The gatekeepers of information technology budgets at major North American companies are ready to start spending again. Silicon Valley and investors in tech stocks, like the Club, are rejoicing. According to Piper Sandler’s 2024 survey of chief information officers, their top priorities over the next three years, unsurprisingly, are in the areas of cloud and artificial intelligence as well as cybersecurity. That bodes well for seven names in our portfolio that span those three mega-trend buckets. The CIOs told Piper that they see “noticeable improvement in enterprise IT spending optimism ahead of 2024, 2025, and 2026 with expectations of a slight acceleration” – a long-awaited thawing of budget optimization that’s pressured the top-line growth of the providers of the hardware, software and services that run and protect corporate America. In aggregate, the survey results point to a 60 to 70 basis point acceleration for IT spending growth in each of the next three years, with cloud spending growth much stronger at 150 to 300 basis points. Should that cloud budget boost materialize, it would mean that by 2026 the growth rate would be double what we’ve seen in 2023. Cloud and AI A rebound in cloud growth is expected thanks in large part the renewed focus and need to invest in artificial intelligence. In fact, 73% of the CIO respondents said they are “implementing now, plan to implement, or are testing generative AI.” Club name beneficiaries of AI spending would include Microsoft and Salesforce – Microsoft for its partnership with OpenAI and recently launched subscription Copilot AI assistant for its Office suite, and Salesforce for helping customers implement generative AI capabilities through its new Einstein GPT offering. In the broader cloud landscape, dominated by the Big 3 hyperscalers Amazon Web Services (AWS), Microsoft’s Azure, and Alphabet ‘s Google Cloud, the Piper survey results painted a mixed picture, with the CIOs “most positive” about AWS and “more mixed” on Google. However, we wouldn’t be surprised if IT decision-makers were taking another look at the Google Cloud following last week’s launch of the company’s new Gemini artificial intelligence model. While Google Cloud dropped out of the top five vendors expected to see spending increases next year, the survey might not take into full account last week’s Gemini launch. The top five in the survey, in order, were Microsoft, Amazon , Salesforce, IBM , and Oracle . While the CIO responses allude to the fact that Oracle is on the right path, it also seems to imply that a material sales increase resulting from AI demand is still a few quarters off. That’s too long in this market to stick around and why we exited Oracle on Tuesday morning. If customers are going to increase spending on the software side of AI, then the ones providing that service are going to need the capacity to do so and that leads right back to Club name Nvidia . Piper believes the graphics processing unit (GPU) accelerator market could be an over $400 billion opportunity by 2027 “with sustained double-digit CAGR [compound annual growth rate] growth.” In addition to Nvidia, which holds a greater than 70% share of the GPU accelerator market, the analysts called out fellow Club holding Broadcom as being ahead of competitor Marvell Technology “when it comes to enterprise adoption.” As members know, we think Broadcom has a very strong opportunity in AI thanks to its networking offering and stands to be a real player on the software side following the completion of its VMWare acquisition. Cybersecurity Security remains a top priority with 89% of CIO respondents in the Piper survey expecting to spend more, with more than a fifth estimating to spend at least 25% more than in 2024. The analysts called out Club name Palo Alto Networks as a key beneficiary. Palo Alto Networks has been able to grow through the IT spending pullback, thanks to its broad platform focus, which has made it a go-to for customers looking to consolidate spend without sacrificing cybersecurity. Bottom line Piper’s CIO survey points to further upside ahead for Microsoft, Salesforce, Amazon, Palo Alto Networks, Nvidia, Broadcom — and we think even Alphabet, despite the incredible 2023 we’ve seen for these stocks. While the path ahead will likely remain more of a grind, as Jim Cramer noted in his Sunday column , the magnitude of these tech stock moves makes material percentage gains harder to achieve. That’s why we continue to believe that a diversified portfolio is the best way to approach the market in 2024. (Jim Cramer’s Charitable Trust is long MSFT, CRM, GOOGL, AMZN, NVDA, AVGO, PANW. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
The gatekeepers of information technology budgets at major North American companies are ready to start spending again. Silicon Valley and investors in tech stocks, like the Club, are rejoicing.
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