The party in artificial intelligence stocks looks far from over

Financial headlines keep being dominated by Artificial Intelligence stocks and debates over whether these stocks are overbought or merit this kind of attention. Now that the bigger portion of the US earnings season is over, we have material evidence that most large tech companies are still going strong.

The biggest players, Microsoft NASDAQ:MSFT, Google parent Alphabet NASDAQ:GOOGL and Facebook’s Meta NASDAQ:META, reported strong revenue growth with AI playing a key role in their profits and future plans.

Microsoft managed to increase revenues by 17% to $61.9 billion and net income by 20% to $21.9 billion with diluted earnings per share rising by 20%. Shares initially rallied but since then notched a little lower, indicating that although the company’s growth remains strong investors’ expectations became, for a moment, a little unrealistic. Still, we take this nudge lower to mean that the shares are taking a breather before another move higher.

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Shares in Google’s parent Alphabet jumped 15% after the company topped expectations to report a revenue of $80.5 billion and announced a stock dividend for the first time. They have followed a similar pattern to Microsoft in that they have inched lower this week but are still up 7.5% on the month.

Amazon NASDAQ:AMZN also reported good first quarter results with a solid outlook for the next quarter. It said it plans to materially increase investments into data centres this year to meet demand for generative AI. Following the release of the company’s earnings Morningstar raised their fair value estimate for the company’s shares to $193 per share from its previous $185.

In contrast, Meta stocks received a pummelling as the company said it is preparing for slowing sales but would increase its AI spending.

Apple NASDAQ:AAPL also reported a 4% drop in revenue in the last quarter and a 2.2% drop in net profit but softened investors’ reaction by announcing a substantial $110 billion share buyback. Shares rose more than 6% after the news. Chief executive Tim Cook left investors with some positive news saying he expects sales to grow during the next reporting period as the tech giant increases its investment in artificial intelligence-driven features. The buyback papered over the cracks covering the fact that Apple more than any other of its peers needs new products and solutions to put it back on track for sustained growth.

Artificial Intelligence remains an important theme

This leaves us with probably the most important player in this industry, NVIDIA NASDAQ:NVDA. The company manufactures high-powered specialised chips needed to make computers strong enough to use large-scale AI. After a spectacular rally this year which pushed the stock into the overbought territory, share price growth has substantially slowed down. However, looking at the role the company plays in the hardware in the supply chain relevant to AI it would be difficult to argue against NVIDIA until a credible competitor emerges. The company is due to report results on 22 May.

Despite talk of froth and overbought, AI remains one of the strongest investment themes this decade and is definitely worth being part of any investment portfolio, particularly medium to longer-term ones.

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