Melius Research analysts upgraded shares of AMD (NASDAQ:AMD) to Buy with a new $188 two-year price target (up from $125) and downgraded Cisco Systems (NASDAQ:CSCO) to Hold with a $55 two-year price target (down from $60) in a note Monday.
The firm, in a note covering the technology sector, said the artificial intelligence halo effect will begin in 2024, and they expect a lift in the second half.
"Generative AI is poised to deliver its "Halo Effect" on IT spending, starting in 2024," said the firm. "If 2023 was the year of getting ready or "training" large language models, then 2024 should be the year where production or "inferencing" starts to kick in (more assistants and voice prompts help)."
Furthermore, they believe generative AI revenues should start to become more material for more players, with this phase benefitting earnings for a broader set of semis and software companies into 2025. "However, the market already anticipated this boost for many during 2023, so 2024 will be a game of seeing who can exceed high expectations," they note.
Melius believes outperformers from 2023 can continue, and as a result, it lifted the AMD rating. Meanwhile, Cisco was cut as it could be rangebound.
"AMD could have huge ramps for AI equipment later in 2024 and especially in 2025 - and we see meaningful upside to consensus," Melius analysts wrote.
"Cisco - which is about flat from our launch in July - seems like it is still finding its way in terms of AI customers and managing the predictability of its own business as customers digest purchases."