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As artificial intelligence (AI) continues to revolutionize industries, the need for robust AI infrastructure becomes crucial to unlocking its full potential. The global AI infrastructure market is primed for explosive growth, with an impressive 30.4% compound annual growth rate (CAGR) forecasted from 2024 to 2030.
Plus, in a recent bullish note, Oppenheimer analyst Timothy Horan highlights that the fierce competition among hyperscalers to build cutting-edge AI models is causing AI infrastructure shortages, driving up capital expenditures and fueling solid cloud growth. As companies pivot away from outdated IT, they're investing in comprehensive hyperscale bundles that integrate advanced cybersecurity and networking features.
With earnings season now in full swing, Horan identifies Microsoft Corporation (MSFT), Cloudflare, Inc. (NET), and C3.ai (AI) as “Top Picks” in advancing AI infrastructure. According to the analyst, these companies are well poised to benefit as enterprises ramp up spending on cloud migration and AI technologies. Here’s a closer look at these three names.
Stock #1: Microsoft
With a staggering market cap of around $3.2 trillion, Washington-based Microsoft Corporation (MSFT) is a major force in the technology sector. Known for powerhouse products like Microsoft Office and Teams, the company is now supercharging its game with AI. Microsoft is weaving cutting-edge AI into everything from Windows and Xbox to Microsoft 365 and Azure AI, delivering billions of smart experiences daily.
Shares of this mega-cap stock have climbed roughly 26% over the past 52 weeks, overshadowing the broader S&P 500 Index’s ($SPX) return of 19.5% over the same time frame.
With an impressive history of 19 years of consecutive dividend increases, Microsoft is dedicated to maximizing value for its shareholders. In fiscal Q3, the tech giant showered investors with around $8.4 billion through share buybacks and dividends. On June 12, the company announced a quarterly dividend of $0.75 per share, payable to its shareholders on Sept. 12. Its annualized dividend of $3.00 per share translates to a 0.70% dividend yield.
Microsoft released its fiscal Q3 earnings results on April 25, which sailed past Wall Street’s top and bottom-line predictions. The company's total revenue surged 17% year-over-year to reach $61.9 billion, narrowly edging past Street estimates. Microsoft's EPS skyrocketed 20% from the previous year to $2.94, surpassing projections by a 4.6% margin.
The company is slated to announce its fiscal Q4 earnings results after the market closes on Tuesday, July 30. Wall Street is looking for GAAP earnings of $2.90 per share on $64.44 billion in revenue, and the company’s guidance will also be closely watched.
Analysts tracking Microsoft project the company’s profit to jump almost 20% year over year to $11.77 per share in fiscal 2024 and grow another 11.9% to $13.17 per share in fiscal 2025.
Overall, MSFT stock has a consensus “Strong Buy” rating. Out of the 38 analysts covering the stock, 34 recommend a “Strong Buy,” three suggest a “Moderate Buy,” and one has a “Hold” rating.
The average analyst price target of $501 indicates a potential upside of 17.2% from the current price levels. The Street-high price target of $600 suggests that MSFT stock could rally as much as 40.4%.
Stock #2: Cloudflare
Valued at a market cap of roughly $26.3 billion, California-based Cloudflare, Inc. (NET) is revolutionizing the Internet with its leading connectivity cloud platform. By providing a unified suite of cloud-native products and developer tools, Cloudflare enhances speed, security, and efficiency for organizations of all sizes while cutting complexity and costs. Leveraging one of the world's largest and most interconnected networks, Cloudflare shields its clients from billions of online threats daily.
Shares of Cloudflare have gained 16.3% over the past 52 weeks, and are down 6.5% so far in 2024.
On May 2, Cloudflare announced its Q1 earnings results, which beat Wall Street’s forecasts on both the top and bottom lines. During the quarter, the company generated total revenue of $378.6 million, up 30% year-over-year. Adjusted earnings per share doubled year over year to $0.16, and free cash flow jumped to $35.6 million, up from $13.9 million a year earlier.
Despite the Q1 beat, NET fell sharply after earnings as investors reacted to the company’s conservative guidance. For Q2, scheduled to be reported after the market closes this Thursday, Aug. 1, analysts are looking for an adjusted profit of $0.14 per share on revenue of $394.5 million.
Oppenheimer’s Horan notes that Cloudflare is rising as the leading-edge platform, and has high hopes for guidance this time around, predicting that NET will “beat by 100bps and guide up by 200bps for the year.”
Overall, NET stock has a consensus “Moderate Buy” rating. Out of the 29 analysts covering the stock, eight recommend a “Strong Buy,” two suggest a “Moderate Buy,” 16 advise a “Hold,” one suggests “Moderate Sell,” and the remaining two have a “Strong Sell” rating.
The average analyst price target of $90.33 indicates a potential upside of 17.3% from the current price levels. The Street-high price target of $135 suggests that NET stock could rally as much as 75%.
Stock #3: C3.ai, Inc
Headquartered in Redwood City, California, C3.ai, Inc. (AI) is a leader in enterprise AI, offering a comprehensive suite of integrated solutions. Its C3 AI Platform provides a complete toolkit for creating and managing AI applications, while C3 AI applications deliver industry-specific SaaS solutions that drive global digital transformation. The company’s C3 Generative AI suite brings cutting-edge, domain-specific AI innovations to enterprises.
Valued at $3.5 billion by market cap, C3.ai has declined by almost 31% over the past 52 weeks, and is down 4.3% on a YTD basis.
Following the company’s better-than-expected fiscal Q4 earnings results after the close on May 29, shares of C3.ai jumped 19.4% in the next session. Revenue of $86.6 million skyrocketed 20% year over year, and blew past Wall Street’s estimate of $84.4 million. This strong top-line performance was mainly fueled by a 41% annual jump in subscription revenue, which dominates at 92% of total revenue.
C3.ai also trimmed its adjusted loss per share to $0.11, beating estimates by a 63.7% margin. With a substantial cash reserve of $750.4 million and positive free cash flow of $18.8 million as of April 30, C3.ai’s financial position remains strong.
Commenting on the Q4 performance, CEO Thomas M. Siebel said, “Demand for Enterprise AI is intensifying, and our first to market advantage in Enterprise AI positions us well to capitalize on it… Our federal revenue grew by more than 100% for the year. The interest we are seeing in our generative AI applications is staggering.”
For Q1 of fiscal 2025, management projects total revenue between $84 million and $89 million. For the full year, total revenue is anticipated to land between $370 million and $395 million.
AI stock has a consensus “Hold” rating overall. Out of the 14 analysts covering the stock, four recommend a “Strong Buy,” six suggest a “Hold,” two advise a “Moderate Sell,” and the remaining two maintain a “Strong Sell” rating.
The average analyst price target of $29.33 indicates a potential upside of 8.1% from the current price levels. The Street-high price target of $40 suggests that the stock could rally as much as 47.5%.
On the date of publication, Anushka Mukherji did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
