Let Bears Fret About Tech Valuations, Analyst Says: How AI Leaders Microsoft, Nvidia And Google Can Push Higher

Microsoft MSFT and Nvidia NVDA are poised to lead the technology stocks in a positive fourth-quarter earnings season for the sector, driven by surging demand for artificial intelligence (AI) projects.

Wedbush rates Microsoft outperform. It also maintains a $450 price target, while Nvidia is rated outperform with a $600 price target.

Analyst Daniel Ives said: “Our recent checks in the field shows an uptick in demand around enterprise software, cybersecurity, and a clear surge in demand around major AI projects and use cases exploding for 2024.”

He added: “Microsoft is humming on the AI front heading in 2024,” impressed by the monetization of its large-language AI chatbot Copilot, which is used on Bing Search.

“We believe the stock has yet to price in what we view as the next wave of cloud and AI growth coming in 2024 with a strong competitive cloud edge versus Amazon AMZN and Google GOOGL.”

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Nvidia Processing Prowess

Nvidia, meanwhile, was the biggest stock climber on the S&P 500 in 2023, gaining 239% over the twelve months, as demand for its graphics processing units (GPUs) surged amid the clamor for greater computing power for AI-related projects.

Ives said: “If customers wait to green light AI deployments they go to the back of the line given the chip/GPU shortages forming around AI, with Nvidia the only game in town – for now… AMD AMD, Intel INTC, and others are coming in 25/26.”

Following the meteoric share price gains of 2023, some analysts have expressed concerns that the tech sector may have reached some stodgy valuations. But Wedbush remained upbeat.

Ives said: “While the bears will continue to fret about tech valuations, we believe Street numbers and valuations for 24/25 will move higher as this AI spending tidal wave hits the tech industry. It’s all about the use cases exploding.”

MSFT And NVDA Earnings Check

Microsoft is expected to deliver year-on-year increases in profits and revenues, with consensus forecasts at $2.75 earnings per share, on a 15.7% surge in revenues to $61 billion. In the previous quarter, it delivered a surprise $2.99 EPS above expectations of $2.65.

Consensus expectations for Nvidia puts its earnings per share at $4.49 for the final quarter of 2023, on revenue growth of a massive 232% to $20.1 billion. Its July-September quarter EPS of $4.02 provided a near 20% upside surprise over expectations.

Wedbush believes that AI will be the predominant driver of tech stocks throughout 2024 and into 2025.

Ives said: “A key theme from our recent December quarter-end checks in the field has been that AI monetization has begun to positively impact the tech sector with Nvidia, Microsoft, Google, Datadog DDOG, and Palantir PLTR all showing that AI use cases are multiplying across the enterprise and consumer landscape.”

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