Major Bank Ratings | CMB International: AI investments by leading tech companies have a controllable impact on profits; bullish on Microsoft, Google, Amazon, etc.

Glonghui, June 22 — CMB International released a report stating that, reviewing the first quarter results of overseas leading TMT companies, it observed that revenue and profit expectations for leading technology companies for fiscal 2026 have been further revised upwards, thanks to strong AI computing power demand and sustained AI empowerment of core businesses. However, several companies have also raised their capital expenditure guidance, leading to short-term pressure on free cash flow. In the medium to long term, the bank believes that the profit impact of AI investment on leading technology companies is manageable, and that overall operating profit growth for fiscal 2027/2028 is still expected to be maintained above 20%. Although the free cash flow ratio is under short-term pressure due to capital expenditures, a turning point is likely to occur from fiscal 2028, enabling it to rise again.

The bank also indicated that, after the results, the overall valuation of the software sector has improved, with robust upward revisions to profit expectations. However, performance within the sector remains differentiated: the enterprise application software sector has performed steadily overall, while the infrastructure software sector—benefiting from AI trends—has shown more positive performance. Looking ahead, the bank believes the key to fundamentals and share price will be whether companies can achieve sufficiently high returns and ROIC in the wave of AI investment, thus supporting resilient short-term results as well as sustainable mid- to long-term profit growth. Taking into account current fundamentals and valuation levels, the bank recommends Microsoft, Google, Amazon, Palo Alto Networks, and Meta.