Investing.com – Here are analysts’ biggest moves in artificial intelligence (AI) this week.
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William Blair Begins Coverage of ARM and AVGO at Buy
During the week, William Blair analysts began covering arm Aramex Holdings (NASDAQ:) has been assigned an “Outperform” rating, expressing confidence in the company’s ability to deliver strong earnings per share (EPS) growth and share price appreciation over the coming years.
The company pointed to several growth drivers for Arm, including “1) higher average selling prices (ASPs) driven by improved profitability and higher IP value; 2) share gains in newer markets such as the data center; 3) tailwinds from AI driving demand for ubiquitous computing; and 4) a new upgrade cycle in mobile/PC.”
While Arm shares are trading at a premium to their peers, William Blair believes this is justified by the company’s strong growth outlook, which is expected to become more evident in the 2026 and 2027 financial outlook.
Discounted cash flow analysis suggests that ARM shares could rise by about 35%, supported by sustainable revenue growth and increased profitability over the next decade.
In a separate note, William Blair also gave a better perform rating to Broadcom (NASDAQ:B), citing the company’s strategic expansion into software as a way to mitigate the cyclical nature of the semiconductor industry.
The company believes the chipmaker is positioned for continued growth, driven by AI-related demand in the networking and custom chip segments, along with a shift to subscription-based models at its VMware (NYSE:) division.
Analysts said nearly two-thirds of VMware’s customers have moved to subscriptions, a significant increase from the 30% it saw before the acquisition.
They also noted that AVGO is trading at a price-to-earnings ratio of 26x and an enterprise value-to-free cash flow ratio of 22x based on their 2025 forecast, which is slightly below the average of its peers.
“We see room for multiple expansions as the sustainability of growth in networking, customer AI and software becomes increasingly clear,” the note said.
Morgan Stanley Downgrades SK Hynix Twice on Uncertain Outlook After Q4
Shares of SK Hynix (KS:) fell on Thursday after two downgrades by Morgan Stanley, with analysts switching their rating from overweight to underweight.
In a note, analysts noted that “the sun is still shining” for the company for now. They expect 2024 to be another strong year for SK Hynix, driven by higher DRAM prices ahead of the fourth quarter, which should lead to “exceptional earnings in the near term.”
However, the outlook beyond Q4 appears less positive. While the long-term potential for DRAM, particularly due to AI-driven demand from data centers, remains promising, the company noted that the cyclical shortage is coming to an end.
“Looking beyond Q4 2024, we see continued risks to total revenue and EPS as growth slows, pricing declines, and increased competition in the high-bandwidth memory (HBM) space challenges sustainable margins over the long term,” the analysts added.
In addition to downgrading the stock, Morgan Stanley also cut its target price for SK Hynix by more than half, from 260,000 won to 120,000 won.
City names Analog Devices Her new pick in the semi-finals
In a research note released Tuesday, Citi analysts named Analog Devices Inc. (NASDAQ:) their new No. 1 pick in the semiconductor sector.
The decision follows Citi’s update to its semiconductor stock ratings, which included a price target adjustment for Micron Technology (NASDAQ:MIC) and an upgrade for Texas Instruments (NASDAQ:TI). The firm maintains a positive outlook on the semiconductor industry as a whole.
Citi highlighted ADI’s lower downside risk in the automotive sector compared to other analog semiconductor companies, especially after the company’s recent earnings report.
According to Citigroup, this reduced risk puts ADI in a good position amid ongoing market uncertainty, prompting the company to be ranked at the top of its semiconductor stocks chart.
“ADI is our top pick,” Citi analysts said, adding that they see “less downside risk in automakers than other peers given they just reported earnings.”
Broadcom and AMD (NASDAQ:), two major players in the AI sector, remain in second and third place, respectively, on Citi’s list.
AI Revolution in Trading Gets Boost After Fed Cut: Wedbush
Analysts at Wedbush said they believe the AI revolution trade has gained momentum following the US Federal Reserve’s 50 basis point interest rate cut, signaling a favorable environment for big tech and AI stocks.
Wedbush sees this aggressive rate cut, coupled with a dovish dot chart extending through 2025, creating a “very bullish backdrop” for the tech sector.
The Fed’s move represents a significant shift, as many investors have been waiting for this signal to fully engage with tech growth stocks through 2025.
The broader technology sector has remained resilient, the company noted, with recent earnings reports, such as those from Oracle, suggesting that the AI revolution is entering the software and application phase.
Recent observations from Asia suggest that the technology supply chain is poised for a major expansion, driven by an expected $1 trillion in capital expenditures in AI in the coming years.
Nvidia (NASDAQ:) remains at the forefront of this revolution, with Wedbush describing its GPUs as the “new oil and gold” of the IT industry.
As the Fed’s rate-cutting cycle begins and AI spending begins to accelerate, Wedbush analysts remain bullish on tech stocks, predicting further gains through 2025.
Melius Research upgraded Oracle shares to ‘buy’
Meanwhile, analysts at Melius Research upgraded Oracle Corporation (NYSE:) stock from Hold to Buy, setting a price target of $210.
They stress that Oracle founder Larry Ellison and CEO Safra Catz are not only leveraging their influence, but are also taking a more strategic approach with partnerships, positioning Oracle’s AI-focused cloud as a key driver of growth.
Melius’ team points to Ellison’s strong connections in the tech world, including access to GPUs and agreements with cloud computing CEOs, as well as his friendship with client Elon Musk, as playing a role.
While Oracle stock is up 54% year-to-date, the company’s analysts believe this upgrade may not be overdue, suggesting the stock could be in the midst of a bigger move.
“We expect a run rate of EPS of around $8.50 in two years and — with our biggest concerns allayed — find it hard not to put a 25x multiple on a company that is set to grow faster than Salesforce (NYSE:) and Adobe (NASDAQ:),” they said.
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