Investing.com - The quarterly earnings season has largely ended, and Goldman Sachs (NYSE:GS) has taken this opportunity to revisit its top 10 investing themes for 2024, and the stocks in focus in conjunction with these themes. Here are the first five topics:
The rise of generative AI
The rise of artificial intelligence, specifically Generative AI, and its potential to alter the consumer and enterprise computing landscape has been a key debate for investors for the past 12 months or so, analysts at the influential investment bank said, in a note dated May 17.
“In many ways, we see AI (its continued development and deployment across all aspects of the digital economy) as perhaps the most influential theme in decades and reminiscent of other prior major internet shifts (e.g. the shift from desktop [Web 1.0] to mobile [Web 2.0]),” said Goldman.
Stocks of publicly listed technology companies have tended to react promptly to perceived changes in strategic positioning resulting from the rise in Generative AI, Goldman added.
So far the debate around Generative AI has tended to center largely on the infrastructure layer - fulfillment of the Cloud Computing needs associated with this technology, involving largely Google (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN) - and the AI model/platform layer, where we view that only a select few (mainly Google, Microsoft (NASDAQ:MSFT) and Meta Platforms (NASDAQ:META)) have the scale of capital and technical resources to compete effectively.
However, the bank increasingly sees an opportunity for AI implementation to begin to drive meaningful impacts, both positively and negatively, across various aspects of consumer internet in 2024 - the application layer.
Investor debates are likely to center around about how Generative AI might alter go to market strategies; input costs; and the competitive landscape for any specific end market that disrupts more traditional desktop/mobile behaviors.
“Broadly, we expect Generative AI to produce a mix of product innovation and changed consumer behavior across many subsectors in our coverage,” Goldman added.
Blurring lines between advertising and e-commerce models
“We continue to see blurring lines between traditional advertising and e-commerce business models,” analysts at Goldman said, “with retail media capturing more budgets as traditional e-commerce platforms continue to build out their advertising offerings and digital advertising platforms continue to innovate around social commerce.”
That said, over the past few months, the bank has also observed a pivot in strategies by both e-commerce and digital advertising companies as it relates to this theme by embracing a partnership-type model versus trying to directly compete for traffic and transactions.
The bank continues to see that social commerce remains a key long-term secular theme within digital advertising, but expects digital ad platforms to further pivot their strategies and prioritize building better user experiences around shopping/commerce over the medium-term.
Goldman sees Google; Meta Platforms (in partnership with Amazon); and Pinterest (NYSE:PINS) (also in partnership with Amazon) as well positioned against this theme.
Turning to retail media, Goldman sees a long runway for Amazon to continue to grow its advertising business.
Elsewhere, Uber (NYSE:UBER) disclosed that advertising revenues hit a $900 million annualized run-rate in the fourth quarter of 2023 and remains on track to exceed its prior target of $1bn+ by 2024, while Lyft (NASDAQ:LYFT) is also focused on scaling its advertising business.
Rising competition in e-commerce landscape
The e-commerce landscape continues to reset towards a new normal of slowing demand, more moderate increases in online penetration rates, an ongoing shift of spending from goods to services, and a more discerning consumer.
Consumers appear to be consolidating their online spending around fewer platforms and refocus on price/selection/convenience - supporting gains from two main types of players: large aggregators with scale, leading delivery speeds, and competitive pricing, and platforms focused on low-cost items, including new Asia-based cross-border competitors.
The bank continues “to see Amazon as best positioned to produce a mixture of strong revenue growth and margin expansion with lower risk to estimates relative to smaller peers against an increasingly volatile consumer backdrop.”
Impact of AI on digital advertising
Artificial intelligence and automation in the context of digital advertising (across various aspects of the value chain) has been a key theme in recent months, potentially allowing smaller advertisers to adopt more sophisticated digital ad strategies and driving better targeting/returns on customer acquisition spend, as well as helping individual creators.
In some ways, this democratizing effect and the broader integration of AI into digital advertising could be an positive for smaller platforms as AI implementation improves underlying ad tech, drives deeper user engagement and/or enables improved performance for other digital channels.
This could offer upside over the long-term for mid-cap digital ad platforms, including the likes of Pinterest, Snap, DoubleVerify (NYSE:DV) and Yelp (NYSE:YELP).
That said, a potentially more likely outcome, is that the large-scaled, incumbent platforms (who are furthest along in terms of AI development & adoption - e.g. Google & Meta Platforms) disproportionately benefit from this theme, as these platforms have the scale of capital, engineering talent/resources and first-party data to remain AI leaders and that smaller platforms may have difficulty matching.
Shift of local commerce activity online
Local commerce continues to build in scale as consumers increasingly prioritize faster delivery speeds and as the industry invests to meet these expectations.
Traditional e-commerce companies and on-demand delivery platforms are increasingly competing head-on, as on-demand platforms expand into more traditional retail categories, and as both sets of players are focusing more resources to digitize large categories that were historically underpenetrated by online.
These new verticals are accretive to the growth of restaurant delivery businesses, with the likes of Uber and DoorDash (NASDAQ:DASH) seeing strong momentum.
“Both UBER and DASH have commented on these new verticals being important investment areas that while a drag to margins today (not yet adjusted EBITDA profitable) are displaying improving unit economics and strong growth and support mgmt’s confidence that these businesses have attractive long-term return profiles,” said Goldman.
Within more traditional eCommerce platforms, Amazon continues to expand its online grocery business and is increasingly consolidating its various brands/platforms in a more integrated offering for consumers.
Amazon sees room to drive further efficiencies from its logistics network which Goldman expects to remain an important tailwind to multi-year retail margins.