Investing.com -- Here are the biggest analyst moves in the area of artificial intelligence (AI) for this week.
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William Blair starts ARM, AVGO coverage at Buy
During the week, William Blair analysts have initiated coverage on Arm Holdings (NASDAQ:ARM) with an Outperform rating, voicing confidence in the company’s potential for strong earnings per share (EPS) growth and stock price appreciation over the coming years.
The firm pointed to several growth drivers for Arm, including “1) higher Average Selling Prices (ASPs) driven by improved monetization and higher value IP; 2) share gains in newer markets like data center; 3) tailwinds from AI driving higher demand for overall compute; and 4) a new upgrade cycle in mobile/PCs.”
While Arm’s stock trades at a premium compared to its peers, William Blair believes this is justified by the company’s robust growth outlook, which is expected to become clearer in the financial forecasts for 2026 and 2027.
Their discounted cash flow analysis indicates around 35% upside potential for Arm’s shares, supported by sustained revenue growth and increasing profitability over the next decade.
In a separate note, William Blair also assigned an Outperform rating to Broadcom (NASDAQ:AVGO), noting the company's strategic expansion into software as a way to buffer against the cyclical nature of the semiconductor industry.
The firm believes that the chipmaker is positioned for continued growth, driven by AI-related demand in networking and custom chip segments, along with the shift to subscription-based models in its VMware (NYSE:VMW) division.
Analysts highlighted that nearly two-thirds of VMware customers have transitioned to subscriptions, a significant rise from the 30% seen prior to 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 projections, slightly below the median of its peers.
“We see room for multiple expansion as the sustainability of growth in networking, customer AI chips, and software becomes clearer,” the note states.
Morgan Stanley (NYSE:MS) double-downgrades SK Hynix on cloudy outlook beyond Q4
Shares of SK Hynix (KS:000660) dropped on Thursday following a double downgrade from Morgan Stanley, with analysts shifting their rating from Overweight to Underweight.
In a note, analysts remarked that "the sun is still shining" for the company at the moment. They predict 2024 will be another strong year for SK Hynix, driven by increasing DRAM prices heading into the fourth quarter, which should lead to "exceptional near-term earnings."
However, the outlook beyond the fourth quarter appears less favorable. While the long-term potential for DRAM, particularly due to AI-driven demand from data centers, is still promising, the firm noted that cyclical shortages are coming to an end.
“Looking past 4Q24, we see sustained risks to the top line and EPS as growth slows, pricing falls, and rising competition in high-bandwith memory (HBM) challenges sustainable long-term margins,” the analysts added.
In addition to downgrading the stock, Morgan Stanley also cut its price target for SK Hynix by more than half, lowering it from 260,000 to 120,000 Korean won.
Citi names Analog Devices its new top semis pick
In a research note released Tuesday, Citi analysts named Analog Devices (NASDAQ:ADI) as their new top pick in the semiconductor sector.
The decision follows Citi's update to its semiconductor stock ranking table, which included a price target adjustment for Micron Technology (NASDAQ:MU) and an upgrade of Texas Instruments (NASDAQ:TXN). 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 makers, particularly following the company’s recent earnings report.
This reduced risk, according to Citi, makes ADI well-positioned amid ongoing market uncertainties, leading the firm to rank it at the top of its semiconductor stock table.
"ADI is our top pick," Citi analysts stated, adding that they see "lower downside risk in Autos versus other analog names given they have just announced earnings."
Broadcom and AMD (NASDAQ:AMD), both key players in the AI sector, remain in Citi's second and third spots, respectively.
AI revolution trade receives a boost after Fed cut: Wedbush
Wedbush analysts said that they believe the AI revolution trade has gained momentum following the Federal Reserve’s 50 basis point rate cut, signaling a favorable environment for Big Tech and AI stocks.
Wedbush views this aggressive rate cut, alongside a dovish dot plot extending into 2025, as creating a "very bullish backdrop" for the tech sector.
The Fed’s move marks a momentous shift, as many investors had been waiting for this signal to fully engage with tech growth stocks leading into 2025.
The firm pointed out that the broader technology sector has remained resilient, with recent earnings reports, such as those from Oracle, indicating that the AI revolution is entering its software and application phase.
Recent observations from Asia suggest the tech supply chain is preparing for significant expansion, spurred by an expected $1 trillion in AI capital expenditures in the coming years.
Nvidia (NASDAQ:NVDA) remains at the forefront of this revolution, with its GPUs being described by Wedbush as the "new oil and gold" of the IT industry.
With the Federal Reserve’s rate-cutting cycle now underway and AI tech spending beginning to accelerate, Wedbush analysts continue to hold a bullish outlook for tech stocks, expecting further gains into 2025.
Melius Research upgrades Oracle stock to Buy
Meanwhile, analysts at Melius Research have upgraded Oracle Corporation (NYSE:ORCL) from Hold to Buy, setting a price target of $210.
They emphasize that Oracle founder Larry Ellison and CEO Safra Catz are not only leveraging their influence but also taking a more strategic approach with partnerships, positioning Oracle’s AI-first Cloud as a key growth driver.
Ellison’s strong connections in the tech world, including access to GPUs and agreements with Cloud CEOs, along with his friendship with customer Elon Musk, have played a role, Melius’s team notes.
While Oracle’s stock is up 54% year-to-date, the firm’s analysts believe this upgrade might not be late, suggesting the stock could be in the middle of a larger move.
"We see close to $8.50 in terms of an EPS run rate within 2 years—and with our biggest worries muted—we find it hard not to put a 25x multiple on a company set to grow faster than Salesforce (NYSE:CRM) and Adobe (NASDAQ:ADBE)," they said.