Getting nervy about the hype over artificial intelligence? Stop worrying and start thinking about the potential for a further technology-stock rally built on mounting AI spending, say analysts at Melius Research.
Among the megacap technology stocks already leading this year’s rally, Melius analysts Ben Reitzes and Nick Monroe cite
Nvidia
(ticker: NVDA),
Microsoft
(MSFT) and
Apple
(AAPL) as top AI picks in a research note. They expect them to be chief beneficiaries of a growth in AI spending to more than $300 billion in 2026, doubling as a proportion of IT spending from 2022. However, they were cautious about potential disruption to Google-parent Alphabet (GOOGL).
Melius also put Buy ratings on
Adobe
(ADBE),
Intel
(INTC),
Cisco Systems
(CSCO) and
International Business Machines
(IBM).
Chip maker
Nvidia
is set to win over the long term as its semiconductors and CUDA software make it the most trusted platform for AI development, Reitzes and Monroe argue. Meanwhile,
Microsoft
should win an increasing share of the profit in the software industry as its Office and Windows applications could make it the most common interface for how personal-computer users interact with AI, according to the analysts.
They initiated Nvidia at a Buy rating with a $625 target price, based on a price-to-earnings multiple of 45 times their projection for 2026. They started Microsoft with a Buy rating and a $430 target price, with a multiple of 33 times forecast earnings for 2025.
Nvidia shares were up 0.5% in premarket trading on Tuesday to $467. Microsoft was down 0.4% at $344.30.
Apple
has been less of a consensus pick as an AI winner so far but Reitzes and Monroe expect that to change as users begin to demand access to AI-powered applications on their iPhones. They note Google-parent
Alphabet
already pays around $20 billion a year to be the default search option on Apple’s Safari internet browser.
“Apple’s “mobile real estate” should only increase in value – helping it receive even more compensation from Google and/or Microsoft for the rights to its default search engine over the long-term,” Reitzes and Monroe wrote.
They initiated Apple with a Buy rating and a $240 target price, a multiple of 33 times their 2025 earnings estimate for the company. Apple shares were down 0.1% at $193.80 in premarket trading.
The Melius analysts are more skeptical about Alphabet, citing the potential threat of AI to the traditional search model and the increasing cost of keeping Google as the top option on many mobile devices.
“We believe that Google deserves a modest premium to the market but should trade at a discount to Apple and Microsoft, given some of the uncertainty around growth prospects in search,” they wrote.
Melius initiated Alphabet at a Hold rating with a target price of $147, with an earnings multiple of 20 times their 2025 projection. Alphabet traded up 0.1% at $124.76 in premarket trading.
For those looking beyond the biggest stocks, Melius picks out
Adobe
as already enjoying momentum as a clear winner in generative AI due to its ability to use commercially safe content and indemnify customers.
“We are also quite positive on 3 non-consensus large-caps: Intel, IBM, and Cisco, who should eventually benefit from an “AI Halo Effect” on IT spending next year lifting up PCs, servers, networking and consulting,” the analysts wrote.
Write to Adam Clark at [email protected]
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