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Artificial intelligence (AI) has become the defining investment narrative of the year, sparking a wave of innovation and excitement across industries. Companies are rushing to embrace this transformative technology, eager to stay ahead in an increasingly competitive landscape. Tech giants, with their deep pockets and relentless ambition, have been leading the charge, pouring billions of dollars into funding this AI craze.
In fact, the global AI market is on a meteoric rise, with projections revealing that revenue is set to hit an impressive $184 billion by the close of this year. Yet, despite the explosive rise of AI in 2024, the revolution is far from over. By 2030, this figure is expected to skyrocket to a staggering $826.7 billion, demonstrating a remarkable 28.5% compound annual growth rate (CAGR) spanning 2024 to 2030.
These jaw-dropping numbers underscore the unstoppable momentum of AI as it continues to disrupt industries, redefine business strategies, and transform the global economy. With the AI momentum unlikely to fade away anytime soon, investment firm Jefferies believes the upcoming year will bring even bigger wins for these three mega-cap AI stocks.
AI Stock #1: Microsoft
Microsoft Corporation (MSFT) is a true tech powerhouse. Famous for its iconic products like Microsoft Office and Teams, the tech giant has been taking its vision to new heights with a bold focus on AI. From Windows and Xbox to Microsoft 365, Teams, and Azure AI, Microsoft seamlessly weaves advanced AI into its expansive ecosystem.
This integration drives billions of intelligent experiences every day, transforming how the world works, collaborates, and connects. Presently commanding a hefty market cap of almost $3.26 trillion, Microsoft's shares climbed roughly 13% over the past 52 weeks.
Microsoft is also firmly committed to returning value to its shareholders. With an impressive 20-year streak of dividend growth, the tech giant has consistently rewarded its investors. Earlier this month, the company declared a quarterly dividend of $0.83 per share, set to be distributed to its shareholders on Mar. 13, 2025. Its annualized dividend of $3.32 per share translates to a modest 0.8% yield, reflecting a stable approach to shareholder returns.
In fact, in its most recent earnings report, the company revealed that it had delivered a remarkable $9 billion in returns during fiscal 2025 Q1 through a strategic mix of share repurchases and dividends. Microsoft dropped its fiscal 2025 Q1 earnings report on Oct. 30, which blew past both Wall Street’s top- and bottom-line expectations. The tech giant experienced a solid 16% year-over-year revenue growth, reaching $65.6 billion, just edging past analysts’ forecasts, while its EPS of $3.30 represented a 10% increase from the previous year, exceeding projections by roughly 7.1% margin.
Driving this success was its commercial cloud business, which soared with a notable 22% annual revenue increase to $38.9 billion. Meanwhile, the company’s Intelligent Cloud segment, which includes its Azure business, also demonstrated a solid 20% year-over-year revenue increase, reaching $24.1 billion, driven by surging demand for Azure and its other cloud services.
Reflecting on the company’s Q1 performance, CEO Satya Nadella highlighted the transformative power of AI, underscoring its ability to revolutionize roles, workflows, and business processes across industries. During the Q1 earnings call, Microsoft’s management spotlighted Azure as a major growth engine within its Intelligent Cloud segment, forecasting a 31% to 32% revenue increase in Q2, driven by robust demand for cloud services.
Furthermore, Microsoft expects to “add more sequential dollars to Azure” in Q2 than in any quarter in the company’s history. Analysts tracking Microsoft project the company’s profit to increase 9.6% year-over-year to $12.93 per share in fiscal 2025 and rise another 14.3% to $14.78 per share in fiscal 2026.
Jefferies highlighted Microsoft’s strong position in the generative AI landscape, poised to benefit from the expanding growth of Azure AI infrastructure and the growing adoption of its Copilot applications. While the stock has underperformed both the broader market and certain tech ETFs, Jefferies anticipates a rerating as Azure’s momentum accelerates and Copilot continues to gain traction.
With these developments in mind, Jefferies maintains a "Buy" rating on MSFT, with a price target of $550, reflecting confidence in its future growth potential. Overall, Wall Street is highly bullish, with a consensus “Strong Buy” rating on MSFT stock. Out of the 41 analysts covering the stock, 34 recommend a “Strong Buy,” four suggest a “Moderate Buy,” and the remaining three give a “Hold” rating.
The average analyst price target of $508.31 indicates potential upside of 16% from the current price levels. However, the Street-high price target of $600 suggests that the stock could rally as much as 37% from current levels.
AI Stock #2: Alphabet
Google parent Alphabet Inc. (GOOGL) is reshaping industries from healthcare and entertainment to AI and autonomous driving. Deeply embedded in its products like Gmail, Google Maps, and Photos, AI is driving new standards for user experience and efficiency. The company’s ecosystem, which spans Google Services, Google Cloud, and Other Bets, works in seamless harmony. Google Services dominates with its search engine, while Google Cloud leads with next-gen enterprise solutions.
Meanwhile, Alphabet’s Other Bets division pioneers transformative initiatives, including Waymo’s self-driving cars and DeepMind’s cutting-edge AI research. With a massive market cap of approximately $2.4 trillion, shares of this tech behemoth are up nearly 36% over the past year, outshining the broader S&P 500 Index’s ($SPX) 24% annual return.
In a landmark decision earlier this year, Alphabet paid its inaugural dividend of $0.20 per share on June 17. Recently, the company followed up with another quarterly dividend payment of $0.20 per share on Dec. 16, signaling its growing commitment to rewarding shareholders. With a forward annualized dividend of $0.80 per share, Alphabet offers a modest 0.42% yield, marking a new chapter in its shareholder-friendly approach.
Alphabet’s Q3 earnings report, released on Oct. 29, shattered Wall Street’s expectations, propelling its stock to a nearly 2.8% jump in the following trading session. The company posted total revenue of $88.3 billion, a 15% year-over-year increase fueled by strong performance across its diverse business segments. This figure easily surpassed Wall Street’s anticipated $86.2 billion. Meanwhile, EPS showed a notable 36.8% year-over-year improvement to $2.12, exceeding forecasts by a solid 15.9% margin.
Delving into the segments, Google Services delivered 13% annual revenue growth, reaching $76.5 billion, driven by standout performances across its core areas. Google Search, subscriptions, platforms, devices, and YouTube ads all contributed to this broad-based strength, underscoring the company's continued dominance in advertising and digital services.
On the cloud front, Alphabet reported $11.4 billion in revenue, marking a nearly 35% year-over-year surge, driven by robust growth in its Google Cloud Platform (GCP) offerings. This strong performance underscores the expanding reach of Google Cloud as it continues to gain traction among enterprises. Additionally, Alphabet’s Other Bets segment, which includes Waymo, saw a notable revenue boost, rising to $388 million from $297 million the previous year.
While reflecting on the company’s Q3 performance, CEO Sundar Pichai highlighted the company’s remarkable momentum, attributing much of its success to its unwavering focus on innovation and strategic investments in AI. He emphasized that these efforts are not only driving growth, but also delivering tangible benefits to both consumers and partners.
Analysts tracking Alphabet project the company’s profit to climb a remarkable 38.3% year-over-year to $8.02 per share in fiscal 2024 and rise another 11.2% to $8.92 per share in fiscal 2025. As for Jefferies, the investment firm highlighted Alphabet’s status as an AI pioneer, with an exciting pipeline of new products ready to be rolled out across its seven apps, each boasting over 2 billion users. The firm added, “The impressive performance of GOOGL’s models positions them to make significant strides in Cloud, where it currently lags peers."
Overall, Wall Street remains highly optimistic on GOOGL stock, maintaining a consensus rating of “Strong Buy.” Of the 50 analysts offering recommendations, 40 advise a “Strong Buy,” three suggest a “Moderate Buy,” and the remaining seven analysts maintain a “Hold.”
The average analyst price target of $211.86 indicates 8.3% potential upside, while the Street-high price target of $240 suggests that GOOGL could rally as much as 22.7% from here.
AI Stock #3: Amazon
Amazon (AMZN) has dramatically expanded its reach in recent years, evolving from an e-commerce giant to a major player in entertainment with services like Amazon Prime Video, Music, Prime Gaming, and Twitch. Beyond entertainment, the company has made significant inroads into cloud computing and AI through its Amazon Web Services (AWS) division, positioning itself at the forefront of the rapidly growing demand for cloud solutions and AI-driven technologies.
Valued at a market cap of approximately $2.39 trillion, shares of the mega-cap e-commerce company have outperformed the broader market over the past year, delivering gains of nearly 46%.
Following the release of Amazon's Q3 earnings report on Oct. 31, which sailed past Wall Street’s forecasts, shares of the retail giant closed up more than 6% in the next trading session. Net sales for the quarter surged 11% year over year to reach $158.9 billion, edging past Wall Street's forecast of $157.3 billion. Earnings also soared 49.4% annually to $1.43 per share, smashing Wall Street’s expectations by a 25.4% margin.
The North American division delivered a 9% year-over-year increase, generating $95.5 billion in sales. Meanwhile, its international division sales saw a 12% annual jump, reaching $35.9 billion. However, it was AWS that truly stole the show, posting 19% year-over-year growth and raking in $27.5 billion in revenue.
This remarkable surge further cements AWS' leadership in the rapidly growing cloud and AI markets. As of Sept. 30, Amazon's free cash flow surged to an impressive $47.7 billion, marking a dramatic leap from $21.4 billion in the same period last year. This impressive growth not only highlights Amazon’s strong financial foundation but also underscores its robust ability to generate cash, positioning the company for sustained growth and continued leadership in the tech industry.
Looking forward to Q4, the company expects net sales to range between $181.5 billion and $188.5 billion, indicating a year-over-year growth of 7% to 11%. Plus, operating income is anticipated to land between $16 billion and $20 billion, compared to $13.2 billion in Q4 of fiscal 2023. Over the longer term, analysts tracking Amazon expect the company’s bottom line to jump 86.3% year over year to $5.29 per share in fiscal 2024 and grow another 17.8% to $6.23 per share in fiscal 2025.
According to Jefferies analysts, Amazon dominates more than 50% of the cloud service provider market, positioning itself for substantial AI-driven revenue growth in the future. With this impressive market share fueling its AI potential, Jefferies raised its price target for Amazon to $275 from $235, maintaining its “Buy” rating on the stock.
AMZN stock has a consensus “Strong Buy” rating overall. Out of the 49 analysts covering the stock, 45 recommend a “Strong Buy,” three suggest a “Moderate Buy,” and only one analyst gives a “Hold” rating.
The average analyst price target of $246.39 indicates 8.5% potential upside, while the Street-high price target of $290 suggests that AMZN could rally as much as 27.7% from here.
