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5 big analyst AI moves: Apple stock lifted to Buy as AMD, Adobe get downgraded

Published 2024/06/16, 09:36
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Investing.com -- Here are the biggest analyst moves in the area of artificial intelligence (AI) for this week.

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‘AI stands for Apple Intelligence:’ D.A. Davidson upgrades Apple to Buy

Analysts at wealth management firm D.A. Davidson upgraded Apple (NASDAQ:AAPL) stock from Neutral to Buy this week after the iPhone maker introduced its much-anticipated AI strategy.

According to the firm’s analysts, “AI now stands for Apple Intelligence,” which is the name of the company’s artificial intelligence platform unveiled at the WWDC event.

D.A. Davidson also lifted their price target from $200 to $230.

"Another Napster to iTunes moment. We believe yesterday's presentation rhymes with one of Apple's previous milestone moments — the transition of digital music from a standalone app with questionable regulatory standing (i.e. Napster) to an experience integrated into existing consumer applications (i.e. iTunes),” analysts wrote.

“We believe the integration of summarization, enhanced search, multi-modality, text generation, and enhanced photo editing into the exiting ecosystem will drive much broader adoption of AI than we have seen to date,” they added.

Analysts also highlighted that Apple is the first to introduce a meaningful agent capability, allowing Siri and other tools to execute tasks on behalf of the user. Moreover, they emphasize that Apple is uniquely positioned to offer these capabilities and “may be the only one capable of doing so any time soon.”

AMD downgraded as Morgan Stanley favors Nvidia, Broadcom

Meanwhile, AI chipmaker Advanced Micro Devices (NASDAQ:AMD) got a downgrade at Morgan Stanley on Monday, from Overweight to Equal Weight.

While the bank still supports the overall narrative, it believes investor expectations for AMD's AI business are too high. Morgan Stanley analysts think that the current AI expectations don't leave room for much upside, despite a recovery in the core business.

“We see limited upward revision potential for AI from here," analysts wrote.

Moreover, Morgan Stanley notes that AMD appears expensive compared to other large-cap AI plays, such as NVIDIA Corporation (NASDAQ:NVDA) and Broadcom Inc (NASDAQ:AVGO), where the bank has more confidence in upward revisions to AI forecasts.

Despite the downgrade, Morgan Stanley analysts continue to view AMD's product lineup as a strong competitor in the client and server CPU markets this year.

Melius downgrades Adobe as enterprise software faces AI challenges

Earlier in the week, Melius analysts lowered their rating on Adobe (NASDAQ:ADBE) stock from Buy to Hold, with a price target of $510.

The investment firm notes that the enterprise application software sector is facing challenges with AI, drawing parallels to how on-prem hardware companies were affected by the shift to the cloud in the 2010s. They suggest this trend could persist longer than anticipated.

Melius highlights that AI, enabled by companies like Nvidia and major cloud platforms, will accelerate software creation, customization, and deployment. Moreover, coding tools are allowing smaller AI-first competitors to emerge more easily.

They also point out that most SaaS companies have been increasing prices for years, making it harder to charge extra for AI, and AI-driven productivity may disrupt the traditional "seat model" business approach, indicating a potential transition in business models.

“Furthermore, we see AI as a disruptor to traditional databases as unstructured data rises in both importance and usability,” Melius analysts said. “In short, you could see AI's impact on Snowflake (NYSE:SNOW) and even parts of hold-rated Oracle (NYSE:ORCL), as well as ongoing impacts on Salesforce (NYSE:CRM) and Workday (NASDAQ:WDAY) for a while."

Broadcom is “one of the strongest AI plays,” Morgan Stanley says

Ahead of its better-than-expected earnings report released Wednesday, Morgan Stanley reiterated its Overweight rating on Broadcom, describing the semiconductor company as "one of the strongest AI plays."

The Wall Street giant pointed out several key catalysts for their positive outlook, including Broadcom’s growth prospects in AI, potential synergies from the VMware (NYSE:VMW) acquisition, and recovery in its core enterprise semiconductor businesses.

The bank’s analysts project Broadcom's AI revenues to rise from $4.2 billion in FY2023 to $14 billion in FY2025, which would account for approximately 39% of the company's projected semiconductor revenues.

"We expect Broadcom to easily meet, if not slightly exceed, AI targets," the analysts noted. They believe Broadcom is poised to benefit from the deployment of Ethernet in AI data centers, the continued ramp-up of Google’s TPU, and the addition of two new ASIC clients.

MS: Tesla could make an AI-powered phone

Tesla (NASDAQ:TSLA) may soon venture into the smartphone market, according to Morgan Stanley analysts.

“The car is an extension of the phone. The phone is an extension of the car,” the Wall Street firm noted, based on its discussions with automotive executives and industry experts. “The lines between car and phone are truly blurring,” they added.

Morgan Stanley analysts have long considered Tesla's potential to expand into edge computing domains beyond vehicles. In October, they emphasized the concept of a mobile AI assistant as a significant innovation.

This idea resurfaced when Tesla CEO Elon Musk mentioned that developing such a device is "not out of the question" following Apple’s WWDC.

“As Mr. Musk continues to invest further into his own LLM/genAI efforts, such as ‘Grok’, the potential strategic and user experience overlap becomes more obvious,” the analysts wrote.

Supercomputing at both the data center and edge levels is increasingly relevant from an automotive perspective. The latest Tesla vehicles, capable of over-the-air firmware updates, contain batteries with the energy equivalent of approximately 2,000 iPhones and come equipped with liquid-cooled inference supercomputers.

Morgan Stanley asked, “What if your phone could tap into your vehicle’s compute power and battery supply to run AI applications?” They pointed out that edge computing and AI have highlighted challenges like battery life, thermal management, and latency in integrating powerful AI-driven applications with today's smartphones.

“Any Tesla owner will tell you how they use their smartphone as their primary key to unlock their car as well as running other remote applications while they interact with their vehicles,” the analysts added.

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