This week started with U.S. technology sector rout, especially for the artificial intelligence (AI) behemoths. The reason was the Chinese startup DeepSeek, which claimed that its open-source large language model R1 can almost mirror the capabilities of its major U.S. counterparts, like OpenAI’s GPT-4, Meta’s Llama and Google’s Gemini, but at a fraction of the cost.
Market participants remained concerned that DeepSeek’s innovative AI model with less advanced and more cost-efficient hardware will significantly challenge U.S. supremacy in the AI space. Whether Chinese AI platform developers can overtake U.S. giants is still questionable. However, a near-term shift in investors’ preference in the AI space is very likely.
An equally efficient cheap AI platform will enable U.S. tech behemoths to develop scalable AI-driven application cost-effectively. This will free their resources to develop innovative AI-driven software and services. A hard challenge from DeepSeek will also force U.S. AI-infrastructure developers like chip manufacturers, data centers, energy providers to innovate lower-cost, high-end solutions.
At this stage, upcoming fourth-quarter 2024 earnings results and management commentary of tech bigwigs with extensive AI applications will be of utmost importance. Five stocks that investors should keep a close eye on are: Meta Platforms Inc. META, Alphabet Inc. GOOGL, Amazon.com Inc. AMZN, Palantir Technologies Inc. PLTR and Twilio Inc. TWLO.
5 AI Giants to Watch Ahead of Earnings Results
Earnings results and management commentary of these AI-application tech giants will be crucial for market participants following the DeepSeek-led Wall Street turmoil.
The chart below shows the price performance of these five stocks in the past year.
Zacks Investment Research
Image Source: Zacks Investment Research
Meta Platforms Inc.
META’s AI-driven platform is enhancing ad delivery efficiency and increasing return on ad spend for advertisers. Solid performance in spaces like e-commerce, gaming, entertainment, and media is benefiting Meta Platforms. Management said that the company will invest $38-$40 billion as capital expenditure in AI initiatives in 2024. Moreover, capital spending is likely to reach more than $50 billion in 2025.
On July 24, 2024, META unveiled its Llama 3 AI model. Using NVIDIA’s latest HDX H200 chip that supports Meta Platforms’ Llama 3 AI model, an investment of $1 by an API provider can generate $7 in revenues over the next four years. This mostly free Llama 3 model and its advanced version to be released next year aim to compete with incumbents like Open AI.
NVIDIA’s next-generation AI chip, called Blackwell, is the upcoming driver. META is set to get B200 Blackwell chips. Generative AI aids META’s advertising revenues (98.9% of Family of Apps revenues), which increased 18.6% year over year to $39.89 billion and accounted for 98.3% of third-quarter revenues. Meta Platforms’ saw higher retention rates among advertisers using generative AI-powered image expansion, and background and text generation tools.
Meta Platforms will report earnings results on Jan 29, after the closing bell. META has an expected revenue and earnings growth rate of 14.6% and 11.1%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.2% in the last seven days. The stock currently carries a Zacks Rank #3 (Hold).
Alphabet Inc.
Alphabet is riding on strong cloud and search growth. Google Cloud is benefiting from accelerated growth across AI infrastructure, enterprise AI platform Vertex, generative AI (Gen AI) solutions and core Google Cloud Platform products. GOOGL’s strong AI portfolio is helping it attract new customers, win larger deals, and deepen product adoption among existing customers.
Alphabet’s expanding GenAI capabilities present a potential catalyst for future growth. GOOGL’s dominant position in the search engine market is a strong growth driver. Major search updates and the removal of bad ads to enhance the search results continue to boost traffic on GOOGL’s search engine.
GOOGL is cashing in on the increasing demand for Large Language Models with its most powerful AI model called Gemini. Google Bard and Search Generative Experience are powered by Gemini Pro to deliver an enhanced user experience. Google Cloud offers Duet AI, which provides pre-packaged AI agents that assist developers in writing, testing, documenting and operating software.
Alphabet will report earnings results on Feb 4, after the closing bell. GOOGL has an expected revenue and earnings growth rate of 12.1% and 11.4%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% in the last 30 days. The stock currently carries a Zacks Rank #3.
Amazon.com Inc.
Amazon.com has been benefiting from Prime and AWS momentum. We expect 2024 net sales to increase 10.7% from 2023. Strengthening AWS services portfolio and AMZN’s growing adoption rate contributed well to AWS performance. AMZN’s ultrafast delivery services and expanding content portfolio were beneficial.
The strengthening relationship with third-party sellers was a positive. Robust advertising business contributed well. AMZN’s expanding global presence remains a positive. AMZN’s Growing capabilities in grocery, pharmacy, healthcare and autonomous driving are other positives. A deepening focus on generative AI is a major plus.
Amazon.com will report earnings results on Feb 6, after the closing bell. AMZN has an expected revenue and earnings growth rate of 10.8% and 20.1%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% in the last seven days. The stock currently carries a Zacks Rank #2 (Buy).
Palantir Technologies Inc.
Palantir Technologies builds and deploys software platforms for the intelligence community to assist in counterterrorism investigations and operations in the United States, the United Kingdom, and internationally.
Lately, PLTR’s commercial business has gathered pace beside its traditional government contracts. This was primarily due to PLTR’s aggressive venture in the AI space. In 2023, Palantir Technologies launched its Artificial Intelligence Platform (AIP), an AI-powered system that helps customers quickly concentrate and analyze data and discover how it can help advance their business goals.
AIP provides unified access to open-source, self-hosted, and commercial large language models that can transform structured and unstructured data into LLM-understandable objects and turn organizations' actions and processes into tools for humans and LLM-driven agents.
Palantir Technologies will report earnings results on Feb 3, after the closing bell. PLTR has an expected revenue and earnings growth rate of 25.7% and 25.1%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 11.6% in the last 90 days. The stock currently carries a Zacks Rank #2.
Twilio Inc.
Twilio is focusing on generative AI offerings to tap the growing opportunities in the space. In this regard, the company launched Customer AI technology in June 2023, which powerfully combines customer engagement platform data, generative and predictive AI, and large language models (LLMs) to unlock stronger customer relationships for brands.
TWLO revealed that it is integrating generative AI capabilities across its platform and every customer touch point. TWLO believes that by training LLMs for customers with their data that lives inside its Segment customer data platform, it will be able to help customers enter the AI race multiple steps ahead of their peers.
Twilio also partnered with Alphabet’s Google Cloud (June 2023) to integrate generative AI into the Twilio Flex customer engagement platform. In August 2023, Twilio announced that it will enable companies to create personalized, customer-aware experiences powered by OpenAI.
Through this integration, Twilio customers will be able to use OpenAI’s GPT-4 model to power new generative capabilities in Twilio Engage, its multichannel marketing solution built atop the Segment Customer Data Platform.
Twilio will report earnings results on Feb 13, after the closing bell. TWLO has an expected revenue and earnings growth rate of 7.5% and 15.3%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 9% in the last 90 days. The stock currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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