Microsoft downgraded, Micron rally ‘will sustain’ by Investing.com

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

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Microsoft downgraded to DA Davidson amid narrowing of AI and cloud leadership

Analysts at DA Davidson downgraded Microsoft (NASDAQ: ) from a Buy rating to a Neutral rating on Monday, maintaining their price target at $475.

The company pointed to growing competition in AI as the reason for the review, noting that rivals have largely caught up to Microsoft’s AI capabilities. This, they argue, “undercuts the justification for the current premium assessment.”

Microsoft shares are up 92% since January 2023, significantly outperforming the S&P 500, which has gained 49% over the same period.

But now, DA Davidson analysts believe Microsoft’s edge in cloud and AI is narrowing. Amazon (NASDAQ: ) Web Services (AWS) and Google (NASDAQ: ) Cloud Platform (GCP) demonstrated similar growth rates, which narrowed the gap in cloud business expansion.

“Our new analysis of proprietary hyperscaler semiconductors indicates that AWS and GCP are well ahead in deploying their own silicon in their data centers, giving them a significant advantage over Azure going forward,” they said in a note.

Microsoft’s Maia chips are still several years behind Amazon and Google, with their current use limited to Azure OpenAI Services workloads. This, according to DA Davidson, places Microsoft in a challenging position in the competitive data center landscape.

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

“This is a higher growth rate compared to Amazon and Google, a result of Microsoft’s greater reliance on NVIDIA,” the analysts continued.

“Every year Microsoft overinvests at these rates, it will decrease margins by at least 1 pp cumulatively. Microsoft would have to lay off about 10,000 employees for each year of overinvestment to make up for the margin loss.”

The firm also expressed concern about the sustainability of Azure’s revenue growth, suggesting 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: ) kicked off its developer-focused event, Meta Connect, unveiling its latest hardware and software innovations.

One of the 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 unveiled updates to its Meta AI chatbot. The chatbot now includes a voice interaction feature, allowing users to engage with both spoken and written commands.

Here’s what analysts said after the event:

Read: “Meta’s new AI products, features and devices announced at Connect ’24 make us increasingly confident that its product innovation can deliver increased engagement and monetization as the ROI on its AI investments continues to expand.”

Bank of America: “We believe AI glasses have a much broader market potential than Google VR. While Metaverse’s spending still seems hard to justify, long-term bespectacled investors may have renewed optimism about 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 that may offset terminal value concerns, and we see Meta as the best AI choice in the consumer internet.”

Google’s Enterprise Adoption of AI Is Influenced, Says JMP Securities

Analysts at JMP Securities said earlier this week that Google’s adoption of AI is accelerating, driven by increased use of its Gemini platform.

“We’re seeing signs that enterprise adoption of AI is tilting.”

At Google’s “Gemini at Work” event, the tech giant highlighted a 35-fold increase in usage of the Gemini platform, with 75% of daily users reporting improvements in the quality of work thanks to artificial intelligence. JMP Securities sees this as a clear signal of a turning point in enterprise AI adoption.

The company credits Google (NASDAQ: ) for removing barriers to AI adoption by achieving compliance with key standards such as SOC 1, 2, 3 and HIPAA and forging integration partnerships with major companies such as Salesforce (NYSE: ), SAP, Microsoft, and Oracle (NYSE: ).

These efforts have led to 85 new enterprise use cases in the last six months, generating significant cost savings and revenue growth opportunities for companies.

JMP Securities also highlighted the growing importance of artificial intelligence as corporations focus on technological transformation.

Google’s integration of AI solutions with first-party and third-party data improves accuracy and functionality, further increasing the use of enterprise AI. The firm noted that the generative use of AI by enterprises increased 15x, while the adoption of AI agents increased 6x.

Micron’s post-earnings rally will continue: Mizuho

Micron Technology (NASDAQ: ) saw its shares jump nearly 15% on Thursday after it delivered an upbeat first-quarter revenue outlook, driven by strong demand and prices for high-bandwidth memory (HBM) chips, which are essential to the rapidly expanding generative AI. section.

The chip maker, a key supplier to Nvidia, added about $15 billion to its market capitalization as its stock rose about 27 percent over the past three weeks.

“It’s not really a good day to own short-memory and semi-cap stocks,” noted a Mizuho analyst after the report and the rise in Micron’s stock.

“For memory gear and semi-cap bears, I would advise against falling into a ball of flame and cover shorts and consider getting key semi-winners even if you don’t like MU and don’t want to chase this 15%+ break at the open. “, the analyst added.

“Personally, I think the MU rally will support and attract many of these long/short haters who will switch from short to long, at least in the short term.”

Micron is shifting its focus from lower-margin segments like PCs and smartphones to higher-margin, high-value products like HBM chips for servers and data centers.

Mizuho pointed out that Micron’s management is confident that their technology is leading in both power and performance, outperforming competitors such as SK Hynix and Samsung ( KS: ).

Piper Sandler upgrades Accenture to buy after earnings

Following Accenture’s (NYSE: ) latest earnings report this week, analysts at Piper Sandler upgraded the stock from neutral to overweight, raising their price target to $395 from $329.

Despite Accenture’s overall FY25 guidance meeting expectations, analysts are bullish on several fundamentals.

The company’s Q1 forecast beat consensus with strong bookings of $20.2 billion and a 1.2x book-to-bill ratio. Additionally, Accenture’s workforce expanded significantly, adding 24,000 employees, marking a 3.2% increase over the quarter.

“The setup for FY25 looks attractive as full-year guidance assumes no improvement beyond Q1,” the analysts wrote.

One of the main drivers of growth was generative AI (GenAI), where bookings and revenue increased approximately tenfold. In FY24, GenAI’s bookings reached $3 billion on revenue of $900 million, up from $300 million and $100 million, respectively.

“Importantly, the company is starting to see some GenAI projects at scale; and an increase in data projects and security work ($9 billion in revenue, +23% growth),” Piper Sandler’s team noted.

“Overall, we believe ACN’s ownership is attractive given its improving top-line valuations, conservative guidance and that it is a key beneficiary of GenAI-related activity.”