Investing.com – Here are the analysts’ biggest artificial intelligence (AI) moves this week.
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Microsoft’s Azure could become ‘the largest hyperscale service provider’
Microsoft (NASDAQ:) shares rose on Friday after the world’s largest company reported its fiscal first-quarter earnings, beating Wall Street estimates.
The print further highlighted Microsoft’s unique position as a leader in artificial intelligence, demonstrating strong demand for its AI-powered services, which have played a critical role in the better-than-expected performance of its core Azure cloud business.
Looking ahead, the company’s chief financial officer Amy Hood said capital spending will increase “significantly” to meet growing demand for its generative AI products.
Bernstein analysts saw this as a sign that Microsoft management foresees a “line of sight” to a “significant” increase in cloud revenue.
“We also view this as an indication that Microsoft has embraced the AI role, and Azure could become the largest and more important provider of hyperscalers,” Bernstein analysts said in a note to clients.
“If this trend continues, AI will become an important driver of Azure’s long-term revenue and will require a reassessment of Azure’s potential size,” they added.
Google is ‘one of the best competitors in artificial intelligence’, says BMO
Alphabet (NASDAQ:) shares soared to a new all-time high on Friday after jumping 10% following a stronger-than-expected earnings report for the first fiscal quarter of 2024.
In addition to beating Wall Street’s revenue and earnings forecasts, the Google (NASDAQ:) owner also announced its first-ever dividend of 20 cents per share and authorized a new $70 billion share buyback program, raising more investors’ attention.
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Moreover, the company said its capital expenditures (CapEx) rose to $12 billion during the period as it continues to invest heavily in improving its generative AI capabilities.
Commenting on the publication, analysts at BMO Capital Markets said they view Alphabet as “one of the best-positioned competitors in the AI space.”
“In the first quarter of 2024, effective monetization of the change to the new GenAI platform was noted. Search & More, Advertising on YouTube and Google Cloud exceeded our growth expectations by 260, 720 and 190 bps, respectively, led by GenAI products,” they noted.
Rosenblatt raises Meta stock price on higher capex forecast
Meta Platforms (NASDAQ:) rattled investors on Wednesday by forecasting higher costs and lower-than-expected revenue, sending its stock value down nearly $200 billion.
Concerns have grown that the rising costs of developing AI could outweigh its benefits, sending the company’s shares down about 15% in extended trading and reducing its market capitalization to about $1 trillion.
However, this announcement did not stop Rosenblatt analysts from reaffirming their bullish view on Meta.
The investment banking firm raised its price target on the stock to $560 from $520.
Rosenblatt said Meta’s report shows the company’s revenue growth outlook for the current quarter is good but slowing.
However, analysts believe the highlight of the report was Meta’s plan to increase spending.
“The lower end of the 2024 total spending forecast of $96-99 billion was raised by $2 billion, with a growth range of 15% to 19% year over year, with Meta citing higher infrastructure costs (driven by artificial intelligence) and legal costs,” they wrote. .
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“Capex expenditures are estimated in the range of $35-40 billion, up from $30-37 billion previously, “to accelerate infrastructure investments” to support the AI roadmap,” the analysts added.
Meta management highlighted challenges ahead, including tougher comparisons due to the contribution of Chinese advertisers, which boosted first-quarter 2024 growth by three percentage points.
The lack of official full-year earnings guidance has raised concerns that profitability could stagnate or decline in 2024, Rosenblatt said.
However, “the hope is, however, that these new investments in artificial intelligence will drive sales to accelerate again in a year or two, as we recently saw with Reels,” the analysts added.
It’s Too Early to Give Up on AI Stocks – JPMorgan
Analysts at JPMorgan said this week they believe it is premature to dump AI stocks, despite concerns that have contributed to the recent market decline.
Notably, tech stocks fell on concerns about a potential slowdown in AI infrastructure, leading to a sharp sell-off in AI-dependent companies.
While the ongoing debate over the length of time to develop AI infrastructure before a potential pause remains a key issue among investors, Nvidia’s (NASDAQ:) upcoming product transition “has become the latest flash point in worries about an air pocket in the near future.” even as investors appear to be more broadly convinced about the long-term drivers of AI spending for many years to come,” the bank said.
“As part of these concerns, investors are also increasingly considering the possibility of some non-AI companies and companies with macroeconomic impact exiting the AI group.”
However, JPMorgan believes it is too early to justify optimism about the shift from AI stocks to non-AI sectors based on recovery hopes, given current data and earnings reports early in the first quarter.
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“For distressed verticals such as telecom and enterprise, we are yet to see significant changes in spending intention to inspire hope for a recovery, while consumer spending appears to be in decline and plateauing but showing little sign of any or signs. rebound,” he added.
Citi Bullish on Lam Research, Sees AI SSDs as Next Stock Catalyst
Citi Research analysts maintain a Buy recommendation Lam Research Corporation (NASDAQ:) this week, prompting investors to take advantage of the buying opportunity presented by earnings decline after earnings decline.
As Citii highlights, Lam Research posted a “beat and lift” quarterly reading, indicating the company beat analysts’ expectations and subsequently raised its earnings forecast.
“We maintain LRCX as our No. 1 hardware pick and view the 2H24 NAND WFE recovery, driven by high-density AI-enabled SSDs, as the next catalyst for stock growth,” the analysts wrote.
Lam also adjusted the wafer fabrication equipment (WFE) forecast upward, clarifying that the revision reflects updated analysis of industry trends rather than new internal forecasts for the 2024 calendar year.