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5 big analyst AI moves: Baidu, Accenture downgraded to Hold

Published 05/19/2024, 03:39 AM
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Investing.com -- Here are the biggest analyst moves in the area of artificial intelligence (AI) for this week.

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RBC lifts Microsoft price target as AI remains one of key drivers

Analysts at the investment bank RBC Capital Markets raised their target price on Microsoft (NASDAQ:MSFT) stock from $450 to $500 on Friday, citing positive feedback from their recent investor meetings with Microsoft's Directors of Investor Relations.

RBC stressed that AI remains a key growth driver for Microsoft, highlighting that the tech giant continues to make substantial investments in this rapidly developing sector.

“While CapEx will likely continue to ramp and impact margins, Microsoft is following demand signals and is simultaneously focused on bringing the cost curve down,” analysts said in the note.

“Advances like GPT-4o, which is more efficient, and Maia (custom AI silicon) will help drive down the cost curve,” they added.

RBC also emphasized Microsoft's expertise in cloud services as a major advantage, providing a unified architecture for all AI workloads.

Moreover, RBC noted that while Microsoft's core cloud business is still in its early stages, there is a clear trend of companies moving more workloads to the cloud.

Azure's growth, excluding AI, has accelerated in the fiscal Q2, they noted.

“Importantly, core Azure is benefiting from the broader AI roadmap, as one-third of the 50K+ Azure AI customers are net new to Azure,” analysts noted.

MS: Dell remains best way to play building AI server momentum

During the week, Morgan Stanley analysts reiterated Dell Technologies (NYSE:DELL) as their Top Pick and upped the 12-month price objective on the tech stock to $152 from $128.

“Even after a >100% move in the T12M, DELL trades at just 13x our new FY26 EPS of $10.12 (18% above Street) & remains the best way to play 1) building AI server momentum, 2) inflecting storage demand, and 3) an improving PC mkt,” analysts said.

In their note, analysts have highlighted a significant uptick in momentum at Dell over the past four weeks, a surge they attributed to competitive wins in Tier 2 Cloud Service Provider (CSP) AI server contracts, additional enterprise AI server orders, and heightened storage demand.

As a result, the tech company now boasts the strongest forward spending intentions in over six years.

“We believe the big tier 2 CSP win referenced above could equate to a $2B order this quarter, which means AI backlog at the end of the April quarter would be just under $4B, and potentially higher taking into account smaller enterprise wins, barring any material changes in rev rec in the April quarter,” they added.

Investors more hesitant to own AMD stock, says Mizuho analyst

Investors are growing increasingly hesitant to own AMD (NASDAQ:AMD) stock, a Mizuho desk analyst pointed out in a new note.

“Why add AMD if I own NVDA and AVGO here that are cheaper and feel much lower risk?” appears to be the key pushback among market participants, the analyst said.

Earlier in the week, the company’s shares surged to a new intraday high of $168, however, there were no specific company-relate events that can be attributed to the uptick. According to the analyst, it seemed like a short squeeze was affecting much of the tech market.

Meanwhile, AMD, which became one of the AI darlings over the past year or so thanks to its powerful AI-oriented GPUs, remains a significant short position for many East Coast hedge funds, with numerous long-only (LO) investors steering clear of it ahead of Nvidia’s Blackwell launch later this year, Mizuho said.

“Stock feels like a plane crash survivor on a life raft in middle of a massive ocean just looking for land,” the analyst wrote.

“I remain a bull and love the risk reward if you have patience and duration (think 6-9 months). But I get the worry, hesitancy and concerns amongst investors.”

Baidu downgraded at Morgan Stanley amid slower-than-expected AI monetization

Meanwhile, Morgan Stanley analysts downgraded Baidu (NASDAQ:BIDU) stock this week as they predict a challenging outlook for the Chinese internet firm's advertising revenues, while monetization of its AI ventures is expected to take time.

For that reason, the Wall Street giant cut Baidu’s US-listed stock to Equal Weight from Overweight, while also slashing its price target to $125 from $140.

The downward revision follows Baidu's softer earnings for the first quarter, impacted by weak Chinese economic conditions that weighed on its core advertising revenues.

The firm, which is China’s biggest internet search engine, saw some boosts to revenue from its AI initiatives—specifically its ChatGPT-like Ernie bot and from AI-driven demand for its cloud services. However, this was offset by much higher expenses on Baidu’s AI development, Morgan Stanley analysts explained.

They believe that weakness in Baidu’s ads division is set to continue, and the transformation of its traditional businesses into AI offerings is “slow and lagged on user retention.”

Deutsche Bank cuts Accenture to Hold, doesn’t see GenAI as growth catalyst

Similarly, shares of Ireland-based IT services provider Accenture (NYSE:ACN) also received a downgrade.

Specifically, a Deutsche Bank analyst cut the rating on the stock from Buy to Hold, and reduced the 12-month price objective to $295 from $409.

According to the analyst, after Accenture's organic revenues contracted by an estimated -2.5% cc in Q2 2024, the company appears to have shifted from being a consistent market share gainer, especially over the past two years, to now losing market share to its peers in a pressured IT Services industry.

“ACN’s outlook continues to be fundamentally weak with further potential downward revisions to Street estimates possible, in our view,” the analyst wrote.

“Our channel checks suggest that Gen AI will not be a catalyst for outsized revenue growth for ACN over the near/medium-term and is causing disruption to existing pricing structures,” they added.

The debate on whether Gen AI could negatively impact IT Services vendors is expected to continue weighing on industry multiples, potentially pushing Accenture's valuation back towards a lower, more normalized historical NTM P/E multiple, the investment bank said.

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