Evercore’s ISI says the AI revolution is just getting started, meaning investors have a chance to pick up some companies at a discount. Senior managing director Julian Emanuel wrote in a report on Sunday that mentions of generative AI in executives’ records have dropped due to the dramatic growth of OpenAI’s ChatGPT by the end of 2022. But he said the adoption rate is low, citing data from the US Census Bureau with less than 5% of US companies reporting using AI. Indeed, like other technological revolutions, adoption will take some time, he said. “The manufacturing power of productive AI is like the revolution that transformed the economy from the Internet of the 90s to the electricity/mass manufacturing revolution that fueled the 20s,” Emanuel said. In addition, with the aging of the population and the decline in the number of people of working age, the labor market is tight, and people have put forward a higher need for skills. “Every profession in every sector is exposed,” Emanuel said. “Consumers will ultimately expand significantly, from those who support the technology to those who effectively adopt it.” However, he noted that AI adoption has slowed slightly since late February, in line with Nasdaq 100 index momentum. The company believes Nvidia experienced a mid-cycle correction in the first quarter and said the semiconductor industry could see a correction in the second half of the year. To find “AI revolutionaries” trading at a discount, Evercore looks for companies in the ISI Russell 1000 Index that trend heavily in AI mentions — either beating the index or beating the company’s industry average. The firm also screens for companies with year-over-year growth, upward revisions to 2024 EPS and high price-to-earnings (PEG) ratios over the next 12 months. Russell 1000 off. In addition to big tech companies like Nvidia, Alphabet, Amazon, and Meta, there are five other stocks on the list here. Emmanuel notes that these assets are expected to be key holdings in the long term, but tend to be volatile in the short term. “As the pullback continues, EVR ISI Strategy recommends pairing these high-flying AI holdings with QQQ (many of these names are part of the Nasdaq 100) December-expiring spread collars,” he said, referring to the QQQ Invesco QQQ ETF on the Nasdaq 100 index. A put spread is a strategy that seeks to limit losses but combines calls and limits profits. Emanuel added that investors should also be patient and buy the stocks on the list that have gained the most momentum, with gains double the S&P 500’s 21.7% gain from the October 2023 low. Uber Technologies, one of the names on the list, mentioned artificial intelligence 17 times last year. The ride-sharing company’s platform, powered by artificial intelligence, matches drivers with passengers or couriers with groceries. In February, Uber’s fourth-quarter financial results were better than expected, with revenue up 15% compared to the same quarter last year. CEO Dara Khosrowshahi said 2023 is a year of sustainable, profitable growth. “People go out to eat, go to concerts, attend sporting events, etc. When people want to spend money or get something delivered to their home, Uber brings convenience,” he said in an interview with CNBC’s “Squawk Box.” show together Emanuel said the stock is up about 15% so far this year and up 60% from the S&P’s October low. He also considers Goldman Sachs to be an “artificial intelligence revolutionary”. The financial institution mentioned artificial intelligence 27 times last year. Just last week, CEO David Solomon said on the company’s earnings call that huge demand for AI-related infrastructure and the resulting financing will be a driver of Goldman’s business. “We focus on improving productivity, particularly developer productivity and efficiency, while maintaining high standards of quality, safety and control,” Solomon said last week, citing Goldman Sachs’ first-quarter profit and revenue that beat analysts’ expectations. Emanuel said the stock is up 39% since the S&P’s October low. It has grown nearly 10% so far this year. Finally, Booking Holdings mentioned artificial intelligence 34 times last year. The online travel company uses artificial intelligence in customer service, such as its AI trip planner and Priceline’s generative AI travel assistant, CEO Glen Fogel said during the company’s fourth-quarter earnings call in February. Booking beat income and revenue estimates. The company uses artificial intelligence to improve productivity. “We have early indications that using generative AI can improve the productivity of our software developers and are encouraged by the results to date,” said Fogel. “We look forward to these and other ways GenAI tools will make our business more efficient in the future.” So far this year, they are less than 1%. Correction: This article has been updated to reflect that Uber’s fourth-quarter revenue in February was up 15% from a year earlier. An earlier version of this article incorrectly stated the quarter.
