The world experienced three industrial revolutions, each defined by the widespread adoption of new technologies: The first was fueled by wind turbines, the second by electricity and the telephone, and the third by microprocessors and the internet. Wedbush Securities analyst Dan Ives says artificial intelligence is the fourth industrial revolution.
Considering how the first three industrial revolutions changed the world, it is not a stretch to say that artificial intelligence is a once-in-a-generation opportunity for investors. And Wall Street analysts grew even bigger Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) and Pinterest (NYSE: PINS)as explained below.
I said that even the low price expectations on Alphabet and Pinterest mean upside for shareholders, but there are always risks when the stock market is involved, so a good return is never guaranteed. However, it’s fair to say that many Wall Street analysts see Alphabet and Pinterest as bullish buys.
Alphabet has relied on its expertise in artificial intelligence (AI) to drive growth within its core marketing and cloud computing businesses. The company already has a strong presence in all markets: It is the largest digital advertiser and the third-largest public sector worldwide. But new AI products can further strengthen its standing and increase growth.
For example, Alphabet introduced generative AI overviews in Google Search, and CEO Sundar Photosi says engagement and satisfaction are on the rise. Investment bank Evercore recently conducted a study that came to the same conclusion, but went one step further in suggesting that AI surveys are also providing better quality leads to marketers. If true, that could let Alphabet charge more for its ad tech services.
As a cover, a federal judge in August ruled that Alphabet had acted illegally to protect the Internet’s search privacy, and the Department of Justice recommended that the company be forced to sell its Chrome browser. What promises to be a lengthy appeals process means a decision could be years away, but some legal experts told CNBC the judge is likely to impose a lower penalty.
Importantly, history shows the collapse of the core marketing and cloud computing businesses should not. The Department of Justice has not succeeded in breaking up a company in 40 years, and the last time a judge tried to break up a large technology company – Microsoft in 2000 – a federal court overturned the decision.
The antitrust case is worrying the market at the moment, but it may change when Alphabet responds with its proposed amendment on December 20. However, Wall Street expects the company’s earnings to grow at 15% per year until 2026. The consensus estimate makes the current value of 22.3 times earnings look reasonable head. Investors should feel free to buy a position today.
Pinterest is a unique social media site in that it prioritizes inspiration over communication. The company considers artificial intelligence as a core competency. For example, machine learning models that contain searches, servers, and clicks generate more than 400 million predictions per second to advance user engagement.
Indeed, CEO Bill Ready recently told analysts that “all content served on Pinterest, including organic and ads, is powered by an AI recommendation model.” However, the company also relies on AI to improve campaign performance for advertisers. Its new Performance+ product bundles AI tools for content creation, budgeting, bidding, and targeting.
Management says Performance+ enables brands to create marketing campaigns with half the input. It also reduces the cost per action by 10%, meaning that brands can achieve the results they want but spend less money. Performance+ went into general availability in October, and Bill Ready says the company is pleased with the early signs of demand from advertisers.
Pinterest has something special in its partnership with Amazon and Google, which brings demand from third-party advertisers to its platform. The company first partnered with Amazon in the US last year and recently expanded the relationship to Canada and Mexico. And Pinterest began partnering with Google earlier this year in the global non-profit and non-profit markets.
CEO Bill Ready on the third earnings call said, “This partnership has continued to build consistently throughout the year, and we expect that trajectory to continue into Q4.” Importantly, Amazon and Google are two of the three largest ad tech companies in the world, so they represent potentially valid claims of interest. This can lead to increased earnings for Pinterest.
Looking ahead, Wall Street expects Pinterest’s adjusted earnings to grow at 21% annually through 2026. The consensus estimate makes the current valuation of 21.1 times adjusted earnings look cheap. Investors should feel free to buy a position in this AI stock today.
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John Mackey, former CEO of Whole Foods Market, which supports Amazon, is a member of The Motley Fool’s board of directors. Suzanne Frey, CEO at Alphabet, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon and Pinterest. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, and Pinterest. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
A Once-in-a-Generation Opportunity: 2 Artificial Intelligence (AI) Stocks Are Screaming Buys, According to Wall Street was first published by The Motley Fool.
