Last year was a tough one for tech stocks, to say the least. Stubborn inflation and aggressive interest rate hikes by the Federal Reserve weighed on the high-growth sector, cutting the tech-heavy Nasdaq composite by more than 30%. But despite those headwinds, which have carried over into 2023, an artificial intelligence boom has helped tech shares mount an impressive turnaround this year—and Wedbush’s Dan Ives believes it’s still in the early innings.
“We estimate this is an $800 billion market opportunity over the next decade as this A.I. Game of Thrones plays out across the enterprise and consumer tech space,” the tech analyst wrote in a research note on Sunday, referencing the total addressable market for A.I.
After the Microsoft-backed OpenAI in November unveiled ChatGPT, a “generative A.I.” chatbot that can answer questions, write emails, and even pass some MBA exams, there’s been a whirlwind of investor optimism about A.I. that has forced many tech companies to release, or at least show off, their latest technology out of fear they’ll be left behind.
Google debuted its chatbot, Bard, in February, and Meta followed that up with LLaMA later that month. Generative A.I. tech is also used in new image-generating software like OpenAI’s DALL-E 2, Stable Diffusion, and Midjourney, which can create photorealistic images from a text prompt. But A.I. is about more than just chatbots and image generators. Ives argues that it’s a game-changing technology on the level of the internet that has wide ranging applications, which means even amid a shaky economic backdrop, investors shouldn’t wait on the sidelines.
“Hyper-intelligent A.I. could disrupt nearly every part of our world,” Ives wrote, arguing the technology “is already effectively smarter than humans.”
To his point, JPMorgan is using A.I. to help predict the Federal Reserve’s actions, and the A.I. software company Palantir said earlier this month that it is seeing “unprecedented demand” for its battlefield intelligence platform.
Ives isn’t the only A.I. bull either. At Fortune’s MPW conference last week, Ark Invest’s Cathie Wood said A.I. will cause widespread but positive “disruption” in many industries over the coming years, arguing Tesla could be among the technology’s biggest beneficiaries. And Goldman Sachs’ senior strategist Ben Snider said last week that he expects A.I. to boost corporate profits by 30% over the next decade as productivity soars.
For Ives, the current leader “A.I. arms race” is Microsoft. The analyst, who has been dissecting tech stocks since the ’90s, believes Satya Nadella’s company will be able to gain market share in search from Google as it integrates ChatGPT with its own search engine Bing.
“For Microsoft, the monetization opportunity of Bing is very real,” he wrote. “Every % share that moves from Google search to Bing’s new rebirth translates to billions of advertising dollars.”
Microsoft is also well positioned to profit from the early stages of A.I. development due to its cloud server business, Azure, Ives said. As Scott Guthrie, executive vice president of the cloud and A.I. group at Microsoft, detailed in a March article, Microsoft has spent years building up the “supercomputing resources” in its cloud business to help support A.I. tech.
While Ives believes Microsoft has a cloud computing lead that makes it the “clear market leader in the A.I. race at the moment,” he also noted that other companies including tech giants Google, Apple, Meta, Nvidia, and Amazon as well as smaller pure A.I. plays like C3.AI and SoundHound, will be battling it out over the next decade in the space and spending billions in the process. At the same time, regulators worldwide will have many questions that could slow A.I.’s development, according to Ives.
Overall though, the analyst believes A.I. will be the “biggest tech theme in decades” and investors should take advantage. “The A.I. theme is one of the most transformational we have seen in 22 years of covering tech stocks on the Street,” he wrote.
