Goldman Sachs Says Mega-Cap Tech Leaders Offer the Best Way to Play the AI Boom

Since the 1990s, investors have clung to big technology companies, and with good reason. While capable of making massive errors (see Meta’s losses on the metaverse), big technology stocks often have big protective moats around their core business lines that allow them to expand into new areas. This is critical, as even big technology has to constantly innovate and grow, or they can be overtaken by their mega-cap brethren.

For years, the buzz was that artificial intelligence was the next big thing. As usual when it comes to technology innovation, the opening salvos from private equity and others took quite a while to catch up with reality. That all changed last year with the introduction of OpenAI’s ChatGPT, and then the company offered expanded access to OpenAI’s DALL-E 2 AI image and art generator.

As usual, mega-cap technology companies are likely to benefit first, as they have been embracing the onslaught of AI applications for years. They have the deep pockets to go get or make deals with the companies that are providing breakthrough technologies, like OpenAI, C3.ai and others.

With artificial intelligence now officially part of our lexicon and, depending on whom you ask, ready to dominate the world in years to come, we decided to screen the Goldman Sachs technology research universe looking for Buy rated mega-cap technology leaders that also pave the way for investors to be involved in AI. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Alphabet

There should be no surprise that the Google parent and search giant is all-in on the AI revolution. Alphabet Inc. (NASDAQ: GOOGL) provides various products and platforms in North America, Europe, the Middle East, Latin America and elsewhere.

Its Google Services segment offers products and services, including ads, Android, Chrome, hardware, Gmail, Google Drive, Google Maps, Google Photos, Google Play, Search and YouTube. It is also involved in the sale of apps and in-app purchases and digital content in the Google Play store, as well as Fitbit wearable devices, Google Nest home products, Pixel phones and other devices, and in the provision of YouTube non-advertising services.

The Google Cloud segment offers infrastructure, platform and other services; Google Workspace that includes cloud-based collaboration tools for enterprises, such as Gmail, Docs, Drive, Calendar and Meet; and other services for enterprise customers. The Other Bets segment sells health technology and internet services.

Alphabet is reported to be using AI applications in almost all the firm’s central business silos, from ad pricing to content to spam filters. Alphabet is the parent company for software subsidiary DeepMind and autonomous vehicle company Waymo.

The Goldman Sachs price target for Alphabet stock is $128. That compares with the $124.64 consensus target and Tuesday’s closing print of $104.50.

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