Investing.com — Here are analysts’ biggest trends in the artificial intelligence (AI) space this week.
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UBS downgrades Tesla (NASDAQ:) to sell due to valuation review and rising AI costs
Analysts at UBS downgraded Tesla shares to sell from neutral on Friday, while raising their price target to $197 from $147.
The adjustment is intended to reflect a reassessment of Tesla’s valuation amid market expectations for growth, particularly in the AI sector.
UBS acknowledged Tesla’s diversification beyond auto manufacturing, citing strong growth in its energy and fully autonomous driving (FSD) divisions as supporting factors.
But expectations for Tesla’s core auto business are faltering, analysts warn. Tesla’s valuation has historically priced in premiums for potential growth in a variety of areas, they say. Still, accurately valuing those “options” is a challenge.
Recently, Tesla’s premium has grown due to increased interest in AI: after valuing various segments of Tesla, UBS concluded that the current stock price suggests that future growth initiatives are worth more than $500 billion.
Analysts say Tesla would need to achieve a future value of $1 trillion within five years to justify current share price levels, and even more than that, to support a buy rating.
The company also expressed concerns about the high cost of AI investments, the unpredictable pace of improvement, and the long-term nature of potential returns. If market expectations for AI fade, Tesla’s stock price could be negatively affected, the company warned.
UBS said the stock was trading at 86 times next 12-month (NTM) earnings and a downgrade to “sell” was justified given poor prospects and the likelihood of delayed growth opportunities.
BofA Raises Apple (NASDAQ:) Price Target on AI-Driven iPhone Upgrade Cycle
Bank of America raised its target price on Apple shares to $256 from $230 in a client note on Thursday, citing increased confidence in a multi-year iPhone replacement cycle.
The increase comes on the back of a global smartphone survey and analysis of Apple’s aging installed base, which indicates the potential for big increases.
“We raise our PO for Apple to $256 due to increased confidence in a multi-year iPhone upgrade cycle driven by an aging install base and GenAI capabilities that should boost customer upgrade appetite,” the analysts wrote in a note.
The survey, conducted in the US, UK, China and India, found that the majority of iPhone users are still using older models: 29% own the iPhone 13, 13% own the iPhone 12, and over 31% own the iPhone 11 or earlier models.
The note also highlighted that the recent Worldwide Developers Conference (WWDC) has led to increased customer intent to upgrade in 2024. This is further supported by strong services growth and expanding margins, leading BofA to reiterate its positive outlook for AAPL.
Nomura downgrades SMCI’s rating, saying ‘room for share price growth is limited’
Earlier this week, analysts at Nomura Research downgraded Supermicro Computer (NASDAQ:) shares to Neutral from Buy, citing “limited upside potential.”
“After Supermicro provided strong guidance for 4Q23 to 1Q24, we believe Supermicro’s performance potential has changed from ‘easy to exceed low market expectations’ for 4Q23 to ‘little room to exceed already high market expectations’,” the analysts noted.
Nomura’s outlook revision is due to uncertainty around a gradual ease in CoWoS-S supplies in 2024 and a possible transition period between Nvidia’s Hopper and Blackwell GPUs later this year.
While SMCI’s advanced liquid cooling solutions give it a competitive advantage and support gross margins, analysts said it may be hard for the company to beat revenue expectations due to limited order outlook amid such uncertainty. “So this could be a mix of good and bad,” the Nomura team added.
The firm expects the AI server maker’s June quarterly sales to be in line with its guidance of $5.1 billion to $5.5 billion, but noted that it is unlikely to beat guidance because some liquid cooling projects have been postponed to later quarters.
Nomura analysts also believe that Supermicro’s short-to-medium-term outlook remains uncertain due to uncertainty in AI server orders, due to new sourcing decisions by major customers and the transition between Nvidia’s Hopper and Blackwell GPUs, which could impact SMCI as customers lean towards adopting Blackwell GPU solutions.
Microsoft (NASDAQ:) remains the leader in GenAI – Morgan Stanley
Citing a recent Q2 2024 CIO survey, Morgan Stanley analysts said Microsoft remains a strong GenAI leader.
Survey data shows that Microsoft’s leadership in GenAI is driving significant growth in IT share.
“Microsoft’s lead in core spending intent and GenAI positioning has improved more significantly,” the analysts said in the note.
Microsoft’s core spending growth estimate rose to 6.6%, its highest since the second quarter of 2021. The increase was mainly driven by Microsoft’s strong presence in its GenAI capabilities and Azure cloud business.
CIOs are especially optimistic about Microsoft’s GenAI products: The survey found that 94% of CIOs plan to adopt Microsoft Generative AI products within the next 12 months, up from 63% in Q4 2023 and 47% in Q2 2023.
Microsoft 365 Copilot is the preferred solution that 68% of CIOs plan to use, followed by Azure OpenAI Services at 41%.
KeyBank raises PT for AI chip makers as AI boom continues
KeyBanc Capital Markets raised its price targets for several major chipmakers, reiterating strong demand for AI products.
KeyBanc highlighted a strong recovery in traditional server demand, driven primarily by large U.S. cloud providers such as Meta (NASDAQ:) and Microsoft, sustained demand from Chinese cloud service providers (CSPs), and moderately improving demand within the enterprise sector.
“For 2024, we are increasing our forecast for total server shipments to +7% from +4%, with enterprise +5% and cloud +8%,” the analysts said. They also forecast AI servers to grow 150% in 2024 to about 450,000 units.
Regarding Nvidia’s GB200, KeyBanc believes that the NVL72 configuration will dominate demand over the NVL36 in 2025. NVL72 offers 20-30x better performance than H100 and provides the lowest cost per token solution. As such, the company expects the GB200 to drive more than $200 billion in data center revenue for chipmakers in 2025.
KeyBanc revised its target prices on several major semiconductor stocks, including NVDA, to $180 from $130. Monolithic Power (NASDAQ:) rose from $850 to $975, Cirrus Logic (NASDAQ:) rose from $120 to $155 and Marvell (NASDAQ:) Technology rose from $90 to $95.
