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