Goldman Sachs Identifies Superior AI Stock: Alphabet vs. Super Micro Computer

Over the past couple of years, there has been significant transformation; it is safe to say that we are no longer residing in the same world we inhabited in 2022. The alterations are manifold, but in the realm of economy and digital technology, they have manifested as generative AI. Although AI technology, in diverse forms, has been present since nearly the inception of the computer era, generative AI represents something novel. With the capability to simulate human reactions to human prompts, generative AI has already permanently altered the digital terrain.

In a recent report from Goldman Sachs, the main economist Jan Hatzius outlines the ways in which AI has influenced the economic perspective, stating: “Earlier this year, we projected that the efficiency enhancements pledged by generative artificial intelligence (AI) could furnish a significant boost to global labor productivity. Despite significant uncertainty surrounding the timing and scale of AI’s impacts, our fundamental expectation is that generative AI will impact productivity within our ten-year prediction horizon. Consequently, we are enhancing our global GDP forecasts from 2027 onwards to encompass the influence of generative AI.”

Amidst the strive of investors to capitalize on this revolutionary wave, the attention is directed towards stocks propelling the generative AI movement. Whilst Alphabet (NASDAQ:GOOGL) and Super Micro Computer (NASDAQ:SMCI) emerge as leaders, analysts from Goldman Sachs have not refrained from nominating the superior AI stock for purchase. Despite both companies boasting their supporters, Goldman certainly holds a preference, therefore, a more in-depth analysis of both entities is warranted.

Alphabet

The initial stock under scrutiny is Alphabet, the parent entity of Google – and one of the most distinguished names in the technology domain. Apart from its foremost projects, Alphabet’s varied portfolio encompasses ventures thoroughly intertwined with AI. Among these are Waymo, spearheading autonomous vehicles; Wing, focusing on drone-based air cargo; DeepMind, devoted to propelling AI research; and, undoubtedly, Bard, an innovative generative AI chatbot. Collectively, these equate to a sturdy exposure to AI, one that has paid off handsomely for Alphabet.

The outcomes of Alphabet’s calculated investments are unquestionable. Alphabet forms one of the ‘Magnificent 7,’ the premier technology corporations, and the companies driving the market’s advancements over the past few years. With its $1.66 trillion market capitalization, Alphabet stands among the select few trillion-dollar-plus entities on Wall Street – and the fifth-largest globally.

Alphabet has achieved such heights on account of solid performance, predominantly from Google, its principal revenue generator. Overall, the company amassed $86.3 billion in fiscal 4Q23, a result that depicted a 13% rise year-over-year, a larger growth margin than the anticipated 12%. In terms of dollars, the Q4 earnings surpassed predictions by over $1 billion. At the bottom line, Alphabet exhibited a diluted EPS of $1.64, significantly exceeding the $1.05 reported in the respective year’s fourth quarter, and outperforming the projected figure by 5 cents per share.

For Eric Sheridan at Goldman Sachs, a 5-star analyst within the top 5% of the Street’s stock experts, the predominant factor here is Alphabet’s utilization of AI, and its ability to further harness the technology in the future.

“From a long-term perspective, we continue to maintain the perspective that Alphabet management is implementing a favorable approach in balancing investments versus the prolonged growth potential of AI, proceeding in a responsible manner in deploying AI tools across consumer/enterprise computing and orchestrating a multi-year shift towards more AI incorporated layers into its existing core products. While doubts will remain concerning AI’s effect on core products (e.g., potential disruption over the short-term) or cost structure (e.g., potential escalation in computing costs per search), we identify Alphabet as the pioneer in accumulated AI investment in the past 5-6 years and poised to capitalize on this trend in the coming decade,” Sheridan asserted.

Backing his recommendation with firm conviction, Sheridan states, “In summary, we reaffirm our optimistic perspective on GOOGL and view Alphabet as well-prepared to capitalize on the rising utility across several computing platforms including consumer desktop, consumer mobile & enterprise cloud computing.”

This naturally leads to a Buy rating, with Sheridan complementing it with a $171 price target, indicating a potential upside of 28% within the one-year timeframe. (To view Sheridan’s track record, click here)

Similar to numerous large- and mega-cap technology stocks, Alphabet is not lacking in Wall… (the rest of the text has been omitted for brevity)

The subsequent stock under assessment is Super Micro Computer, a technology firm operating within Silicon Valley. The organization offers solutions for server and storage requirements, suitable for multiple computation-intensive work systems. Super Micro’s product ranges are crafted to thoroughly address the demands of the end-users, and connect scalable installations with high-performance computing. The company possesses the capability to construct intricate server systems in-house, ranging from initial design to production to delivery and installation. Clients have the option to select from bespoke or off-the-shelf servers and storage systems, and can opt for a diverse array of subsystems and accessories, even in distinctive configurations.

Which is to say that Super Micro provides its customers unparalleled choices in a dynamic computer market setting. The company’s product ranges find utility in Edge/5G systems, in data centers, in public and private clouds, and in AI – where they furnish the sophisticated computing capacity essential for the novel generative AI technology. This business venture holds significant potential, and Super Micro has capitalized on it to amass $7.2 billion in total revenues during the most recent fiscal year, 2023.

Surveying the financial outcomes of the company, we observe that Super Micro’s fiscal 2Q24 – the quarter concluding on December 31 – depicted an overall sales figure of $3.66 billion. This marked an increase from $2.12 billion in fiscal Q1 and a surge… (the rest of the text has been omitted for brevity)

To discover promising options for AI stocks at attractive valuations, visit TipRanks’ Best Stocks to Buy, a resource consolidating all of TipRanks’ equity insights.

Disclaimer: The viewpoints expressed in this article are solely those of the featured analysts. The content is intended to be utilized for informational purposes solely. Conducting your own analysis is crucial prior to making any investments.

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