The artificial intelligence wave continues to wash over Wall Street, with analysts naming a host of stocks this week that offer more upside. Analysts say these stocks have double-digit growth potential and investors should buy shares now. CNBC Pro combed through Wall Street research to find stocks that are best positioned to gain from AI. They include: Microsoft, Wayfair, Pearson and Broadcom. Wayfair DA Davidson left a recent investor meeting with increased conviction in shares of online furniture and household goods retailer Wayfair, investment bank said recently. “We have a high degree of confidence in management’s ability to achieve double digit top line growth and at least a 10% adj. EBITDA margin, in a normalized environment for the home category,” analyst Tom Forte wrote. Davidson admitted that the home category is displaying some degree of uncertainty, but Forte says he has confidence in Wayfair management’s ability to deliver. “This confidence comes from management’s track record of setting and achieving its financial targets over the long-term,” he added. Wayfair is a also long term beneficiary of AI, according to the firm. Forte called Wayfair management extremely “tech proficient” and said the stock has more room to run despite shares climbing 116% this year. Pearson The British-based multinational education company is a “self-help transition” story, Morgan Stanley said recently. The bank said the threat of AI was overdone and stood by its overweight rating on Pearson stock. Analyst Luke Holbrook and team see margins getting better with a valuation that’s “undemanding.” Shares are down 1.4% this year. “Over time, we think generative AI will become ubiquitous, and therefore believe that how companies such as Pearson build solutions on this technology will be a key differentiator,” he said. In addition, Pearson’s three emerging businesses, including Pearson+, English Language Learning and Workforce Solutions, are poised to “demonstrate double-digit growth,” he said. What’s more, the company’s cost savings programs are firmly in place with divestments and restructuring largely over, bolstering Morgan Stanley’s bullish thesis. Investors should take advantage of the buying opportunity, Holbrook added. Broadcom The semiconductor company hasn’t been able to match the success of the “AI-levered upside” that Nvidia is delivering, according to Benchmark analyst Cody Acree. Still, Acree is standing by Broadcom following its most recent quarterly report. Broadcom reported a top and bottom line beat in late August. Benchmark called the quarterly results solid, noting that forward financial guidance was especially encouraging. “Double-digit year over year growth,” shows increased demand for Broadcom’s AI-driven products, he added. Acree says Broadcom is making progress tying its semiconductor revenue to the tech industry’s adoption of artificial intelligence. Notably, the stock is up over 52% this year, but Acree says it still has room to run, saying Broadcom is well placed “to participate in macro AI industry trend.” Wayfair- DA Davidson, buy “We have a high degree of confidence in management’s ability to achieve double digit top line growth & at least a 10% adj. EBITDA margin, in a normalized environment for the home category. … .This confidence comes from management’s track record of setting and achieving its financial targets over the long-term. … .there has been a lot of hype about the potential for AI to generate sales growth and margin expansion and we consider Wayfair to be one of the most technology proficient e-commerce companies in the market…” Microsoft- Citigroup, buy “We rate MSFT Buy based on our view that cloud-related revenue streams will enable growth to continue at double-digit levels, with operating margin expansion. In the Azure business, we see Generative AI to usher in a next era of growth following the pandemic that catalyzed customer adoption and acceleration in consumption. The launch of Generative AI/Co-Pilot features have enhanced digital productivity and collaboration is seeing an enduring impact, driving incremental demand and adoption for the productivity business.” Broadcom- Benchmark, buy “While the Street reacted negatively to AVGO’s 3Q results and 4Q guidance that fell short of duplicating the massive AI-levered upside that NVDA posted [earlier], as AVGO’s stock sold off as much as 5% in after-hours trading, we believe AVGO delivered a very solid earnings report and gave equally encouraging guidance. Its July quarter sales of $8.876 billion, was $24 million ahead of the Street consensus & was up 5% sequentially and 2% annually, with strength seen from continued double-digit year-on-year growth from its Hyperscale Data Center customers. … .Well Set to Participate in Macro AI Industry Trend.” Pearson – Morgan Stanley, overweight “A self-help transition story. … .Overweight with 1) margins improving; 2) concerns around the AI threat overdone; (3) emerging businesses doubling to 30% of the revenue mix by 2027e, & valuation undemanding. … .Risk that generative AI poses to the Higher Ed business is overdone, as large language models (LLMs) trained on the open internet do not provide students with accreditations or the reliable answers of a Pearson textbook. Emerging businesses demonstrate double-digit growth, backed by cash flows from the core A & Q business.”
