Here are its software stock picks
As investors look for winners in the artificial intelligence boom, several software stocks stand out —including Microsoft and Oracle, according to Bank of America. The burgeoning interest in AI was further fueled by Nvidia ‘s recent blowout earnings, which briefly propelled the chip stock to a $1 trillion valuation on Tuesday. The AI darling has gained a whopping 174% year to date. Given the “immense opportunity ahead for both vendors and investors,” Bank of America analysts have created a proprietary ranking system to identify potential AI beneficiaries in the software group. The rankings identify consensus AI leaders as well as software vendors, the firm said in a note Tuesday. Among the factors expected to contribute to success in AI are access to high volumes of quality data, market-leading install bases for ongoing data acquisition and highly specialized solutions embedded within enterprises, analyst Brad Sills said. “We have created a proprietary framework of analysis (based on 13 yes or no questions) that investors can use to predict potential AI beneficiaries. These questions address a wide range of topics including data advantages, disruption potential, resources for innovation, and go-to-market differentiation, among others,” he wrote. The firm then assigned points to the names, with 9 being the maximum and the best-positioned for AI opportunities. These are among the stocks that topped the list. Microsoft is the only name that received the top score from Bank of America. The tech giant has invested billions of dollars in OpenAI and recently announced it will offer Bing as the default search engine in OpenAI’s ChatGPT chatbot. “Microsoft has confirmed a multiyear, multibillion dollar investment in OpenAI and partners with OpenAI to 1) power its own AI offerings and 2) offer OpenAI development services via Azure OpenAI. Microsoft expects AI services to contribute 1% growth to Azure in FQ4,” Sills wrote. Shares of Microsoft are up nearly 37% year to date. Oracle is another potential winner, according to Sills, who raised his price target to $112 per share from $95 on Tuesday. The new target implies 6.5% upside from Tuesday’s close. The company has AI and machine learning built into its core offerings, said Sills. “We expect Oracle to incorporate gen AI more heavily into its application suites (such as Fusion and NetSuite),” he said. “Generative AI models could be finetuned using the company’s available data to suggest to users more robust recommended actions on the apps side.” Oracle can also fine-tune software, including those related to its digital assistant and document understanding, to make its cloud infrastructure “an increasingly compelling platform for AI-related workloads,” Sills noted. Shares have gained about 29% so far this year. Meanwhile, HubSpot ‘s stock soared nearly 77% year to date. The company’s ChatSpot, a conversational customer relationship management bot, connects marketing, sales and service professionals to HubSpot. Bank of America sees more investments in AI ahead. “The company has ratcheted up its commentary regarding incremental investments going to AI/ML,” Sills said. “For example, AI can help service professionals anticipate customer needs, suggest resolutions, and drive better outcomes.” HubSpot may also potentially use AI for data cleansing and email data capture, among other things, he said. — CNBC’s Michael Bloom contributed reporting.
