Here are the biggest artificial intelligence (AI) analyst moves for this week.
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Microsoft Downgraded by D.A. Davidson amid shrinking lead in AI & cloud
Analysts at D.A. Davidson downgraded Microsoft (NASDAQ:MSFT) from Buy to Neutral on Monday, maintaining their price target at $475.
The firm pointed to growing competition in artificial intelligence as the reason for the review, noting that rivals have largely eclipsed Microsoft’s AI capabilities. This, they argue, “reduces the justification for the current premium valuation.”
Microsoft stock has jumped 92% since January 2023, significantly outperforming the S&P 500, which has gained 49% over the same period.
But now, analysts at the D.A. Davidson believe Microsoft’s lead in cloud and artificial intelligence is waning. Amazon (NASDAQ:AMZN) Web Services (AWS) and Google (NASDAQ:GOOGL) Cloud Platform (GCP) have shown similar growth rates, which has closed the gap in cloud business expansion.
“Our new proprietary semiconductor hyperscaler analysis shows that AWS and GCP are well ahead in deploying their own silicon in their data centers, which gives them a significant advantage over Azure going forward,” they said in a note.
Microsoft’s Maia chips are still several years behind Amazon and Google, with their current use limited to Azure OpenAI Services workloads. This, according to D.A. Davidson, puts Microsoft in a difficult position in the competitive data center landscape.
Another concern expressed by analysts is Microsoft’s reliance on Nvidia ( NASDAQ:NVDA ) for data center operations, which could lead to a shift in value from Microsoft shareholders to Nvidia shareholders. Microsoft’s operating margins are under pressure from rising data center capital spending, which has jumped from 12% to 21% of revenue.
“This is a higher rate of growth compared to Amazon and Google, a result of Microsoft’s greater reliance on NVIDIA,” the analysts continued.
“Every year that Microsoft overinvests at this rate, it will cumulatively reduce margins by at least 1 percentage point. Microsoft will have to lay off ~10,000 employees for each year of overinvestment to offset the margin burden.”
The company also raised concerns about the sustainability of Azure’s revenue growth, hinting that they could be inflated by contributions from OpenAI’s self-funded revenue.
Analysts comment on Meta’s new product and AI announcements
This week, Meta Platforms (NASDAQ:META) kicked off its developer-focused event, Meta Connect, showcasing its latest hardware and software innovations.
One of the main points of reference was the presentation of the Quest 3S, the newest virtual reality (VR) headset from Meta’s Reality Labs division, which is offered at a more affordable price than its predecessor.
Meta also unveiled a new prototype of augmented reality (AR) smart glasses and revealed updates to its Meta AI chatbot. The chatbot now includes a voice interaction feature, allowing users to participate through both spoken and written commands.
Check out what analysts had to say after the event:
Citi: “Meta’s new AI products, features and devices announced at Connect ’24 make us increasingly confident that its product innovation can deliver increased engagement and profitability as the return on investment in AI continues to expands”.
Bank of America: “We believe AI Glasses have much broader market potential than VR Googles. While Meta’s spending still seems hard to justify, the glasses may give long-term investors some renewed optimism about Meta’s chance to be at the forefront of the next generation of personal computing devices.
“Most importantly, the company appears to be successfully innovating around new AI capabilities, driving usage growth that may offset concerns about bottom-line value, and we see Meta as the leading AI choice in the consumer internet.”
Google’s business adoption of AI is curveballing, says JMP Securities
Analysts at JMP Securities said earlier this week that Google’s AI adoption in businesses is accelerating, driven by increased use of the Gemini platform.
“We’re seeing signs that enterprise adoption of AI is slowing.”
At Google’s ‘Gemini at Work’ event, the tech giant highlighted a 35x increase in usage of the Gemini platform, with 75% of daily users reporting improved work quality due to AI. JMP Securities sees this as a clear signal of an inflection point in enterprise adoption of AI.
The firm credits Google (NASDAQ:GOOG) for removing barriers to AI adoption by achieving compliance with key standards such as SOC 1, 2, 3 and HIPAA, and forging integration partnerships with major companies such as Salesforce (NYSE:CRM ), SAP, Microsoft and Oracle (NYSE:ORCL).
These efforts have resulted in 85 new enterprise use cases in the past six months, leading to significant cost savings and revenue growth opportunities for businesses.
JMP Securities also highlighted the growing importance of artificial intelligence as companies focus on technological transformation.
Integrating Google’s AI solutions with both first-party and third-party data improves accuracy and functionality, further enhancing the use of AI in business. The firm noted that the use of productive AI by enterprises has increased by 15 times, while the adoption of AI agents has increased by 6 times.
Micron’s post-earnings rally to continue: MizuhoMicron Technology ( NASDAQ:MU ) saw its stock jump nearly 15% on Thursday after reporting an upbeat first-quarter revenue outlook on strong chip demand and pricing high-bandwidth memory (HBM), which are vital to the rapidly growing field of creative artificial intelligence.
The chipmaker, a key supplier to Nvidia, added about $15 billion to its market capitalization as its stock rose about 27% over the past three weeks.
“It’s really not a good day to be short in memory and semi-cap stocks,” noted a Mizuho analyst after the report was announced and Micron’s stock jumped.
“For memory bears and semi-cap gear, I’d advise you not to go down in a ball of flames and cover the shorts and consider going long on some key semi-earning stocks, even if they don’t give you like MU and not willing to chase that 15%+ tear at open,” the analyst added.
“Personally, I think the MU rally will sustain and pull many of those long/short halves flipping from short to long, at least for the near term.”
Micron is shifting its focus from lower-margin segments like PCs and smartphones to higher-margin, high-value products like HBM chips for servers and data centers.
Mizuho highlighted that Micron’s management is confident that their technology leads in both power and performance, outperforming rivals such as SK Hynix and Samsung (KS:005930) .
Piper Sandler upgrades Accenture to Buy after results
Following Accenture’s (NYSE:ACN) latest earnings report this week, analysts at Piper Sandler upgraded the stock from neutral to overweight, raising their price target to $395 from $329.
Despite Accenture’s overall FY25 forecast coming in line with expectations, analysts are bullish on several underlying metrics.
The company’s guidance for the first quarter beat consensus, with strong bookings of $20.2 billion and a book-to-bill ratio of 1.2x. In addition, Accenture’s workforce expanded significantly, adding 24,000 employees, a 3.2% increase over the previous quarter.
“The outlook for FY25 looks attractive as full-year guidance assumes no improvement beyond Q1,” the analysts wrote.
One of the key growth drivers was the Generative AI (GenAI) segment, where bookings and revenue increased approximately tenfold. In FY24, GenAI bookings reached $3bn, with revenue of $900m, up from $300m and $100m respectively.
“Importantly, the company is starting to see some scaled-up GenAI projects—and an increase in the number of data projects and security-related work ($9 billion revenue, up +23%),” Piper Sandler’s team notes.
“Overall, we believe ACN’s ownership is attractive given improving top-line sizes, a conservative driver, and being a key beneficiary of GenAI-related work.”
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Reference;
Karaahmetovic, V. (2024) 5 big analyst AI moves: Microsoft downgraded, Micron rally ‘will sustain’ By Investing.com, Investing.com. Investing.com. Available at: https://www.investing.com/news/stock-market-news/5-big-analyst-ai-moves-microsoft-downgraded-micron-rally-will-sustain-3637886 (Accessed: 29 September 2024).
