The Jack Ma-backed Ant Group Co. has unveiled a range of AI services as part of its plan to open up new business opportunities after years of regulatory scrutiny.
TakeAway Points:
- Ant Group, supported by Jack Ma, introduced AI services like Zhixiaobao to spur growth after regulatory scrutiny and integrate with Alipay’s one billion customers.
- The sentiment of the AI market will be greatly influenced by Broadcom’s next earnings report; the company recorded $3.1 billion in revenue from AI last quarter and expects to generate over $11 billion in revenue by the end of the fiscal year 2024.
- With over 90% of experts recommending a buy and an anticipated 25% price rise, Broadcom is a preferred company among analysts due to its diversified business and lower valuation.
Ant Group’s AI project
The fintech company unveiled an AI “life assistant” app named Zhixiaobao at the Inclusion Conference on the Bund in Shanghai. This app is designed to help users with various tasks such as ordering meals, hailing taxis, and booking tickets, all integrated within Ant’s mobile payments service Alipay, which boasts 1 billion users.
In addition to Zhixiaobao, Ant Group launched three other AI-driven platforms. One platform allows merchants to create customized AI service agents on Alipay, another assists insurance companies in answering customer queries in real-time, and the third is a healthcare manager that connects users to services like doctor and hospital recommendations. These platforms are powered by Ant’s large language model BaiLing, which received government approval last year to offer services to the public.
Ant Group’s pivot to AI comes after Chinese authorities halted its initial public offering over three years ago, which would have been the world’s largest IPO. The company has since restructured its units to comply with financial regulations, resulting in a 10% drop in profit for the March 2024 quarter. The company is now banking on technological and AI advancements to recover from the regulatory clampdown that has impacted its profit growth and limited its online lending activities.
AI Prospects for Broadcom
As skepticism about the artificial intelligence trade grows on Wall Street, investors are looking to Broadcom Inc.’s upcoming earnings report for reassurance. The chipmaker, which is set to report after the market close, could potentially confirm strong AI demand, helping to calm investor nerves. Last week, Nvidia Corp.’s results did not meet high expectations, leading to a selloff in AI-exposed stocks. Concerns about when companies’ investments in AI will start to pay off have been a recurring theme this earnings season.
“Broadcom is well positioned to ride to the market’s rescue,” said Chris Barto, senior investment analyst at Fort Pitt Capital Group. He noted that Broadcom is well-managed and diversified, trading at a lower valuation than most AI-exposed stocks. Broadcom’s revenue from AI products reached a record $3.1 billion last quarter, making up about a quarter of its total sales. For fiscal 2024, CEO Hock Tan predicted AI-related sales of more than $11 billion, a forecast that analysts at Citigroup expect to be raised.
“The first generation of AI spending was on processing ability, chips, and servers, but the next wave will be in connecting the data centers, and that’s where Broadcom fits in,” said Aash Shah, senior portfolio manager at Summit Global Investments. Broadcom’s shares have risen 38% this year, making it one of the top performers on the Philadelphia Stock Exchange Semiconductor Index, which is up 14%. Despite this gain, Broadcom’s shares are still cheaper than other AI plays, trading at about 26 times estimated earnings.
Analyst Opinion and Market Sentiment
Broadcom’s diversified business model and lower valuation compared to other AI-focused companies make it a favored stock on Wall Street. “Relative to the more pure-play AI names, Broadcom behaves a bit defensively,” said Melissa Otto, head of TMT research at S&P Global Visible Alpha.
“It trades at a lower valuation and has more diversified businesses, although it is also hooked into this fantastic AI theme that is seeing a lot of growth.”
Nearly 90% of analysts tracked by Bloomberg recommend buying Broadcom stock, with the average price target implying gains of more than 25% over the next twelve months. “It may not offer the upside you see elsewhere, but it doesn’t carry the downside risk either,” Otto added. “It’s an AI play for those who don’t want a wild one.”
