Three Stocks That Are Benefiting Most From the AI Frenzy

Generative AI is here, making investors rush to increase their exposure to businesses that are based on the latest technology. Not just investors, but it is also forcing tech behemoths like Alphabet (GOOGL:US) and Microsoft (MSFT:US) to launch AI-focused projects earlier than expected.

Generative AI analyzes a large amount of data and tries to take a course of action. In essence, it creates new content based on data. While generative AI has been incorporated into products for some time, the launch of the ChatGPT chatbox tool is a real game changer.

Alphabet and Microsoft the ‘Face’ of Generative AI

In March, Microsoft-backed OpenAI launched GPT-4, the newest version of the model. Microsoft announced it has integrated OpenAI’s technology into its Office products, including Bing, while Google rushed to improve its flagship Search product.

The tech titan also introduced a Microsoft 365 Copilot, which uses generative AI technology to create a powerful productivity tool.

“Today marks the next major step in the evolution of how we interact with computing, which will fundamentally change the way we work and unlock a new wave of productivity growth,” said Satya Nadella, Chairman and CEO, of Microsoft. 

“With our new copilot for work, we’re giving people more agency and making technology more accessible through the most universal interface — natural language.”

Copilot is integrated into Office products, namely Word, Excel, PowerPoint, Outlook, Teams, and more with the aim of increasing productivity. Moreover, Microsoft launched a Business Chat tool, which analyzes work data (meeting notes, e-mails, chats, etc.) to come up with ideas.

A couple of weeks later, Google responded with its own advancements. The company unveiled a set of improvements to its core products, including Gmail, Google Maps, and Google Photos.

Most importantly, Google announced new updates to Bard - a chatbox tool built to rival ChatGPT. Bard has now moved to a new large language model (LLM) called “PaLM 2”. Google said it is working to make Bard available in 40 different languages. 

The tech giant also held its annual I/O conference in California, where it showcased new and updated products to calm investor fears about the rising Microsoft competition. 

"We are reimagining all of our core products, including search," Sundar Pichai, Alphabet's CEO, said after he took the stage at the event.

Wall Street analysts reacted positively to the updates, sending Google shares sharply higher.

"We came away increasingly constructive on Alphabet's long-term strategic positioning in a number of key end markets and continue to see the company as the leading collection of AI/machine learning-driven businesses in our coverage universe," Goldman Sachs analyst wrote in a client note.

Alphabet and Microsoft shares are up around 40% and 39% year-to-date, respectively, mostly on the back of the generative AI frenzy.

You Need Powerful Chips to Power LLMs

While both Alphabet and Microsoft shares outperformed the S&P 500 by a wide margin YTD, Nvidia (NVDA:US) shares are up 172%. The company is on the brink of becoming the first trillion-dollar chip-making business after the latest set of results and guidance sent shares sharply higher.

Nvidia stock rallied to a record close on May 25 after the company offered a blockbuster forecast a day earlier. While analysts were expecting Nvidia to guide for Q2 revenues of $7.13 billion, the chipmaker said it expects to generate as much as $11 billion in sales.

This kind of upside fueled massive inflows in Nvidia shares as investors rushed to take advantage of the company’s unrivaled position in the trillion-dollar worth market. 

“A trillion dollars of installed global data center infrastructure will transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service and business process," Nvidia said in a press release. 

Following the Q1 earnings report, some analysts picked Nvidia as “The Stock” to own to play the ongoing AI frenzy.

"Everyone has been looking for ways to play AI that aren't as expensive as NVIDIA given the run this year. However, perhaps NVDA itself is the best way to accomplish that (while still undeniably pricey it is clearly not quite as expensive as it looked) and the narrative, backed up by actual products and sales, still has legs in our opinion," Bernstein analysts wrote.

Final Thoughts

Congress members are no different from other traders when it comes to maximizing the potential of the ongoing red-hot AI bandwagon. Just this month, Congress members Kathy Manning, Daniel Goldman, Josh Gottheimer, Jonathan Jackson, and Senator Tommy Tuberville all disclosed that they were buying shares of Alphabet, Microsoft, and Nvidia recently.

For instance, Representative Daniel Goldman recently disclosed a $50,000 to $100,000 buy transaction involving Microsoft shares. Similarly, the Congressman was also buying shares in all three companies in March. On the other hand, Rep. Manning disclosed buying shares of Nvidia and Microsoft in the month of April in what looks like an AI-inspired shopping spree.