Investing.com -- Here are the biggest analyst moves in the area of artificial intelligence (AI) for this week.
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RBC (TSX:RY): Microsoft investors in ‘wait and see mode’ after earnings
Microsoft’s first-quarter results and guidance for the current quarter have left some investors cautious, placing them in "wait-and-see mode," according to analysts at RBC Capital Markets.
In its October update, Microsoft (NASDAQ:MSFT) revealed plans to increase capital expenditures to support its ongoing investments in artificial intelligence. The company has positioned itself as a leader in the AI space, fueled by the success of its Azure cloud platform and its partnership with OpenAI, the creator of ChatGPT.
However, concerns persist about the significant costs associated with Microsoft's AI initiatives, including investments in data centers, high-end GPUs, and networking equipment, and whether these expenditures will yield substantial returns.
Azure, a core component of Microsoft’s AI and cloud strategy, delivered a 33% revenue increase in the first quarter, slightly exceeding analyst expectations of 32%. Still, the company’s CFO Amy Hood warned that growth in Azure's revenue is expected to slow to 31%-32% in the second quarter.
Despite this deceleration, RBC analysts foresee stronger performance ahead. They project Azure’s growth will outpace second-quarter levels in the third quarter and accelerate further in the fourth quarter of Microsoft’s fiscal year.
This trajectory would drive second-half growth for Azure to 34%-35%, which the analysts believe represents "true acceleration" compared to the first half and sets Microsoft up strongly for its 2026 fiscal year.
In a note to clients, the RBC team, led by Rishi Jaluria, highlighted that many investors remain hesitant.
Their discussions revealed that some are "on the sidelines or underweight" on Microsoft shares until the company reports its fiscal second-quarter earnings. The analysts also pointed out that Microsoft’s upcoming annual developers conference is unlikely to act as a significant catalyst for the stock.
Any Nvidia pullback ‘an opportunity’, analysts say
As Nvidia (NASDAQ:NVDA) gears up for its next earnings report, analysts at Wedbush and Raymond (NS:RYMD) James are maintaining their bullish outlook on the stock, even as elevated market expectations raise the possibility of short-term volatility.
Wedbush highlighted Nvidia’s consistent track record of outperforming forecasts, driven by strong AI spending from both hyperscale and non-hyperscale customers. The firm expects this trend to continue into the next fiscal year, with Nvidia likely surpassing estimates by around $2 billion, as seen in recent quarters.
“We see no reason to shift our constructive opinion on NVDA in light of our outlook for a robust 2025,” Wedbush stated in a note to clients, raising its price target from $138 to $160.
Raymond James is equally optimistic but acknowledged potential supply-side challenges that could limit near-term upside.
The firm noted that Nvidia’s balance sheet inventory, measured in days of inventory (DoI), is at a four-year low, signaling constraints tied to the complexity of Nvidia’s new systems and longer production cycle times. These factors may temporarily restrict the volume of shipments for Nvidia’s Blackwell GPUs.
Despite these short-term hurdles, Raymond James expects a ramp-up in Blackwell shipments in the first half of 2025, supported by robust demand for Nvidia’s Spectrum-X networking technology.
The firm raised its price target from $140 to $170, reiterating that “any pullback due to high expectations [is] an opportunity.”
Both firms see Nvidia’s leadership in AI and advanced computing technologies as key drivers of its long-term growth, with any near-term weakness in the stock viewed as a potential entry point for investors.
Investors see Tesla as ‘must-own stock’ after Trump win
Following Donald Trump’s victory in the US presidential election, Tesla Inc (NASDAQ:TSLA) has been recast as “a must-own stock” in the eyes of investors, JPMorgan (NYSE:JPM) said in a recent note.
This marks a dramatic reversal from the past two years, during which the company struggled with weak demand for EVs, gross margin challenges, and missed earnings expectations.
Tesla stock rose sharply on Monday, continuing its upward trajectory from last week, a movement largely attributed to Trump’s surprise win over Kamala Harris.
But JPMorgan highlights that the stock’s momentum was already building before the election, noting it was on a “glide path” toward $300, driven by what the firm calls “a thesis-changing earnings print/forward guide.”
The electric vehicle maker’s latest earnings report offered promising signs for investors, showing that gross margins are expected to hit their lowest point in the fourth quarter before improving. This outlook sets the stage for “a potential cycle of positive estimate revisions” after a stretch of negative trends, JPMorgan said in a note.
Tesla also stands out in the automotive sector for its anticipated production growth. Based on its 2025 deliveries growth guide, it is the only major automaker expected to significantly increase production next year.
This optimistic forecast has spurred a shift in investor sentiment. Hedge funds and long-only investors, who previously held negative views on Tesla, are adopting a more neutral or even bullish stance on its prospects.
This shift is particularly notable given Tesla’s history as a frequent target of short sellers and its limited representation in long-only portfolios. JPMorgan adds that this evolving investor perception is likely to create "technical upward pressure" on the stock, as long-only investors move from neutral to overweight positions and hedge funds reduce their short positions.
Dell price target raised at Morgan Stanley on AI server strength
Morgan Stanley (NYSE:MS) analysts have raised their price target for Dell Technologies Inc (NYSE:DELL) from $135 to $154, citing strong growth prospects in the company’s AI server business.The firm pointed out Dell’s strengthening position in AI infrastructure, driven by projections of 48,000 eight-GPU AI server shipments in fiscal 2026 (calendar year 2025). This marks a 23% year-over-year increase and reflects the company’s expanding role in the AI market.
These shipments are expected to generate approximately $20.6 billion in AI server revenue, representing a 56% upward revision from earlier forecasts. AI servers are projected to account for nearly 20% of Dell’s revenue in fiscal 2026, analysts note, underscoring their significance as a key driver of growth.
“While our 3Q24 CIO Survey showed that DELL is the best-positioned hardware vendor to capture traditional enterprise spend over the next 3 years, our recent AI server checks show that DELL's AI infrastructure momentum is building even faster,” analysts led by Erik W. Woodring wrote in a note to clients.
They also addressed potential challenges related to margins. The analysts acknowledged that the shift toward AI server revenue could slightly pressure gross margins. However, they expressed confidence that Dell’s ability to sustain operating profitability would offset any negative impacts, positioning the company for robust long-term performance.
With accelerating demand for AI infrastructure and Dell’s expanding market share, the analysts view the company as well-positioned to capitalize on one of the fastest-growing sectors in technology.
Chip stock weakness almost over, Citi says
Earlier this week, Citi analysts said that the recent decline in semiconductor stocks may be nearing its conclusion, signaling that "it is almost time to buy again" as the sector’s outlook for 2025 gains traction.
"We believe the downside/sell-off is almost over and attention will shift to 2025," the bank stated in its latest note.
Citi’s earnings recap highlights that consensus earnings per share (EPS) estimates for semiconductor firms dropped by 11% during third-quarter results, largely due to weakness from Microchip (NASDAQ:MCHP), NXP Semiconductors (NASDAQ:NXPI), and Intel (NASDAQ:INTC).
In addition, the SOX index, which tracks semiconductor performance, fell 9%. According to Citi, this drop reflects the bulk of the anticipated downside, suggesting the worst may now be over.
Looking ahead, Citi projects global semiconductor sales will grow by 9% year-over-year in 2025, building on this year’s robust 17% expansion. Key growth drivers include stabilization in industrial markets and the expected end of a correction in the automotive segment by the first half of 2025.
"The other 75% of semi demand appears to be solid," the analysts stated, recommending investors begin building positions in semiconductor stocks and adopt a more aggressive stance heading into the first quarter of 2025.
Citi’s buy-rated stocks include Advanced Micro Devices (NASDAQ:AMD), Broadcom (NASDAQ:AVGO), Nvidia, Texas Instruments (NASDAQ:TXN), and Micron Technology (NASDAQ:MU).
The Wall Street bank also emphasized that AI remains a continuing growth catalyst for the sector. It pointed out that combined 2024 AI spending from major tech companies like Alphabet (NASDAQ:GOOGL), Microsoft, Meta (NASDAQ:META), and Amazon (NASDAQ:AMZN) has risen by approximately $11 billion. This benefits semiconductor companies with significant AI exposure, such as AMD, Nvidia, Micron, Marvell (NASDAQ:MRVL), and Broadcom.