2023 was the year of AI. OpenAI's ChatGPT took the world by storm and shares of AI chipmaker Nvidia (NVDA) soared. So how should investors play the sector in 2024? Evercore ISI Head of Internet Research Mark Mahaney and Piper Sandler Equity Research Analyst Brent Bracelin give Yahoo Finance Live their best ideas.

Mahaney likes Amazon (AMZN), Alphabet (GOOG, GOOGL), and Meta Platforms (META). Why? "They've got so much data to work with and they also have the capital to be able to invest," Mahaney explains, adding that these companies were investing in AI long before 2023.

Bracelin is favoring Microsoft (MSFT) saying this is Microsoft's "iPhone moment." Bracelin also likes Adobe (ADBE) and HubSpot (HUBS) for how they plan to monetize their AI products.

Watch the video above to find out why Bracelin also thinks database stocks could be a "dark horse."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

JOSH LIPTON: It is good to see both of you. Mark, let's just pick up right there with AI. And, obviously, Mark, there's been a lot of companies, companies you cover and know really well, that have been putting a lot of time, and effort, and money, Mark, into AI. I'm curious, within your coverage universe, Mark, are there certain companies that are maybe better positioned than others to really benefit from the monetization of generative AI, Mark? Is it Amazon, Alphabet, Meta? How do you see it?

MARK MAHANEY: You just listed the three companies I was going to pitch.

[LAUGHTER]

You stole my thunder, Josh. So it's nice to see you again. And, let's see, yeah, those are the three. Why would those three be the companies? Because they've got so much data to work with, and they've also got the capital to be able to invest, and they have been investing for a decade or seven years in different versions of AI. Amazon's been using machine learning to figure out how to best position packets and parcels within their distribution centers for a long time. We do have a kind of step up in the capabilities of artificial intelligence, there's no doubt about that. I think both as an employer and as a revenue recipient, I actually think Amazon's really interesting.

Your second started off highlighting the two companies that everybody refers, to NVIDIA and Microsoft, and then maybe Google get some credit for it. But Amazon usually doesn't show up in the conversation, yet they are the leading cloud vendor, 50% bigger than Azure and our-- Microsoft's Azure. And our point of view all along has been generative AI revolution won't be televised. It won't be on-prem, it's going to be in the cloud.

And so when people look for ways to really use these large language models, you're going to need storage capabilities, you're going to need compute capabilities, you're going to need infrastructure, and that's where AWS is 60% market share. So I think Amazon's really kind of the best derivative play off this. Probably I'd put Meta-- I'm sorry, Google 2, and I'd put Meta 3 because I think they've had a wonderful number of applications that people have underappreciated, ways they've used AI. Already improve the experience for both users and advertisers.

JULIE HYMAN: Interesting stuff that all of them have a little something for everyone. I want to turn to you, Brent, because sort of the most obvious one in your coverage universe is Microsoft, right? It's been the loudest with their AI, with what's happened with OpenAI. Is that the obvious play here? Or are there others that people should be looking at?

BRENT BRACELIN: Certainly, the obvious play, but for obvious reasons. The way I think about Microsoft, this is their iPhone moment. It was obvious that Apple had an opportunity to capitalize on the iPhone. This is Microsoft's opportunity. Microsoft AI is about a $2 billion business in year 1. We think this is going to be a $10 billion business for Microsoft over the next two years. So we're just in the early stages of the monetization for Microsoft.

But that's not the only company in the application space that is leveraging these large language models. Adobe, for example, has done a very good job in a very short period of time monetizing it. There's more stuff coming next year from Adobe. They're coming out with an AI assistant for their Acrobat products and their reader products. So I think there's a lot of interesting things that Adobe is doing, as well as HubSpot, smaller application company, but they're also in a really unique position. They have about 15 different AI features and functions. And they'll be in the early stages of monetizing some of that next year.

I would also watch some of the data players. I think outside of the infrastructure as a service players, these database layers could be the dark horse relative to indirect beneficiaries of AI, so MongoDB, Snowflake, these are database layer technologies that actually could see a indirect tailwind as some of these big applications start to get deployed.