Here are the biggest analyst moves in the area of artificial intelligence (AI) for his earnings-packed week.
1) Morgan Stanley upgrades Adobe on AI potential
Morgan Stanley analysts raised their recommendation on Adobe (NASDAQ: ADBE ) stock earlier this week, citing strong AI potential. The new price target is $660 per share.
“While late to the party, a clear catalyst path for estimates to move higher at Adobe on the back of conservative guidance for Digital Media Net New ARR (NNARR) in the near-term and a framework to size upside from Generative AI in the medium/long-term gets us back on board with an Overweight on ADBE,” analysts said in an upgrade note.
Adobe is seen as “one of the strongest franchises in software,” which will help the company to seamlessly integrate Generative AI functionality into existing workflows, Morgan Stanley analysts said.
2) Bank of America sees a buying opportunity in AI name Hubspot
Bank of America analysts rushed to defend HubSpot (NYSE: HUBS ) after the company’s Q2 earnings report attracted weakness. While the second-quarter earnings report topped analyst expectations, analysts blamed the weakness on high investors' expectations and rich valuation.
“While Q2 was a touch light vs rising expects, we see no real fundamental change & continue to view HUBS as one of the cleaner stories in mid-cap,” Wells Fargo analysts said.
On the other hand, BofA sees AI as one of the key reasons why investors should own HUBS.
“We view HubSpot as the leader in the vast small and midsize business (SMB)front office applications category, with the leading platform, channel and brand. HubSpot is a natural AI play, with the largest data set (1bn+ transactions and ~185,000 customers) residing in one organically built platform, enabling rapid development of AI offerings to address front office complexity,” analysts wrote.
3) Morgan Stanley likes AI chipmaker AMD
Advanced Micro Devices (NASDAQ: AMD ) shares fell 7% on Wednesday after the company’s earnings report failed to entice investors. Shares modestly recovered on Thursday with Morgan Stanley analysts seeing the selloff as an attractive buying opportunity.
“Guidance for flat y/y servers in 3q - up 15-20% q/q - with clear eyes about the current cloud weakness should be an indication that share gains and the delayed Genoa ramp are in good shape. We expected the stock to be up meaningfully,” the analysts wrote in a note.
AMD is seen as “a significant outperformer” relative to other chip stocks from current levels, according to analysts. Investors had too high expectations from the company when it comes to the upcoming release of high-end MI300 chips, which are seen as Nvidia’s (NASDAQ: NVDA ) greatest AI competitor.
4) Bernstein is bullish on ServiceNow’s AI potential
"There is excitement for NOW's soon-to-be shipped LLM AI enabled functionality, including productivity enhancing "case summarization" functionality for ITSM, CSM, and HRSDproducts and "text-to-code" for Creator workflows. Yet consensus for 2024 GAAP subscription revenue has hardly budged over the last couple quarters, with every quarter in '24 at ~22% YoY growth expectations (more than 250 bps below our current model),” analysts said in a note.
They argue that AI should help growth in 2024.
“It may even drive incremental Pro penetration - e.g., Pro is in ~40% of ITSM customers today, and AI may drive adoption higher."
5) How much is AI worth for Baidu?
Bernstein analysts reiterated an Outperform rating and $160.00 price target on Baidu (NASDAQ: BIDU ) after conducting a deep-dive analysis into how much can AI be worth for the Chinese internet giant.
Baidu is widely regarded as THE China AI stock to own given its multi-year investments into this space. Here’s the summary of their analysis:
- Existing business improvement can create RMB 83 billion (RMB 1 = $0.1394), equivalent of $33 per share value;
- Model-as-a-service (MAAS) is the largest new business opportunity with RMB 37B and $15 per share potential but Baidu's claim to this area is far from clear;
- The Gen AI productivity app ecosystem (aka chatbot assistant) will be hard to monetize, highly competitive with low barriers to entry and value is not that large at RMB 27B, equivalent of $11 per share.
“On search, we remain of the view that the opportunity is in driving traffic and optimizing ad spend, and on AI Cloud Baidu can launch a library of new use cases at much faster execution speed, leveraging foundational models to shorten model training requirements,” analysts said in a note.
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