Wall Street’s concern about an AI bubble may be premature, according to Evercore ISI’s Julian Emanuel, who argues that the current artificial intelligence (AI) rally has “a long way to go.” In a recent client survey, 67% of respondents believe a bubble is forming in AI stocks, but Emanuel estimates only a 25% chance that the S&P 500 ($SPX) overshoots its 2026 target of 7,750 and reaches 9,000.
He draws parallels between today’s AI adoption rate of 25% and the early internet in 1996, when markets continued rallying for years after Alan Greenspan’s famous “irrational exuberance” warning.
Current sentiment and gains lag far behind dot-com extremes, and this perhaps suggests more upside is on the table.
Evercore advises investors to focus on the “Magnificent Seven” AI leaders by using options for asymmetric upside while expecting volatility similar to the 1990s technology boom.
Here are the three top names:
Amazon (AMZN) currently owns the largest cloud computing division, which is Amazon Web Services (AWS). Q2 AWS revenue grew 17.5% year-over-year (YoY) to $30.9 billion. It is constituting a larger and larger share of the total business.
There has been intensifying competition from Azure and Google Cloud, but there is enough momentum in the AI market to keep AWS growing. A rising tide in AI is likely to lift all “boats” in the cloud computing industry.
It’s not just AWS that can cause AMZN stock to surge. The company is investing in Anthropic, which is one of the premier private AI LLM companies. Anthropic’s AI products are widely considered to be the most cutting-edge for coding purposes.
Analysts have a mean price target of $265.19. Of 55 analysts, none have a “Sell” rating, with 47 “Strong Buy” ratings, six “Moderate Buy” ratings, and two “Hold” ratings. The price target implies 16.5% upside.
Microsoft (MSFT) is the company that indirectly began the current AI revolution with its prudent investments into OpenAI before ChatGPT was even released. Its first investment into OpenAI was back in 2019, with a $1 billion investment that was followed by a massive $10 billion in 2023.