Saturday , 24 February 2024

All About The Involvement Of “The Magnificent 7” In AI

 

 


There are a number of stocks that are well-positioned to benefit from the rise in advancements and adoption of AI technologies and this article focuses on news about the 7 most prominent companies at the forefront in AI’s development and the major supplier of chips that make such development possible.

This is a one-of-a-kind original article by Lorimer Wilson, Managing Editor of munKNEE.com – Your KEY To Making Money! A more lengthy version of this article was first posted here.

What Is A Mega Stock?

A mega cap stock is defined as a company with a market capitalization (the value of its outstanding shares) above $200 billion but in this article, the mega stock label is limited to the 7 stocks  with market capitalizations in excess of $800B involved in the development of the sector and the major supplier of bits and qbits to make it possible.

What Is Artificial Intelligence (AI)?

As defined by IBM, (I paraphrase) AI combines computer science and robust datasets, including machine learning and deep learning, into AI algorithms that seek to create expert systems that make predictions or classifications based on input data.

What Is Generative AI?

When it comes to generative AI (which takes raw data and “learns” from it to generate statistically probable outputs when prompted to create a new work that’s similar, but not identical, to the original data) it is predicted that foundation models will dramatically accelerate AI adoption in the enterprise.

What Is An AI Chatbot?

A chatbot is a computer program that uses conversational AI techniques like natural language processing to understand the user’s questions and automate responses to them as if they were communicating with a real person be they rudimentary programs that answer a simple query with a single-line response, or sophisticated digital assistants that learn and evolve to deliver increasing levels of personalization as they gather and process information.

What Is Quantum Computing?

Quantum computing, unlike classical computing where data is known as a bit which can be either 0 or a 1 thus giving it binary qualities, uses qubits instead of bits and they exist in any proportion of both states at the same time (superposition) and can be entangled or invisibly connected (i.e., if one qubit is altered, the other reacts at the same time allowing such computers to process vast amounts of information simultaneously) and this permits an enormous leap in processing power.

Each of the stocks in munKNEE‘s new “The Magnificent Seven” AI-themed Mega-Cap Stocks Index are described here as to:

  • their relationship to AI within its business operation,
  • their current market capitalization,
  • their YTD stock price appreciation (as of October 12th), ranked in descending order,
  • their valuation metrics (see definition of each metric below) consisting of its most recent:
    • Forward Price-to-Sales Ratio (PSR),
    • Forward Price-to-Earnings (PE) Ratio and
    • Forward Price-to-Earnings Growth (PEG) Ratio.
    • Please note that the metrics change daily as their stock prices change.

Future Expectations

AI’s contribution to the revenue of each of the above companies is not a reality in 2023 but, that being said, however, recent and on-going, developments in AI have created extremely high expectations for these companies moving forward.

According to a research note from analysts at Goldman Sachs,  the average Magnificent Seven mega-cap stock is currently trading at a 1.3x PEG ratio compared with 1.9x for the median S&P 500 stock. As such, on average, they now cheaper relative to the S&P 500 than at any point in the past six years and are poised to outperform in the fourth quarter based on earnings expected to increase by 22% over the next 12 months (half that if Nvidia is excluded from the calculation).