As investors look for winners in the artificial intelligence boom, several software stocks stand out, including Microsoft and Oracle, according to Bank of America. Growing interest in AI was further fueled by recent explosive earnings at Nvidia, which briefly propelled the chip stock to a $1 trillion valuation on Tuesday. The AI darling has gained a whopping 174% since the start of the year. Given “the immense opportunity for both vendors and investors,” Bank of America analysts created a proprietary ranking system to identify potential AI beneficiaries in the software cluster. The ranking identifies AI consensus leaders as well as software vendors, the company said in a note Tuesday. Among the factors that are expected to contribute to the success of AI are access to high volumes of quality data, market-leading installation bases for ongoing data acquisition, and highly specialized solutions embedded within companies, said analyst Brad Sills. “We’ve created a proprietary analytics framework (based on 13 yes or no questions) that investors can use to predict potential AI beneficiaries. These questions cover a wide range of topics, including the benefits of data, potential for disruption, resources for innovation, and go-market differentiation, among others,” he wrote. The company then assigned points to the names, with 9 being the maximum and best positioned for AI opportunities. These are among the stocks that top the list. Microsoft is the only name to receive the highest score from Bank of America. The tech giant has invested billions of dollars in OpenAI and recently announced that it will offer Bing as the default search engine in OpenAI’s ChatGPT chatbot.” Microsoft has confirmed a multi-year, multi-billion dollar investment in OpenAI and is partnering with OpenAI to 1) power its own AI offerings and 2) offer OpenAI development services through Azure OpenAI. Microsoft expects AI services to contribute to Azure’s 1% growth in the fourth quarter. Sills wrote. Microsoft shares are up nearly 37% year-to-date. Oracle is another potential winner, according to Sills, which raised its price target to $112 per share from $95 on Tuesday. The new target implies a 6.5% upside from Tuesday’s close. The company has integrated AI and machine learning into its core offerings, Sills said. “We expect Oracle to further integrate AI generation into its application suites (such as Fusion and NetSuite),” he said. “Generative AI models could be refined using available enterprise data to suggest more robust recommended actions to users on the application side.” Oracle can also refine software, including those related to its digital assistant and document understanding, to make its cloud infrastructure “an increasingly compelling platform for AI-related workloads,” noted Sills. The shares have gained around 29% so far this year. Meanwhile, shares of HubSpot are up nearly 77% year-to-date. The company’s ChatSpot, a customer relationship management chatbot, connects marketing, sales, and service professionals to HubSpot. Bank of America plans more investment in AI. “The company has stepped up its comments regarding additional investments in AI/ML,” Sills said. “For example, AI can help service professionals anticipate customer needs, suggest solutions, and drive better results.” HubSpot can also potentially use AI for data cleansing and messaging data capture, among other things, he said. – CNBC’s Michael Bloom contributed reporting.
Here are its software stock picks
By xjs53
