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Generative artificial intelligence may only be in the early stages of its full potential, but Piper Sandler expects these stocks to benefit from this trend slated to upend the technology industry long term. “We see Generative AI as the next major revolution in technology that could have far reaching implications across both consumer and enterprise sectors,” wrote analyst Brent Bracelin in a Friday note to clients, calling generative AI the “next $100B+ technology revolution.” He forecasts AI-enabled search advertising and enterprise application revenue will hit $47 billion and $53 billion, respectively, by 2030, up from just a $2 billion projected industry by the end of this year. “The democratization of foundational [large language models] via APIs suggest the rapid pace of innovation could occur at an unprecedented pace in 2023 and into 2024 with potential for [graphics processing unit] shortages emerging as one of the gating factors to broader adoption over the next 1-3 years,” Bracelin said. The stock picks from the Wall Street firm come as generative AI makes waves across the technology sector in the wake of ChatGPT’s debut on the market. The conversational chatbot seized the attention of Silicon Valley late last year, forcing companies to rethink how they can harness these tools to improve their businesses. Amazon on Thursday marked the latest megacap company to comment on generative AI trend, with CEO Andy Jassy telling CNBC that the e-commerce giant’s working on its own large language models that could potentially improve “virtually every customer experience.” Amazon Web Services is also launching Bedrock , a generative AI service that’s geared toward developers. Given this setup for the industry, Piper Sandler named some of its top picks to play the growing field. Here are some of the companies that made the cut: There’s no surprise that Microsoft , a backer of ChatGPT maker OpenAI, made the list. The company also made a slew of AI additions to its Bing search engine earlier this year. Microsoft seemed to win the first marketing battle, but Piper Sandler sees Alphabet as well-positioned for AI given its yearslong use of AI and machine learning in its search products. The firm also views the company’s search business as undervalued. Alphabet’s shares have rallied about 22% in 2023 after facing a pullback earlier in the year on fears it was losing the AI war following the rollout of its Bard chatbot . Piper Sandler’s $117 price target implies nearly 9% upside from Thursday’s close. GOOGL YTD mountain Alphabet shares so far this week According to Piper Sandler, Google and Bing combined have seen 13% higher search traffic volumes so far this year, with Bing’s daily mobile downloads rising to more than 100,000 versus 13,000 a year ago. That still trails Google Search, the firm noted. Nvidia ‘s taken center stage in the AI battle in recent months given its near monopoly and long bet on making the graphics processing units now needed to fuel these growing models. This year, the stock has soared more than 80%. Its valuation has hit a premium as investors bet on the chipmaker’s integral AI role. But Wall Street says the company’s potential justifies the valuation . “In our view, Nvidia is the clear early leader in the generative AI space as we estimate that 80% of all AI workloads are currently run on NVDA chips,” wrote analyst Harsh Kumar. “Looking forward, Nvidia has the ability to further capitalize on this share with their software solutions that increase the value proposition for AI customers.” Other potential winners of the AI race include data cloud company Snowflake . Bracelin cited its history in AI-drive data applications and new innovations, which should situate the company as “a key enabler of ML workflows & model development.” The firm’s $194 price target suggests shares could surge more than 37% from Thursday’s close. Arvind Ramnani highlighted language-learning software Duolingo as another beneficiary given its early investment in AI capabilities and “strong foundation” in these tools. DUOL YTD mountain Duolingo shares so far this year “We are bullish on its abilities to harness recent industry wide advancement in generative AI to enhance in its content creation: both improving existing content, and introducing advanced-level content,” Ramnani wrote. Despite the run up in shares, Piper Sandler expects nearly 7% downside for the stock from Thursday’s close. — CNBC’s Michael Bloom contributed reporting
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