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Google among ‘best-positioned’ AI companies By

- — Here are the biggest analyst moves in the area of artificial intelligence (AI) for this week.

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Microsoft’s Azure could become the ‘biggest hyperscale provider’

Shares of Microsoft (NASDAQ:) rose higher on Friday after the world’s largest company unveiled its fiscal Q1 earnings, beating Wall Street estimates.

The print further highlighted Microsoft’s unique position as an AI frontrunner, showcasing strong demand for its AI-powered services, which played a crucial role in the better-than-expected performance of its key Azure cloud business.

Looking ahead, the company’s CFO Amy Hood said that capital expenditures would increase “materially” to accommodate the rising demand for its generative AI products.

Bernstein analysts viewed this as an indication that Microsoft’s leadership foresees a “line-of-sight” to a “significant” increase in cloud revenue.

“We also see this as an indicator that Microsoft has taken the AI mantel, and Azure could become the biggest and more important hyperscaler provider,” the Bernstein analysts said in a note to clients.

“If this trend continues, then AI will be a large driver of Azure’s long term revenue and will require re-evaluation up of Azure’s potential size,” they added.

Google is ‘one of best positioned AI competitors,’ says BMO

Shares of Alphabet (NASDAQ:) soared to a new record high on Friday following a 10% jump driven by a stronger-than-expected earnings report for the fiscal first quarter of 2024.

Apart from beating Wall Street’s forecasts on top and bottom lines, the Google (NASDAQ:) owner also announced its first-ever dividend of 20 cents per share, and authorized a new $70 billion stock buyback program, attracting further investor attention.

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Moreover, the company said its capital expenditure (CapEx) surged to $12 billion during the period as it continued to invest heavily to improve its generative AI capabilities.

Commenting on the print, BMO Capital Markets analysts said they view Alphabet “” as one of the best-positioned AI competitors.”

“1Q24 highlighted effective monetization of the new GenAI platform shift. Search & Other, YouTube Ads, and Google Cloud exceeded our growth expectations by 260bps, 720bps, and 190bps, respectively, attributable primarily to GenAI products,” they noted.

Rosenblatt lifts Meta stock PT on higher CapEx outlook

Meta Platforms (NASDAQ:) unsettled investors on Wednesday by forecasting higher expenses and lighter-than-expected revenue, which led to a nearly $200 billion reduction in its stock market value.

Concerns have risen that the increasing costs of AI development may outweigh its benefits, sending the company’s shares tumbling about 15% in extended trading and bringing its market capitalization down to around $1 trillion.

However, the announcement did not stray Rosenblatt analysts from reiterating their bullish views on Meta.

The investment banking firm upped its target price on the stock from $520 to $560.

Rosenblatt said Meta’s report showed that the company’s revenue growth outlook for the current quarter is strong, but decelerating.

Still, its analysts believe the highlight of the report was Meta’s plan to ramp up spending.

“The low end of guidance for 2024 total expenses of $96-$99 billion was hiked $2 billion, for a growth range of 15% to 19% Y/Y, with Meta citing higher infrastructure costs (AIdriven) and legal costs,” they wrote.

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“Capex is seen in a range of $35-$40 billion, versus $30-$37 billion formerly, “to accelerate infrastructure investments” to support an “AI roadmap.”,” added analysts.

Meta’s management highlighted the challenges ahead, including tougher comparisons due to contributions from Chinese advertisers, which had boosted first quarter 2024 growth by three percentage points.

The absence of formal full-year revenue guidance has given rise to concerns that margins may stagnate or decline in 2024, according to Rosenblatt.

Yet, “the hope though is that these new AI investments will drive sales re-acceleration in a year or two, like we saw recently with Reels,” analysts added.

It’s early to rotate away from AI stocks – JPMorgan

JPMorgan analysts said this week they believe that it is premature to move away from AI stocks, despite concerns that contributed to a recent market pullback.

Notably, tech company shares experienced a downturn due to concerns about potential slowdowns in AI infrastructure development, leading to a sharp sell-off of AI-reliant companies.

While the ongoing debate concerning the duration of AI infrastructure development before a potential pause remains a key concern among investors, Nvidia (NASDAQ:)’s imminent product transition “has become the latest flashpoint in the concern around an air pocket in the near-term even as investors seem more broadly convinced about the long-term drivers of the AI spend over a multiyear period,” said the bank.

“Within these concerns, investors are also increasingly looking at some of the non-AI and macro levered companies to rotate out of the AI group.”

Still, JPMorgan believes that it is too early to justify optimism about rotating from AI stocks to non-AI sectors based on recovery hopes, given the current data and early first quarter earnings reports.

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“In relation to the challenged verticals in the form of Telecom and Enterprise, we are yet to see material changes in the spending intent to raise hopes of a recovery, while Consumer spending appears to be at a trough and plateauing, but hardly showing any signs of rebound,” it added.

Citi bullish on Lam Research, sees AI storage SSDs as next stock catalyst

Citi Research analysts have maintained a Buy rating on Lam Research Corp (NASDAQ:) this week, encouraging investors to take advantage of the buying opportunity presented by a post-earnings pullback.

As highlighted by Citii, Lam Research delivered a “beat and raise” quarter, indicating that the company exceeded analyst expectations and subsequently increased its earnings forecast.

“We maintain LRCX as our #1 equipment pick and view NAND WFE recovery in 2H24 driven by high-density AI storage SSDs as the next catalyst for the stock,” analysts wrote,

Lam also adjusted its Wafer Fabrication Equipment (WFE) outlook upward, clarifying that this revision reflects an updated analysis of industry trends, rather than new internal projections for the 2024 calendar year.


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