Excitement around artificial intelligence is leading many investors to snatch up shares of potential winners in 2023. But not everyone on Wall Street is buying up the near-term hype. “We don’t want to play down the potential of AI to spawn new products and features; however, we think that the market has gotten ahead of itself regarding the timing of when material software AI product revenues will gain traction,” wrote HSBC analyst Stephen Bersey in a September note to clients. Wall Street and the investing community have talked up shares of AI-focused companies in recent months as the technology promises to alter the way companies operate across sectors, while boosting their total addressable markets. The theme has benefited technology stocks while helping lift the tech-heavy Nasdaq Composite after a tough 2022. Bersey views AI as a tool that can enhance many software solutions, but uncertainty surrounding the investment in and implementation of these tools over the short term is leading the firm to take a more conservative approach. .IXIC YTD mountain Nasdaq shares since the start of 2023 “For sure, we expect to see examples of early products and deployments, but we think they will be limited with AI’s true potential to be broadly monetized in earnest is still a few years out,” he wrote, initiating coverage of 10 companies, including six with a buy rating. Even so, Bersey called Snowflake “well placed” for AI due to its data warehousing business needed for deploying large sets of data. This necessity should also benefit shares of Oracle, along with its cloud-based enterprise software segments, necessary for automating business needs. While the AI tailwinds may take longer to play out, Bersey does see some shorter-term macro trends that should benefit the sector. This includes elevated cloud demand and digital transformation spurred by the Covid-19 pandemic. These themes could serve as a potential hedge against a difficult macro and demand environment. Revenue growth for the sector should also remain resilient against this backdrop and outperform nominal GDP and the S & P 500. “Software improves productivity, and if companies must respond to a deteriorating macro environment by cutting staff, software can make up for the workforce deficit and help to stabilize ongoing operations,” he wrote. — CNBC’s Michael Bloom contributed reporting.
