Jefferies analysts raised the price targets on Microsoft (NASDAQ:MSFT) to $400 from $350 and Alphabet (NASDAQ:GOOGL) to $150 from $130 in a note Tuesday, following an AI deep dive.
Analysts, who maintained a Buy rating on both stocks, also added Microsoft to the firm's Franchise Picks list.
They wrote that the generative AI infrastructure still needs to be built, and "while generative AI services such as ChatGPT are available, more work needs to be done to allow them to support mass usage at scale."
"There is still intense competition among a very long list of LLMs. They all need a massive infrastructure of compute & storage to train, fine-tune, and run their models," analysts wrote. "The cost of such infrastructure can easily run into $ millions."
Jefferies believes this favors enablers and AI arms dealers such as MSFT and GOOGL, with hyperscalers "best positioned to provide this infrastructure, which is cheaper to rent than buy."
"MSFT has taken pole position in what is likely to be a decade-long industry evolution," analysts said, adding that "Google is not dismissing the potential of AI/ML; instead, it is already a leader in AI/ML tech."