HSBC starts Microsoft at Hold as Street is too optimistic on near-term AI monetization

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HSBC starts Microsoft at Hold as Street is too optimistic on near-term AI monetization
Credit: © Reuters.

HSBC analysts initiated much-anticipated research coverage of the U.S. tech sector.

“US technology sector is experiencing three tailwinds that we believe will bolster operating performances for some companies, but not all. Although we see promise from AI, the timing remains uncertain; however, demand for cloud and digital transformation is still strong,” they wrote in a client note.

Buy-rated tech stocks include CrowdStrike (NASDAQ: CRWD ), Oracle (NYSE: ORCL ), Salesforce (NYSE: CRM ), ServiceNow (NYSE: NOW ), Snowflake (NYSE: SNOW ), and Zoom Video (NASDAQ: ZM ).

On the other hand, Microsoft (NASDAQ: MSFT ) is initiated at Hold, and the same rating is assigned to Palantir (NYSE: PLTR ), and Twilio (NYSE: TWLO ). DocuSign (NASDAQ: DOCU ) is the only stock that earned a Reduce rating.

While acknowledging that Microsoft “will still see strengths” and is “well positioned to benefit from AI”, the analysts noted rich valuation.

Moreover, they argue that the market is “too optimistic on near-term AI monetization.” Their price target on MSFT is $347 per share.

“We see continued strength in its operations near term but believe the stock is fairly priced. Microsoft is one of the original software companies whose record of thoughtful innovation and leadership cannot be overstated. We estimate good near- and long-term operating performance, driven by the cloud, digital transformation, and the promise of AI,” the analysts added.

Snowflake and Salesforce are the two stocks with the highest upside (+18%) in HSBC’s tech sector coverage.

 
 
 
 

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