AI will be a catalyst for big tech stocks over the next five years, according to Bank of America. The sector was defeated in 2022 thanks to macro factors, including inflation and rising interest rates. The tech-heavy Nasdaq Composite is down 25% this year, compared with the S&P 500’s nearly 12% decline. However, AI is the “backbone” of the internet and will increasingly be tied to the stock performance of big tech companies, said Bank of America analyst Justin Post. AI and machine learning will be a “critical driver of everything internet-related, including content relevance, ad performance, ecommerce conversion, marketplace efficiency, and even customer service.” ‘ he wrote in a note on Monday. “AI/ML technology is important in all sub-sectors of the Internet (media, commerce and transportation) and those companies that can effectively use this technology (developed internally or through cloud service providers) can create competitive advantages.” Big tech is investing heavily in artificial intelligence, with capital expenditures from the three biggest internet companies, Meta, Alphabet and Amazon, expected to reach $40 billion in 2023, he said. He sees those three, plus Airbnb and Uber, as the biggest beneficiaries in this environment. Meta Meta has been committed to investing in artificial intelligence since 2013 and its new supercomputer, the AI Research Center Cluster (RSC), is expected to be the world’s fastest AI computer when completed, the Post said. RSC will help the Facebook parent advance in a number of areas, including seamlessly analyzing images, video and text together and developing new augmented reality tools, he said. Meta indicated that AI capability, primarily for its advertising business, is driving the majority of its 2022-2023 capital spending, the Post added. Meta also uses AI to predict what content will be important to users in their news feed, as well as to determine suggested content in its video component, Reels. The stock is down nearly 64% year-to-date. Alphabet Artificial intelligence has become Alphabet’s focus through its investments, acquisitions and internal spending, the Post said. DeepMind Technologies, the AI research lab of UK-based parent company Google, is responsible for its general-purpose AI technology, including Google Assistant and personalized app recommendations in Google Play. Alphabet has also used DeepMind to improve energy efficiency in its data centers, it said, noting that DeepMind’s revenue more than tripled from 2019 to 2020. Artificial intelligence also plays a big role in search and on YouTube. Since 2016, Alphabet has invested about $120 billion in AI capex. Its shares have lost about 31% so far this year. Amazon The e-commerce giant is using artificial intelligence and machine learning to power Alexa, the Go Store and its recommendation engine. “Data from these three main pillars of the company work together to create a consistent customer experience,” Post wrote. The Alexa ecosystem also fuels a broader market with multiple hardware initiatives that integrate with Alexa and its ambient intelligence, he added. AI is also used to predict customer demand, assess product availability, and improve delivery routes. Additionally, Amazon leverages its machine learning capabilities through Amazon Web Services, its cloud offering, the Post said. Amazon doesn’t disclose the percentage of capital investment, the Post said, but based on Amazon’s previous comments, it believes it is likely a large and growing share of total capital. Shares are down more than 45% year-to-date. Airbnb Artificial intelligence is used throughout Airbnb, even in its search algorithms. The vacation rental platform uses more than 100 factors to determine how a listing appears in search results, the Post said. It also helps hosts optimize pricing using variables including hotel rates, seasons, and local events. The company recently launched a platform for renters to host apartments. Shares of Airbnb are down nearly 41% year-to-date. Uber’s ride-sharing service uses artificial intelligence in nearly all of its core functions, which has led to “significant advances in demand forecasting and network optimization that enhances the customer experience,” the Post said. . AI drives Uber’s matching algorithms and is used in its GPS services to improve coverage, speed and accuracy, he added. The stock is down nearly 34% so far this year. – CNBC’s Michael Bloom contributed to the reporting.
Bank of America predicts AI will transform the internet over the next five years – top stocks will follow the trend