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5 big analyst AI moves: Is Wall Street underestimating Apple’s AI play?

Published 04/21/2024, 04:01 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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Wall Street expecting another strong report from AI winner Microsoft

Microsoft (NASDAQ:MSFT) is slated to release its earnings report on April 25, with the consensus on Wall Street forecasting that the tech giant will announce earnings per share (EPS) of $2.83 and revenue of $60.77 billion.

Meanwhile, analysts at Bank of America anticipate a robust 1% increase in revenue over their third-quarter estimate of $60.5 billion for Microsoft, which would equate to a 14.5% year-over-year growth, or 14% on a constant currency basis.

Excluding Activision, the growth rate is projected to be 11% year-over-year in constant currency, "stemming from sustained Azure and M365 strength," according to BofA.

“We expect 1% upside to our estimate for Azure growth of 28.0% cc, given positive system integrator partner feedback suggesting (1) stable, healthy migration of new workloads to the cloud platform; (2) relative strength in the Microsoft security stack; and (3) ramping usage of Azure AI and data services such as Open AI Services, Azure AI and Fabric,” it said.

At the same time, analysts at Evercore ISI are forecasting Azure's growth at 28% in constant currency for the current quarter.

They also see potential for even higher growth as AI-driven consumption grows. According to Evercore, achieving a 30% growth rate for Azure is feasible, provided that the necessary incremental investments are made.

“We think anything in the 29-30% range is good enough and a 30%+ result is decidedly positive even with MSFT being a crowded long,” they said.

“There will be a lot of focus on the AI impact on Azure (~6pts last quarter) and any sense if the non-AI consumption business is stabilizing,” added Evercore analysts.

Lynx: Apple's AI strategy more advanced than the Street gives it credit

On Monday, analysts at Lynx Equity Strategies said Apple's (NASDAQ:AAPL) AI strategy “is a lot more advanced than the Street gives it credit.”

The research firm reiterated its price target of $220 on AAPL stock, saying it remains bullish on its prospects based on projections that iPhone and overall revenue will see modest growth in this fiscal year.

Lynx analysts’ comments come after recent data revealed that Q1 iPhone shipments fell 10% year-over-year, while overall global units rose 7.6% during the period.

As a result, iPhone unit share shrank to 17%, down from 20.6% in the year-ago quarter.

“Sounds bad, right? However, the report should hold little surprise for investors. The report may even be positive for the stock,” said Lynx analysts.

“IDC’s estimate of iPhone unit growth estimate of down 10% should provide a sigh of relief in the context of dreary media headlines of China units down high double-digits,” they added. “Many investors appear to confuse with iPhone’s China numbers with iPhone’s global sales.”

Lynx said earlier that iPhone weakness in the first quarter might be related to “idiosyncratic production logistics” rather than demand upsets.

The firm believes that iPhone production is set to rebound in Q2, or may have already begun its recovery last month.

Tesla’s earnings call may be “one of the most important moments in the company's history” - Wedbush

Tesla (NASDAQ:TSLA) is set to unveil its latest earnings report next week and that conference call may be “one of the most important moments in the company's history,” analysts at Wedbush said as the carmaker faces its “moment of truth.”

“While we have seen much more tenuous times in the Tesla story going back to 2015, 2018, 2020..this time is clearly a bit different as for the first time many long time Tesla believers are giving up on the story and throwing in the white towel,” the firm wrote.

This change in sentiment is attributed to a significant misjudgment of demand erosion in China, which has negatively affected the bullish outlook for Tesla, Wedbush pointed out.

Moreover, the analysts also highlighted that internal debates over prioritizing the Model 2 or the Robotaxi project, substantial layoffs that included key staff, and a fiercely competitive global electric vehicle (EV) market have transformed Tesla's narrative "from a Cinderella story to a horror show in the near-term.”

To turn things around, Wedbush’s team believes Tesla and Elon Musk must address several critical issues at the upcoming conference call, including clarifying its AI initiatives and ownership concerns and announcing an AI day to outline strategy and monetization, among other things.

SMCI price target more than doubled at Loop Capital

Earlier this week, analysts at Loop Capital more than doubled their 12-month target price on Super Micro Computer (NASDAQ:SMCI) to $1,500 from $600, while maintaining a Buy rating on the AI server maker.

"We’re raising our PT to $1500 as we continue to gain confidence in both our net-bullish Gen AI server industry posture (L-T) and SMCI as an increasing leader in the need for both complexity and scale,” analysts wrote.

“We believe valuation (P/E) will remain a conversation point and believe if our fundamental thesis has teeth a 20x – 30x P/E is maintainable.”

Analysts said the inclusion of SMCI in the S&P 500 index has sparked frequent discussions with major long-only investors, both current holders and newcomers, who agree that a 20x to 30x P/E ratio is justified for a company at the forefront of a structural build-out like generative AI.

Piper Sandler starts Reddit coverage at Overweight

Meanwhile, also this week, Piper Sandler analysts initiated research coverage on Reddit (NYSE:RDDT) stock with an Overweight rating and a price target of $50.00.

The brokerage notes that RDDT represents an emerging player in artificial intelligence, highlighting the value of its extensive data corpus, which is currently generating revenue through Data Licensing (DL).

According to analysts, this revenue stream, estimated at approximately $66 million for 2024, shows potential for growth and stability.

“We see two key points: i) we expect the DL customers to rise in future years (no growth currently modeled); and ii) it suggests likely upside to our '24 revenue forecast of ~$980MM (+22%) if ads growth remains steady,” said analysts.

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