The AI revolution is reshaping industries and economies at an unprecedented pace, driving remarkable growth and transformation across the globe. Therefore, investors could consider buying fundamentally sound AI stocks, Alphabet Inc. (GOOGL), Meta Platforms, Inc. (META), and Alibaba Group Holding Limited (BABA) for the next technological revolution.
The rapid penetration of digital technologies and the rising demand for artificial intelligence across numerous sectors, such as automotive, healthcare, banking and finance, manufacturing, food and beverages, logistics, and retail, are anticipated to substantially propel the growth of the global AI market in the coming years.
Therefore, the global artificial intelligence market is expected to grow considerably at a CAGR of 32.4% by 2032. Moreover, AI has the humongous potential to contribute to the global economy. AI is expected to contribute $15.7 trillion to the global economy by 2030, more than the current output of China and India combined.
Thus, considering AI's immense potential, let's examine in detail the fundamentals of the featured stocks.
Alphabet Inc. (GOOGL)
GOOGL is the powerhouse behind a spectrum of tech innovations and platforms worldwide. Its segments, spanning Google Services; Google Cloud; and Other Bets; cater to diverse digital needs and aspirations.
Like other Big Tech companies, GOOGL has been investing in artificial intelligence, a strategy that has helped drive demand for its cloud services. The company also offers internet services, subscription-based products, apps and in-app purchases, and licensing and research and development services.
On May 2, 2024, GOOGL and MongoDB, Inc. (MDB) collaborated to optimize Gemini Code Assist to provide enhanced suggestions for application development and modernization on MDB, which is the industry-leading developer data platform that millions of developers and tens of thousands of customers rely on every day for business-critical applications.
Through this collaboration, Gemini Code Assist can help developers get answers and information about MongoDB code, documentation, and best practices so they can more quickly prototype new features and accelerate application development.
GOOGL’s trailing-12-month EBIT margin of 30.49% is 243.8% higher than the industry average of 8.87%. Its trailing-12-month Return on Total Capital of 19.82% is 456.6% higher than the industry average of 3.56%. Also, its 17.31% trailing-12-month levered FCF margin is 115.4% higher than the industry average of 8.04%.
During the first quarter, which ended March 31, 2024, GOOGL saw robust growth, with revenues rising 15.4% year-over-year to $80.54 billion. Income from operations surged by 46.2% from the year-ago quarter to $25.47 billion, while net income soared to $23.66 billion, marking a 57.2% increase from the prior year’s quarter. Earnings per share for Class A, B, and C stock reached $1.89, up by 61.5% year-over-year.
For the quarter ending June 2024, GOOGL’s revenue is expected to increase 12.6% year-over-year to $84.01 billion. Its EPS is expected to grow 27.7% year-over-year to $1.84. Moreover, the company surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
GOOGL’s stock has soared 23.5% over the past three months to close the last trading session at $176.79.
GOOGL’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade for Sentiment and a B for Quality. It is ranked #9 in the 51-stock B-rated Internet industry.
Beyond what is stated above, we’ve also rated GOOGL for Momentum, Stability, Growth, and Value. Get all GOOGL ratings here.
Meta Platforms, Inc. (META)
META develops products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and wearables worldwide. It operates in two segments: Family of Apps and Reality Labs.
META owns Meta AI, an American company that develops artificial intelligence, augmented reality, and virtual reality technologies. Meta AI deems itself an academic research laboratory focused on generating knowledge for the AI community.
On May 30, 2024, META declared a quarterly cash dividend of $0.50 per share of the company's outstanding Class A common stock and Class B common stock, payable on June 26, 2024.
The company pays $2 annually, which translates to a yield of 0.40% on the prevailing price level. The company has raised its dividend payouts at a CAGR of 2.9% over the past three years.
META’s trailing-12-month EBIT margin of 39.53% is 345.7% higher than the industry average of 8.87%. Its trailing-12-month Return on Total Capital of 20.73% is 482% higher than the industry average of 3.56%. Also, its 24.62% trailing-12-month levered FCF margin is 206.3% higher than the industry average of 8.04%.
During the first quarter, which ended March 31, 2024, META’s revenue increased 27.3% year-over-year to $36.46 billion. The company’s income from operations grew 91.1% from the year-ago value to $13.82 billion. Its net income and earnings per share of $12.37 billion and $4.71 indicate growth of 116.6% and 114.1% from the prior year’s quarter, respectively.
Analysts expect META’s revenue for the second quarter (ending June 2024) to increase 19.3% year-over-year to $38.17 billion. For the same quarter, the company’s EPS is expected to increase 56.7% year-over-year to $4.67. Moreover, the company surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
Shares of META have gained 51.3% over the past six months to close the last trading session at $504.16.
META’s POWR Ratings reflect bright prospects. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
META has an A grade for Quality. It is ranked #14 in the Internet industry.
In addition to the POWR Ratings highlighted above, one can access META’s ratings for Growth, Momentum, Value, Stability, and Sentiment here.
Alibaba Group Holding Limited (BABA)
BABA, headquartered in Hangzhou, China, provides e-commerce and technology infrastructure services. The company provides fundamental technology infrastructure services to merchants, brands, retailers, and businesses to market, sell, and operate using the Internet.
It operates in China Commerce, International Commerce, Local Consumer Services, Cainiao, Cloud, Digital Media and Entertainment, Innovation Initiatives, and Others segments.
On June 7, 2024, BABA announced an exciting collaboration with UEFA EURO 2024, becoming the official B2B E-commerce Partner of UEFA EURO 2024 in the United States and China.
This exclusive partnership is within the existing agreement that the B2C e-commerce platform AliExpress has with UEFA EURO 2024. It is set to create various opportunities for Small and Medium-sized Enterprises (SMEs) on Alibaba.com to leverage the increased demand around the tournament.
On June 6, 2024, BABA announced the official launch of Alibaba Guaranteed, which aims to simplify global sourcing and provide SMEs with a more flexible and reliable supply chain.
BABA’s trailing-12-month EBIT margin of 14.74% is 92.6% higher than the industry average of 7.65%. Its trailing-12-month Return on Total Capital of 6.58% is 4.8% higher than the industry average of 4.75%. Also, its 13.04% trailing-12-month levered FCF margin is 133.2% higher than the industry average of 5.59%.
For the fiscal fourth quarter that ended March 31, 2024, BABA’s revenue increased 6.6% year-over-year to $30.73 billion. Its adjusted EBITA amounted to $4.27 billion. The company reported non-GAAP net income and non-GAAP earnings per share of $3.38 billion and $0.02, respectively.
In addition, as of March 31, 2024, the company’s cash and cash equivalents came in at $34.37 billion, and its total current assets were $104.27 billion.
Street expects BABA’s revenue for the year (ending March 2026) to increase 7.9% year-over-year to $151.80 million. The company’s EPS is expected to rise 12.8% from the prior year’s quarter to $9.22. Also, the company has topped the consensus revenue estimates in three of the four trailing quarters, which is remarkable.
Over the past six months, the stock has gained 1.2% to close the last trading session at $73.35.
BABA’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
BABA has a B grade for Quality and Momentum. The stock is ranked #12 out of 40 stocks in the B-rated China industry.
Click here to access the additional BABA ratings (Growth, Value, Sentiment, and Stability).
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
GOOGL shares closed at $176.79 on Friday, up $1.63 (+0.93%). Year-to-date, GOOGL has gained 26.70%, versus a 14.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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