Investing.com — Here are analysts’ biggest moves in artificial intelligence (AI) this week.
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William Blair Launches ARM, AVGO Coverage at Buy
During the week, William Blair analysts have begun reporting on the issue Arm Holdings (NASDAQ:) with an Outperform rating, expressing confidence in the company’s potential for strong earnings per share (EPS) growth and share price appreciation in the coming years.
The company pointed to several growth drivers for Arm, including “1) higher average selling prices (ASPs) driven by improved monetization and higher value of IP; 2) market share gains in newer markets such as data centers; 3) AI’s tailwinds are increasing demand for general computing power; and 4) a new mobile phone/PC upgrade cycle.”
While Arm’s shares are more expensive than peers, William Blair believes this is justified by the company’s robust growth prospects, which are expected to become clearer in its 2026 and 2027 financial forecasts.
Their discounted cash flow analysis indicates approximately 35% upside potential for Arm’s stock, supported by continued revenue growth and increasing profitability over the next decade.
In a separate note, William Blair also assigned an Outperform rating to Broadcom (NASDAQ:), noting the company’s strategic expansion into software as a way to buffer against the cyclical nature of the semiconductor industry.
The company believes the chipmaker is positioned for further growth, driven by AI-related demand in networking and custom chip segments, along with the shift to subscription-based models in its VMware (NYSE:) division.
Analysts highlighted that nearly two-thirds of VMware customers have switched to subscriptions, a significant increase from 30% before the acquisition.
They also noted that based on their 2025 projections, AVGO is trading at a price-to-earnings ratio of 26x and an enterprise value to free cash flow ratio of 22x, 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 said.
Morgan Stanley double downgrades SK Hynix due to cloudy outlook after the fourth quarter
Shares of SK Hynix (KS:) fell on Thursday following a double downgrade from Morgan Stanley, with analysts shifting their rating from Overweight to Underweight.
In a note, analysts noted that “the sun is still shining” for the company at the moment. They predict that 2024 will be another strong year for SK Hynix, driven by rising DRAM prices heading into the fourth quarter, which should lead to “exceptional near-term gains.”
However, the prospects after the fourth quarter appear less favorable. While the long-term potential for DRAM, especially due to AI-driven demand from data centers, is still promising, the company noted that cyclical shortages are coming to an end.
“Looking beyond the fourth quarter of 24, we see continued risks to revenue and earnings per share as growth slows, prices decline and increasing competition in high-bandwidth memory (HBM) challenges sustainable margins jeopardizes the long term,” the analysts added.
In addition to lowering the stock’s rating, Morgan Stanley also cut its price target for SK Hynix by more than half, from 260,000 to 120,000 Korean won.
Citi names Analog devices his new choice for the top semi-final
In a research note published Tuesday, analysts at Citi named Analog Devices (NASDAQ:) their new top pick in the semiconductor sector.
The decision follows Citi’s update to its semiconductor stock rankings, which included a price target adjustment to Micron Technology (NASDAQ:) and an upgrade to Texas Instruments (NASDAQ:). The company has a positive view of the semiconductor industry as a whole.
Citi highlighted ADI’s lower downside risk in the automotive sector compared to other analog semiconductor makers, especially after the company’s recent earnings reports.
According to Citi, this reduced risk means ADI is well positioned amid ongoing market uncertainties, putting the company at the top of the rankings among semiconductor stocks.
“ADI is our top pick,” Citi analysts said, adding that they see “lower downside risk in Autos compared to other analog names as they just announced earnings.”
Broadcom and AMD (NASDAQ:), both major players in the AI sector, remain in second and third place behind Citi, respectively.
Trade in AI revolution gets boost after Fed cut: Wedbush
Wedbush analysts said they believe AI revolution trading has gained momentum following the Federal Reserve’s 50 basis point rate cut, indicating a favorable environment for Big Tech and AI stocks.
Wedbush sees this aggressive rate cut, along with an easing point chart extending into 2025, as 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 focus on tech growth stocks heading into 2025.
The company pointed out that the broader technology sector has remained resilient, with recent earnings reports such as Oracle’s indicating that the AI revolution is entering the software and applications phase.
Recent observations from Asia suggest that the technology supply chain is preparing for significant expansion, spurred by an expected $1 trillion in AI investment spending in the coming years.
Nvidia (NASDAQ:) continues to be at the forefront of this revolution, with its GPUs described by Wedbush as the “new oil and gold” of the IT industry.
With the Federal Reserve’s rate-cutting cycle underway and spending on AI technology beginning to accelerate, Wedbush analysts remain bullish on tech stocks, expecting them to post further gains in 2025.
Melius Research upgrades Oracle stock to Buy
Meanwhile, analysts at Melius Research upgraded Oracle Corporation (NYSE:) from Hold to Buy, setting a price target of $210.
They highlight 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’ team notes.
Although Oracle’s shares are up 54% this year, the company’s analysts believe this upgrade may not come too late, suggesting the stock could be in the midst of a bigger move.
“We see close to $8.50 in two-year EPS run rate terms – and now that our biggest concerns have been quelled – we find it difficult not to assign a 25x multiple to a company that will grow faster than Salesforce (NYSE: ) and Adobe ( NASDAQ :),” they said.
