🔒 AI surge: Nvidia and Meta lead as others struggle to keep pace

In the realm of tech giants, a new narrative unfolds as Nvidia and Meta have surged ahead, leaving others in their wake. Amidst the AI frenzy, Microsoft and Amazon hold steady, while Tesla grapples with market woes and Apple and Alphabet face AI challenges. Investors demand growth, turning to leaders like Microsoft and Nvidia, while Apple seeks to redefine itself with AI initiatives. Meanwhile, potential collaborations loom, reminiscent of Microsoft’s transformative journey.

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By Eric J Weiner, Jeran Wittenstein and Mark Gurman

For more than a decade, the stock market has been supercharged by a handful of technology behemoths that have offered the promise of hypergrowth. You know them: household names such as Google parent Alphabet, Amazon.com, Apple, Facebook parent Meta, Microsoft and Tesla. Grouped under various acronyms that played off their corporate monikers—FANG, FAANG, MAMAA—these companies became a staple of just about everyone’s portfolio. ___STEADY_PAYWALL___

Then last year, a newcomer joined the crowd: Nvidia Corp., the leading chipmaker for artificial intelligence technology. With its stock up more than sixfold since the start of 2023, portfolio advisers soon began talking about an investment strategy built around a new grouping, the “Magnificent Seven.”

But this year, the Magnificent Seven has looked more like the Magnificent Two, the Middling Two and the Meh Three. As investors have come to focus on the importance of AI, Nvidia and Meta have surged ahead, Microsoft and Amazon have done reasonably well, and the other three have trailed the S&P 500 index. “No matter how good it is, if it doesn’t have that AI component, you’re not going to drive investors’ attention right now,” says Kim Forrest, chief investment officer at Bokeh Capital Partners.

Tesla Inc., which has struggled to make any realistic claim as an AI player even as it grapples with questions about the EV market and concerns regarding Elon Musk’s leadership, is the worst-performing stock in the S&P 500 this year, sinking almost 30% as of March 20. Apple Inc. is also down, and Alphabet Inc. has underperformed the broader market. But on March 18 they both took a big jump, with the latter posting its best day since December. The reason? AI again. Bloomberg News reported that Apple was in talks to license Google’s Gemini AI engine for the iPhone.

Despite Apple’s strong showing on the Google news, some investors suggest that if Apple can’t boost its AI credibility, it will start looking uncomfortably like Coca-Cola Co.—a solid performer with reliable revenue, but lacking the hypergrowth investors demand from tech stars. Apple has “become more of a value stock,” says Phil Blancato, chief market strategist at Osaic Holdings Inc.

Similarly, Alphabet’s surge doesn’t solve its recent AI difficulties. In February, users discovered that Gemini struggled to provide accurate images of various races in historical contexts, such as requests regarding America’s Founding Fathers. That sparked conspiracy theories on social media, with some claiming Google harbors a hidden bias against White people. Sundar Pichai, Alphabet’s chief executive officer, called Gemini’s performance “completely unacceptable” and paused its generation of images of people.

Expect AI to continue to reshape the corporate landscape. Microsoft Corp.’s partnership with industry pioneer OpenAI has helped it edge out Apple as the world’s most valuable company. Microsoft now has a market value of almost $3.2 trillion, while Apple’s is $2.8 trillion—but Nvidia suddenly isn’t far behind, at $2.3 trillion.

This explains why Apple CEO Tim Cook has promised that his company will “break new ground” in AI this year. The plan is crucial to investors desperate for new growth sources. Bloomberg News has reported that Apple is planning a big announcement at its annual software developer’s conference in June, though many shareholders are losing patience and turning to stocks with a clearer path in AI, including Microsoft and Nvidia. “If you took AI out of the picture right now, and the sensationalism, would people look at Apple differently?” says Kevin Walkush, portfolio manager at Jensen Investment Management. “I think they would.”

A deal between Apple and Alphabet would build on an existing partnership that has for years seen Google pay billions of dollars annually to be the default search option in the Safari web browser. Talks between the two companies on AI collaboration remain active, but no formal announcements are expected until this summer. And Apple could still choose to work with other players—it has also held talks with OpenAI—or tap multiple partners. Apple and Google declined to comment.

Both companies could do worse than to look at Microsoft for guidance. It’s currently trading near a record high, but when Satya Nadella took over in 2014, it was considered an outdated software maker with a 20th century mindset and a languishing share price. Now the company that gave Windows to the world is everywhere, from the cloud to AI. “Microsoft finally got going,” says Mark Lehmann, CEO at Citizens JMP Securities LLC. “But it took them 15 years to figure it out.”

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🔒 Tech giants navigate AI surge: Nvidia and Meta lead as others struggle to keep pace

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