profits until it claws back its investments, after which it will have a 49% stake in the firm.

Microsoft also has disclosed plans to launch an AI version of its Bing search engine powered by ChatGPT. It is a good bet it will be using AI in many of the company’s products and services.

Microsoft stock investors receive a 0.95% dividend. The $325 Goldman Sachs price target is well above the $296.76 consensus target and the most recent close at $288.37.

This top company is making the chips that supply the incredible computing power required to run complex AI applications. Nvidia Corp. (NASDAQ: NVDA) provides graphics and computing and networking solutions in the United States, Taiwan, China, and elsewhere.
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Its Graphics segment offers GeForce GPUs for gaming and PCs, the GeForce NOW game streaming service and related infrastructure, and solutions for gaming platforms; Quadro/Nvidia RTX GPUs for enterprise workstation graphics; vGPU software for cloud-based visual and virtual computing; automotive platforms for infotainment systems; and Omniverse software for building 3D designs and virtual worlds.

Its Compute & Networking segment provides data center platforms and systems for AI, HPC and accelerated computing; Mellanox networking and interconnect solutions; automotive AI Cockpit, autonomous driving development agreements, and autonomous vehicle solutions; cryptocurrency mining processors; Jetson for robotics and other embedded platforms; and Nvidia AI Enterprise and other software.

The company’s products are used in gaming, professional visualization, data center and automotive markets. It sells its products to original equipment manufacturers, original device manufacturers, system builders, add-in board manufacturers, retailers/distributors, independent software vendors, internet and cloud service providers, automotive manufacturers and tier-1 automotive suppliers, mapping companies, start-ups and other ecosystem participants.

The Goldman Sachs target price of $275 is less than the $282.54 consensus target, and Nvidia stock closed on Tuesday at $276.67.

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Artificial intelligence is here to stay, and there will continue to be heated discussion of the pros and cons concerning the industry and the multitude of applications and solutions that can and will be provided. Elon Musk founded OpenAI in 2015 and left the board in 2018 and has cut ties with the company. He has had some harsh words from some of the so-called woke issues arising from the technology and is working on his own anti-woke AI to rival the company.

In addition, Musk and others have warned that we must be careful going forward, given the potential for good and bad outcomes from the technology. That proves that we are still in the formative years, and the real big money will be made in the future.

With first-quarter earnings right around the corner for these top companies, it may make sense to buy partial positions to see how the results come in. With the market on edge, any company that misses expectations or has poor forward guidance could be immediately sent to the penalty box by institutional and hedge fund sellers.

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