Investing.com — Here are analysts’ biggest moves in artificial intelligence (AI) this week.
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Microsoft’s Azure could become the ‘largest hyperscale provider’
Shares of Microsoft (NASDAQ:) soared higher on Friday after the world’s largest company reported its fiscal Q1 results, beating Wall Street estimates.
The print further highlighted Microsoft’s unique position as a leader in AI, and showed strong demand for its AI-powered services, which played a critical role in the better-than-expected performance of its core Azure cloud business.
Looking ahead, the company’s CFO Amy Hood said capital expenditures would increase “materially” to meet rising demand for generative AI products.
Bernstein analysts saw this as an indication that Microsoft leadership foresees a “line of sight” to a “significant” increase in cloud revenues.
“We also see this as an indication that Microsoft has taken up the AI mantle and that Azure could become the largest and most important hyperscaler provider,” the Bernstein analysts said in a note to clients.
“If this trend continues, AI will be a major driver of Azure’s long-term revenues and will require a reevaluation of Azure’s potential size,” she added.
Google is “one of the best-positioned AI competitors,” BMO says
Shares of Alphabet (NASDAQ:) rose to a new record high on Friday after jumping 10%, driven by a stronger-than-expected earnings report for the fiscal first quarter of 2024.
In addition to exceeding Wall Street expectations on the top and bottom line, the Google owner (NASDAQ:) also announced its first-ever dividend of 20 cents per share and authorized a new stock buyback program worth $70 billion, which attracted even more investor attention.
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Additionally, the company said capital expenditures (CapEx) rose to $12 billion in the period as it continued to invest heavily to improve its generative AI capabilities.
Commenting on the print, BMO Capital Markets analysts said they see Alphabet “”as one of the best-positioned AI competitors.”
“Q1 24 highlighted effective monetization of the new GenAI platform shift. Search & Other, YouTube Ads and Google Cloud exceeded our growth expectations by 260 bps, 720 bps and 190 bps respectively, primarily attributable to GenAI products,” they noted.
Rosenblatt Raises Meta Shares PT on Higher CapEx Outlook
Meta Platforms (NASDAQ:) confused investors on Wednesday by predicting higher expenses and lighter-than-expected revenues, leading to a nearly $200 billion drop in its stock market value.
Concerns have arisen that the rising costs of AI development could outweigh its benefits, causing the company’s shares to plummet about 15% in extended trading and its market capitalization to fall to about $1 trillion.
However, the announcement didn’t stop Rosenblatt analysts from reiterating their bullish view on Meta.
The investment banking firm raised its price target for the stock from $520 to $560.
Rosenblatt said Meta’s report showed the company’s revenue growth prospects for the current quarter are strong but slowing.
Still, analysts believe the highlight of the report was Meta’s plan to ramp up spending.
“The lower end of the guidance for 2024 total spending of $96 billion to $99 billion was increased by $2 billion, for a growth range of 15% to 19% year-over-year, with Meta citing higher infrastructure costs (AI-driven) and legal costs ” they wrote. .
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“Capex is seen in a range of $35-$40 billion, up from $30-$37 billion previously, “to accelerate infrastructure investments” in support of an “AI roadmap,” analysts added.
Meta management highlighted the challenges ahead, including sharper comparisons due to contributions from Chinese advertisers, which had boosted growth by three percentage points in the first quarter of 2024.
The lack of formal full-year revenue guidance has raised concerns that margins could stagnate or decline in 2024, according to Rosenblatt.
“The hope, however, is that these new AI investments will drive sales growth again within a year or two, as we recently saw with Reels,” analysts added.
It’s early to move away from AI stock – JPMorgan
JPMorgan analysts said this week they believe it is premature to part with AI stock, despite concerns that have contributed to a recent market pullback.
In particular, shares of technology companies suffered a decline due to concerns about potential delays in the development of AI infrastructure, leading to a sharp sell-off of AI-reliant companies.
While the ongoing debate over the duration of AI infrastructure development before a possible pause remains a major concern among investors, Nvidia’s (NASDAQ:) upcoming product transition has become “the latest flashpoint in concerns surrounding an air pocket on the short term. even as broader investors appear convinced of the long-term drivers of AI spending over several years,” the bank said.
“Amid these concerns, investors are also increasingly looking to a number of non-AI and macro-levered companies to rotate out of the AI group.”
Still, JPMorgan believes it’s too early to justify optimism about AI stocks moving into non-AI sectors on recovery hopes, given current data and early first-quarter earnings reports.
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“Across the challenged verticals in the form of Telecom and Enterprise, we have yet to see material changes in spending intent to boost recovery hopes, while consumer spending appears to be at a trough and reaching a plateau, but shows little sign of rebound,” it added.
Citi is bullish on Lam Research and sees AI storage SSDs as the next stock catalyst
Citi Research analysts maintain a buy rating Lam Research Corp (NASDAQ:) this week, encouraging investors to take advantage of the buying opportunity presented by a post-earnings pullback.
As highlighted by Citii, Lam Research delivered a beat and raise quarter, indicating the company exceeded analyst expectations and subsequently raised its earnings forecast.
“We keep LRCX as our #1 equipment pick and view NAND WFE recovery in the second half of 24, driven by high-density AI storage SSDs as the next catalyst for the stock,” analysts wrote:
Lam also upgraded its outlook for Wafer Fabrication Equipment (WFE), clarifying that this revision reflects an updated analysis of industry trends, rather than new internal projections for the 2024 calendar year.
