Bank of America says A.I. 'is the new electricity,’ names its top picks to play the breakout trend

Published Tue, Feb 28 202311:52 AM ESTUpdated Tue, Feb 28 20232:01 PM EST

Just like the internet and the smartphone, artificial intelligence could dramatically alter the world we live in. And, Bank of America has some pointers for investors looking to play this burgeoning trend revolutionizing the tech industry. "If data is the new oil, then AI is the new electricity," wrote equity strategist Haim Israel in a Tuesday note to clients, saying the "iPhone moment" for AI has arrived. "We are at a defining moment – like the internet in the '90s – where Artificial Intelligence (AI) is moving towards mass adoption, with large language models like ChatGPT finally enabling us to fully capitalize on the data revolution," he said. Given this backdrop, Bank of America highlighted 15 stocks poised to benefit from AI tail winds in a separate note to clients Tuesday. While Big Tech stocks have taken center stage in the AI arms race, the Wall Street bank views a slew of semiconductors and software names as positioned to prosper. Along with AI front-runners Alphabet and Microsoft , Bank of America sees Nvidia as one of the biggest AI beneficiaries. The chipmaker is no stranger to AI, given its AI-focused chips utilized for graphics and machine learning. During an earnings call this month, Nvidia CEO Jensen Huang said artificial intelligence has reached an "inflection point," with management noting AI demand contributed to its earnings beat . Bank of America analyst Vivek Arya agreed, highlighting the company's supercomputer presence as one of its AI strengths. He forecasts that AI momentum could help Nvidia reach $80 billion in revenue and greater than $14 in earnings per share by 2027. "Nvidia is leading the AI arms race with its full-stack of accelerated silicon/systems/software/developers," positioning it to lead the generative AI arms race among global cloud and enterprise customers, he wrote. Taiwan Semiconductor is another name showing AI promise. Analyst Brad Lin called the company a "key enabler" for AI, saying that its foundry business serves as the starting point for putting "chip-design into realization," with Nvidia among some of its major chip clients. Lin added that TSMC is in a unique position to capture more business opportunities and estimates that, by the end of 2024, at least 44% of its revenue will have some exposure to AI. Within Big Tech, Bank of America expects Meta Platforms and Apple to benefit. Apple has integrated a slew of AI and machine learning capabilities into offerings like Face ID and fall detection. Meta Platforms CEO Mark Zuckerberg said Monday that the company will create a new product group to focus on generative AI products for Instagram and WhatsApp. Analyst Justin Post also pointed to the Facebook parent's heavy investment in graphics processing units to build an AI supercomputer and its "discovery engine" filtering relevant content to users of Reels as examples of its latest AI endeavors. Post thinks improving AI capabilities across its business could help Meta Platforms improve its ad targeting, which makes up the bulk of the social media giant's revenue. META YTD mountain Meta Platforms shares have risen nearly 45% in 2023. "Meta's large user base should attract content creators, and we believe Meta has opportunity to develop superior content & targeting capabilities vs peers," he wrote. Another potential AI winner on both the commercial and government side is Palantir . Analyst Mariana Perez Mora called data the "new bullets" that can help national security agencies better defend against threats. The software company should benefit from growing defense budgets from both the U.S. and its allies as they focus on new technology to better defend from threats. "Palantir's dominant position in the AI-powered software market, differentiated end-to-end and highly secure solutions and first mover advantages support continued penetration in the expanding market of AI-powered data solutions across national security and federal civilian agencies as well as highly regulated corporations," she said. Adobe and Baidu , which plans to launch its own artificial intelligence chatbot, were also included on Bank of America's list. — CNBC's Michael Bloom contributed reporting