Biggest Analyst Moves in AI This Week

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Microsoft Downgraded at D.A. Davidson Amid Narrowing AI & Cloud Lead

D.A. Davidson analysts downgraded Microsoft (NASDAQ:MSFT) from a Buy to a Neutral rating on Monday, maintaining their $475 price target.
The firm pointed to increasing competition in AI as the reason for the revision, noting that rivals have largely caught up to Microsoft’s AI capabilities. This, they argue, “reduces the justification for the current premium valuation.”
Microsoft’s stock has soared by 92% since January 2023, significantly outperforming the S&P 500, which gained 49% over the same period.

However, D.A. Davidson analysts believe that Microsoft’s lead in cloud and AI is narrowing. Amazon (NASDAQ:AMZN) Web Services (AWS) and Google (NASDAQ:GOOGL) Cloud Platform (GCP) have demonstrated similar growth rates, which has closed the gap in cloud business expansion.

“Our new proprietary hyperscaler semiconductor analysis indicates AWS and GCP are far ahead in deploying their own silicon into their data centers, which gives them a significant advantage over Azure going forward,” they stated in a note.
Microsoft’s Maia chips are still behind Amazon and Google by several years, with their current use limited to Azure OpenAI Services workloads. This situation places Microsoft in a challenging position in the competitive data center landscape.

Another concern raised by the analysts is Microsoft’s reliance on Nvidia (NASDAQ:NVDA) for data center operations, which could lead to a shift of value from Microsoft shareholders to Nvidia’s. Microsoft’s operating margins are under pressure due to rising data center capital expenditures, which have increased from 12% to 21% of revenue.

“This higher rate of increase is compared to Amazon and Google, resulting from Microsoft’s greater reliance on NVIDIA,” the analysts noted.
“Each year Microsoft over-invests at these rates, it will diminish margins by at least 1pp cumulatively. Microsoft would need to lay off ~10,000 employees for every year of over-investment to offset this margin drag.”
Additionally, the firm expressed concerns about the sustainability of Azure’s revenue growth, hinting that it could be inflated by contributions from OpenAI’s self-funded revenue.

Analysts Comment on Meta’s New Product and AI Announcements

This week, Meta Platforms (NASDAQ:META) kicked off its developer-focused event, Meta Connect, unveiling its latest hardware and software innovations.
One of the key highlights was the launch of the Quest 3S, the newest virtual reality (VR) headset from Meta’s Reality Labs division, offered at a more affordable price than its predecessor.
Meta also introduced a new prototype of augmented reality (AR) smart glasses and revealed updates to its Meta AI chatbot. The chatbot now includes voice interaction, allowing users to engage through both spoken and written commands.

Here’s what analysts commented after the event:
– Citi: “Meta’s new AI products, features, and devices announced at Connect ‘24 make us incrementally confident that its product innovation can deliver increased engagement and monetization as the ROI from its AI investments continues to expand.”
– Bank of America: “We think AI Glasses have much broader market potential than VR goggles. While Metaverse spending still seems hard to justify, with glasses long-term investors may have renewed optimism on Meta’s opportunity to be at the forefront of the next generation of personal computing devices.
More importantly, the company appears to be successfully innovating around new AI capabilities, driving usage growth which can offset terminal value concerns, and we see Meta as the top AI pick in consumer Internet.”

Google’s Enterprise AI Adoption is Inflecting, Says JMP Securities

JMP Securities analysts noted earlier this week that Google’s enterprise AI adoption is accelerating, driven by increased use of its Gemini platform.
“We are seeing signs that enterprise adoption of AI is inflecting.”
At Google’s “Gemini at Work” event, the tech giant highlighted a 35x surge in Gemini platform usage, with 75% of daily users reporting improvements in work quality due to AI. JMP Securities views this as a clear signal of a turning point in enterprise AI adoption.

The firm credits Google (NASDAQ:GOOG) for removing barriers to AI adoption by achieving compliance with key standards like SOC 1, 2, 3, and HIPAA, while forging integration partnerships with major companies such as Salesforce (NYSE:CRM), SAP, Microsoft, and Oracle (NYSE:ORCL).
These efforts have resulted in 85 new enterprise use cases over the past six months, driving meaningful cost savings and revenue growth opportunities for businesses.

JMP Securities also stressed the growing importance of AI as corporations focus on technological transformation.
Google’s integration of AI solutions with both first- and third-party data is improving accuracy and functionality, further boosting enterprise AI usage. The firm noted that generative AI usage by enterprises has surged 15x, while adoption of AI agents has grown by 6x.

Micron’s Post-Earnings Rally to Continue: Mizuho

Micron Technology (NASDAQ:MU) saw its shares jump nearly 15% on Thursday following an optimistic first-quarter revenue outlook, driven by strong demand and pricing for high-bandwidth memory (HBM) chips, which are crucial to the rapidly expanding generative AI sector.
The chipmaker, a key supplier to Nvidia, added approximately $15 billion to its market capitalization as its stock surged around 27% over the past three weeks.

“It’s really not a good day to be short memory and semi-cap equipment stocks,” a Mizuho analyst remarked after the report’s release and Micron’s stock jump.
“For the memory and semi-cap equipment bears, I would advise against going down in a ball of flames and cover shorts, and consider getting long some key semi-winners even if you dislike MU and are not willing to chase this 15%+ rip at the open,” the analyst added.
“Personally, I think the MU rally will sustain and pull in long/short haters who will flip from short to long at least for the near term.”
Micron is shifting its focus away from lower-margin segments like PCs and smartphones to higher-margin, high-value products, such as HBM chips for servers and data centers.
Mizuho highlighted that Micron management is confident their technology leads in both power and performance, outperforming competitors like SK Hynix and Samsung (KS:005930).

Piper Sandler Upgrades Accenture to Buy After Earnings

Following Accenture’s (NYSE:ACN) latest earnings report published this week, Piper Sandler analysts upgraded the stock from Neutral to Overweight, raising the price target to $395 from $329.
Despite Accenture’s overall FY25 guidance meeting expectations, analysts are optimistic regarding several underlying metrics.
The company’s first-quarter forecast exceeded consensus, with strong bookings of $20.2 billion and a book-to-bill ratio of 1.2x. Moreover, Accenture’s workforce expanded significantly, adding 24,000 employees, marking a 3.2% quarter-over-quarter increase.

“The setup for FY25 seems attractive as full-year guidance assumes no improvement beyond 1Q,” analysts noted.
One of the key growth drivers was in Generative AI (GenAI), where bookings and revenues grew approximately tenfold. In FY24, GenAI bookings hit $3 billion, with revenues of $900 million, up from $300 million and $100 million, respectively.

“Importantly, the company is starting to see some scaled GenAI projects, and an increase in data projects and security-related work ($9B in revenues, +23% growth),” Piper Sandler’s team noted.
“Overall, we believe owning ACN is attractive, given improving top-line metrics, a conservative guide, and that it is a key beneficiary of GenAI-related work.