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CMB International: Impact of AI Investment on Leading Tech Companies' Profits is Manageable, Optimistic about Microsoft, Google, Amazon, and Others

On June 22, CMB International released a report stating that after reviewing the first-quarter performance of leading overseas TMT companies, it observed that the revenue and profit expectations for leading tech companies in the fiscal year 2026 have been further revised upwards, driven by strong demand for AI computing power and the continuous empowerment of AI in core businesses. However, several companies have also raised their capital expenditure guidance, leading to short-term pressure on free cash flow. From a medium to long-term perspective, the bank believes that the impact of AI investment on the profits of leading tech companies is manageable, with overall operating profit growth expected to maintain above 20% in the fiscal years 2027/2028. Although the free cash flow ratio is under short-term pressure due to capital expenditures, it is expected to reach an inflection point and trend upwards starting from the fiscal year 2028. The bank noted that the performance of the software sector has seen an overall valuation recovery, with profit expectations being robustly revised upwards; however, the overall performance within the sector remains relatively differentiated. The enterprise application software segment has shown stable performance, while the infrastructure software segment has benefited more positively from AI trends. Looking ahead, the bank believes that the key factors determining fundamentals and stock prices will be whether companies can achieve sufficiently high returns and ROIC in the wave of AI investment, thereby supporting stable short-term performance and sustainable growth in medium to long-term profits. Based on the current fundamentals and valuation levels, the bank recommends Microsoft, Google, Amazon, Palo Alto Networks, and Meta.

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