How to invest in big data.
In the late 1990s and early 2000s, the internet completely changed the way the business world operates and created a tremendous amount of wealth for investors who picked early winners. The next major technological transition for global businesses will be collection and analysis of data using artificial intelligence. The so-called “big data” revolution will help companies streamline their businesses like never before. But much like the dot-com boom, not all big data stocks will end up winners. Here are seven big data, automation and AI winners and losers chosen by the Bank of America analyst team.
Winner: Telefonica S.A. (ticker: TEF)
Telefonica is the largest telecom company in Spain and also has assets in Germany, the U.K. and Latin America. Telefonica launched its LUCA big data services unit for corporate clients in 2016. LUCA provides services such as data management, data science, business insights and other analysis and infrastructure tools. Analyst David Wright says Telefonica’s improving cash flow growth is a bullish catalyst and the stock’s 5.8 percent dividend is safe. Bank of America has a “buy” rating and $12.54 price target for TEF stock.
Winner: Splunk (SPLK)
Splunk may be the purest play on big data in the market today. Splunk is a software platform specializing in collecting, sorting, searching and analyzing machine-generated data. The more connected and automated the world gets, the more data connected devices will be generating. Analyst Kash Rangan says Splunk’s transition to a subscription-based recurring revenue model is a positive move for the company. In the most recent quarter, Splunk reported 35 percent billing growth, 39 percent revenue growth and 43 percent software revenue growth. Bank of America has a “buy” rating and $135 price target for SPLK stock.
Winner: Microsoft Corp. (MSFT)
Microsoft and its Azure cloud platform is at the epicenter of the big data and AI revolution. The Microsoft AI platform provides customers with tools such as the Bot Framework, Cognitive Services and Azure Machine Learning. Its Azure Databricks are designed to make analyzing large volumes of data distributed across computer structures as simple as possible. Rangan says Microsoft has masterfully transitioned its business away from a PC and server component-driven model, and shareholders will reap the benefits. Bank of America has a “buy” rating and $136 price target for MSFT stock.
Winner: Workday (WDAY)
Workday is a software-as-a-service provider focused on analyzing and managing human capital and finances for corporate customers. Workday helps companies gather and analyze internal and external data and identify opportunities for strategic changes and innovation in human resources. Rangan says Workday’s total addressable market will expand from $80 billion in 2018 to $115 billion by 2020. Workday’s differentiated platform should help it capture a large share of the market and grow revenue at between 20 and 30 percent annually in the long term. Bank of America has a “buy” rating and $171 rating for WDAY stock.
Winner: Facebook (FB)
Facebook has taken a lot of heat for its mismanagement of customer data in 2018. However, Facebook’s massive user base of 2.23 billion Facebook users, 1.5 billion WhatsApp users, 1.3 billion Facebook Messenger users and 1 billion Instagram users create a mind-boggling data collection and analysis opportunity. Analyst Justin Post says Facebook will overcome near-term headwinds such as declining Facebook platform user engagement, removal of third-party data access, and data regulation and rebound in 2019. Bank of America has a “buy” rating and $190 price target for FB stock.
Loser: Tesla (TSLA)
Tesla has gone all-in on developing electric, autonomous vehicles, but it has also reportedly fallen behind Alphabet (GOOG, GOOGL) subsidiary Waymo in the AV development race. Analyst John Murphy says Waymo has driven more than 8 million fully autonomous test miles on public roads in 2018, collecting critical data needed to improve mobility and ensure passenger safety. According to Tesla management, the company is developing its AV technology behind the scenes, and it not yet logging test miles on public roads. Bank of America has an “underperform” rating and $220 price target for TSLA stock.
Loser: Twitter (TWTR)
Twitter has more than 335 million users on its platform, but it has struggled to compete with Facebook and Google in monetizing its user base and capitalizing on its access to troves of data. Twitter’s strategies have produced inconsistent earnings and user growth, and the company can’t seem to get its advertising business on stable footing. Even after a huge 21 percent sell-off following its last earnings report, Post says TWTR stock still trades at a significant enterprise multiple premium to its peer group. Bank of America has an “underperform” rating and $27 price target for TWTR stock.
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