Intel, SMCI hit by downgrade; Micron remains top semifinalist by Investing.com

Investing.com — Here are the biggest artificial intelligence (AI) analyst moves for the week.

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New Street boosts Nvidia to buy, says recent pullback provides opportunity to add exposure

New Street Research upgraded NVIDIA Corporation (NASDAQ: ) to a Buy rating with a $120 price target this week. The move follows a significant decline in the chipmaker’s stock from its peak in June, which led Nvidia to underperform other data center AI-related semiconductor stocks.

“We find the correction to be healthy overall, we recognize some limited and tactical headwinds specific to Nvidia, but overall we see the stock moves as an opportunity to gain more exposure,” the analysts said.

The recent drop in Nvidia shares was partly attributed to reports of a potential three-month delay in the release of the Blackwell chip due to design flaws. This delay could push the delivery volume to Q1 2025.

Blackwell’s design features two large dies interconnected at 10TB/s using TSMC’s CoWoS-L packaging technology, which has faced acceleration challenges and may require a redesign.

To address this delay, Nvidia could extend the life cycle of its Hopper chip, which uses the more mature CoWoS-S packaging and can be produced more efficiently. Nvidia could also introduce a simplified version of the single-die Blackwell chip, New Street explains.

“While it would underperform the dual-mold Blackwell SKUs, it would still be an increase over the Hopper,” the analysts noted.

New Street also maintains a positive outlook on Nvidia’s market dominance in the data center XPU space.

“We see domestic XPUs doing well compared to GPUs and being deployed in the millions in giant domestic captive markets,” although they acknowledge AMD (NASDAQ: ) as a potential challenger.

Moreover, expectations for hyperscaler capex in 2025 have increased, now forecasting 13% growth, and AI infrastructure capital is expected to grow by at least 30%. This supports the company’s forecast that AI semiconductor spending could grow by 50% annually.

“Distant #3 in Commercial AI:” Mizhuo Downgrades Intel Stock

Analysts at Mizuho downgraded shares of Intel Corporation (NASDAQ: ) from Outperform to Neutral on Wednesday and adjusted their price target to $22 from $36.

The investment bank initially upgraded Intel to November 2023 on expectations of a strong push from AI and new products boosting PC and data center traction. However, nine months later, the outlook has changed.

“We were wrong – INTC has continued to lag its peers and is losing share in all key AI/DC/PC markets through 2025E,” the analysts wrote. “We see INTC continuing to headwinds, with execution risks across its product portfolio, and we’re downgrading INTC to Neutral.”

The technology gap between Intel and its competitors has widened, and while there is long-term potential for the foundry and 18A tailwinds, regaining lost leadership will likely be a challenge, Mizuho notes.

Despite launching new products in Server (Sierra Forest/Granite Rapids), AI (Gaudi 3) and PC (Meteor Lake), Intel is losing market share in PCs and data centers, remains “a distant 3rd place in AI for traders”. Mizuho also cited internal challenges, including downsizing, that could hurt morale and execution.

The decision to cut dividends further weighed on investor sentiment towards the stock, analysts pointed out.

Bofa cuts SMCI stock to Neutral amid headwinds

Earlier in the week, analysts at Bank of America cut their rating on shares of Super Micro Computer (NASDAQ: ) to Neutral from Buy, following the company’s report of weaker-than-expected margins for its fiscal fourth quarter.

Although fourth-quarter revenue met both company and Street estimates, gross margin of 11.3% fell significantly below expectations of 13.6%.

Shares of SMCI fell 20% on Wednesday.

The data center company’s first-quarter fiscal 2025 revenue forecast beat expectations, and its total fiscal 2025 revenue projection of $28 billion beat the consensus estimate of $23.8 billion.

However, BofA noted that Super Micro’s gross margin is expected to gradually return to the typical range of 14-17% by the end of fiscal 2025, assuming improvements in manufacturing efficiency, a better customer mix and the launch of new platforms.

“While the long-term benefit of AI remains intact, we move to a Neutral rating from Buy as we see the next few quarters remaining margin challenged as SMCI navigates a competitive pricing environment, delayed delivery of systems Blackwell GPUs that require liquids. cooled racks (higher margin) and ongoing component availability issues.”

Reflecting these headwinds, they also lowered their price target for Super Micro Computer from $1,090 to $700, aligning with the broader sector trend where valuation multiples have seen a notable decline.

Wedbush: Palantir collaboration with Microsoft ‘a springboard for AIP story’

Palantir (NYSE: ) and Microsoft Corporation (NASDAQ: ) announced a partnership this week to develop an integrated technology suite designed for the U.S. defense and intelligence community.

This collaboration will leverage Palantir’s AI-powered platforms from Microsoft’s government and classified clouds, enabling secure cloud, AI and analytics capabilities.

As part of the agreement, Palantir will deploy its full suite of products, including Foundry, Gotham, Apollo and AIP, on Microsoft’s cloud platforms. This will allow government agencies to build AI tools for operational and logistical purposes, with hands-on experiences to test the technology.

Palantir will also integrate the Microsoft Azure OpenAI Service into secure environments, combining cloud computing with advanced language models to support AI-based operations in defense and intelligence.

“With the solidification of this agreement and MSFT leveraging PLTR for AI and LLM capabilities for the US government, the company can now increase the pace of AI implementation as PLTR continues to accelerate the adoption of AIP in the federal sector,” Wedbush analysts commented.

“We believe this will be a springboard for the PLTR AIP story that will touch DOD (Department of Defense) and the broader Beltway ecosystem over the next 12 to 18 months,” they added.

Citi reiterates Micron as the top pick for the powerful DRAM outlook

Semiconductor stocks have seen a sharp decline recently, driven by macroeconomic challenges and disappointing earnings that fell short of high expectations. The decline was linked to slower-than-expected replenishment of analog stocks and potential risks in the automotive sector, which accounts for 14% of semiconductor demand.

However, analysts at Citi remain bullish on the sector, noting that “the main reasons we are positive – AI and the power of memory – remain intact.”

Despite the recent decline, Citi continues to favor Micron Technology (NASDAQ: ) as the top industry pick. They believe “it’s time to double down as DRAM growth should persist given reduced capacity and DRAM pricing in 3Q24 is better than expected.”

The DRAM market is showing signs of improvement, with strong performances from major players such as Samsung (KS:) and SK Hynix.

Citi analysts have revised their forecast for DRAM prices to 2024, now expecting 62% year-over-year growth, up from their previous estimate of 53%. This adjustment is attributed to limited supply growth and memory manufacturers’ shift to high-bandwidth memory (HBM).

While there are weaknesses in the automotive and industrial sectors, demand from the largest end markets – PCs, phones and servers, which collectively account for 61% of semiconductor demand – remains relatively strong.

Micron reported that inventory levels in the traditional data center market improved in the first half of 2024 and anticipates further growth in the second half.

Citi analysts also indicated that they “expect an upside to guidance when Micron reports earnings in September.”

Micron has seen its stock drop more than 30% in the past month.