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Microsoft (NASDAQ:MSFT) has been reiterated as a Buy at Melius Research earlier this week as the firm’s analysts believe the technology titan “may own the most valuable AI real estate.”
“When looking at the adoption of “Copilots” (Microsoft’s various Generative AI productivity tools) – it’s not about revenue right now,” Melius analysts noted.
“The initiative is really about creating the new computing interface for AI. About 200mm users are eligible for Copilot today – and if many of Microsoft’s 80mm consumers and 400mm+ knowledge workers eventually use Copilot to start and end a day, Microsoft wins big.”
The goal of Microsoft’s strategy is to centralize AI tools within Copilot, according to Melius analysts, which they believe is an approach that will enable the company to capture significant value and expand its Total Addressable Market (TAM) across the diverse software industry.
Despite being a clear AI laggard, Evercore ISI analysts remain optimistic about Apple’s prospects in the rapidly-growing space, maintaining an Outperform rating and a $220 price target for the company this week.
The bullishness is partly due to a new paper published by Apple (NASDAQ:AAPL) researchers, which introduces ReALM (Reference Resolution As Language Modeling), showcasing the company’s latest advancements in AI innovation.
“Apple has indicated that its smaller ReALM models performed similarly to GPT-4 with fewer parameters, which makes it more suitable for delivering on-device AI vs the more typical approach of handling all of the AI functionality in cloud datacenters,” said Evercore analysts.
“Apple’s larger ReALM models are reportedly able to outperform GPT-4,” they added.
The firm highlighted that ReALM aims to enhance Siri by improving its ability to understand both on-screen data and the context of conversations.
“We continue to think Apple becomes an AI winner when they solve on-device inference in a way that enables a new iPhone Supercycle,” stated Evercore. “This looks like a step in that direction and confirmation that Apple is focused on AI at the edge.”
Jefferies analysts said in this week’s note to clients that there has been a shift in the generative AI landscape.
In particular, the analysts said that 2023 was mostly about the possibilities and potential that this burgeoning technology held, while now, as we proceed through 2024, the emphasis is shifting toward realizing concrete progress.
The investment bank observed that vendors are now fine-tuning and pricing their AI offerings, with users identifying valuable applications for the technology.
“We believe AI spend will spread to other infrastructure providers and to app vendors that enable enterprises to take advantage of Gen AI,” Jefferies analysts wrote.
“Our AI KIS basket represents the companies we see capturing the most of this transformational opportunity. We advocate for investors to position themselves before enterprise adoption ramps in late ’24 into ‘25, providing a better line of sight to rev uplift,” they added.
In this context, the firm named Microsoft as its top AI winner of the current generative AI cycle as it sees the technology giant well-positioned “to benefit from both infrastructure (Azure OpenAI) and app angles (series of Copilots) opportunities, capturing the most of this transformational opportunity,” they said.
Jefferies lifted its Microsoft stock price target from $465 to $550.
Analysts at Citi Research said earlier in the week they believe now is the time to “buy into the next leg of the Artificial Intelligence trade.”
The Wall Street giant’s team believes investors should adopt a broader approach that not only spans beyond the United States but also covers the entire value chain.
They classify AI-related investments into three main categories: Enablers, Creators, and Users.
Recently, the first two categories have been in the limelight, drawing investor interest due to their impressive returns.
However, Citi is now pointing out that Users and various global firms have not received their fair share of attention, suggesting potential overlooked opportunities in these areas.
“We believe investors should broaden their thematic exposure as Users now positively contribute to returns, and earnings growth becomes more distributed,” analysts said in a note.
Against this backdrop, Citi has unveiled two investment baskets to help investors gain exposure to AI.
The “Artificial Intelligence-at-a-Reasonable-Price” basket caters to those seeking balanced growth and risk management, leaning towards North American creators and enablers of AI technology.
Meanwhile, the “Artificial Intelligence Value” basket targets value investors looking for AI stocks with strong business fundamentals, emphasizing companies with potential for margin expansion and a significant presence in Europe.
Recent reports revealed that Apple is in talks with Baidu (NASDAQ:BIDU) to equip its devices in China with generative AI capabilities.
The collaboration aims to embed Baidu’s Ernie Bot into Apple’s future products, including the iPhone 16 and the forthcoming versions of Mac OS and iOS 18, tailored for the Chinese consumer base.
Analysts see the move as a natural step for Apple, which continues to build on its existing relationships with search engine providers like Google (NASDAQ:GOOGL) worldwide and Baidu in China for default search functionalities.
Commenting on this development, Macquarie analysts said they believe a potential agreement between the two companies regarding AI is likely to mirror the template of Google-Samsung deals, starting on a limited basis.
“We believe an Apple/Baidu deal will be similar to the Google/ Samsung (KS:005930) deal as Baidu/Samsung and Apple/Google seem to follow that too,” Macquarie wrote.
“This would involve Apple gaining license versions of AI models on-device to power new AI applications – these could include voice recognition, photo editor and Circle to Search functions with Search traffic from Siri or applications routed through Baidu.”
