5 big analyst AI moves: Intel, SMCI hit by downgrades; Micron still top semis pick

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

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New Street ups Nvidia to Buy, says recent pullback presents opportunity to add exposure

New Street Research has upgraded NVIDIA Corporation (NASDAQ:NVDA) to a Buy rating with a target price of $120 this week. The move comes following a significant decline in the chipmaker’s stock since its June peak, leading Nvidia to underperform other semiconductor stocks linked to data center AI.

“We find the correction healthy overall, recognize some limited and tactical headwinds specific to Nvidia, but overall see the stock moves as an opportunity to gain more exposure,” analysts said.

The recent dip in Nvidia’s shares has been partially attributed to reports of a potential three-month delay in the release of its Blackwell chip due to design flaws. This delay could push volume shipments to Q1 2025.

Blackwell’s design features two large dies interconnected at 10TB/s using TSMC’s CoWoS-L packaging technology, which has faced ramp-up challenges and may require redesign.

To address this delay, Nvidia might extend the lifecycle of its Hopper chip, which uses the more mature CoWoS-S packaging and can be produced more efficiently. Also, Nvidia could introduce a simplified version of the Blackwell chip with a single die, New Street explains.

“While it would have lower performance than the dual-die Blackwell SKUs, it would still be an uplift vs. Hopper,” analysts noted.

New Street also maintains a positive outlook on Nvidia’s market dominance in the data center XPU space.

“We see in-house XPUs doing well against GPUs and being deployed in millions across gigantic in-house captive markets,” though they acknowledge AMD (NASDAQ:AMD) as a potential challenger.

Moreover, expectations for hyperscaler capex in 2025 have risen, now forecasting 13% growth, with AI infrastructure capex projected to grow by at least 30%. This supports the firm’s forecast that AI semiconductor spending could increase by 50% annually.

‘Distant 3rd in merchant AI:’ Mizhuo downgrades Intel stock

Mizuho analysts on Wednesday downgraded Intel Corporation (NASDAQ:INTC) stock from Outperform to Neutral and adjusted their price target to $22 from $36.

The investment bank initially upgraded Intel in November 2023, driven by expectations of strong AI momentum and new products boosting PC and data center traction. However, nine months later, the outlook has changed.

“We were wrong—INTC has continued to lag its peers and is losing share in all key markets AI/DC/PC through 2025E,” analysts wrote. “We see INTC headwinds continuing, with execution risks on its product portfolio, and we’re downgrading INTC to Neutral.”

The technology gap between Intel and its competitors has widened, and while there is long-term potential for foundry and 18A tailwinds, regaining lost leadership is likely to be challenging, Mizuho notes.

Despite launching new products in Server (Sierra Forest/Granite Rapids), AI (Gaudi 3), and PC (Meteor Lake), Intel is losing market share in PCs and data centers, remains “a distant 3rd in merchant AI.” Mizuho also cited internal challenges, including headcount reductions that could impact morale and execution.

The decision to cut dividends has further weighed on investor sentiment toward the stock, analysts pointed out.

Bofa cuts SMCI stock to Neutral amid margin headwinds

Earlier in the week, Bank of America analysts cut their rating on Super Micro Computer (NASDAQ:SMCI) stock to Neutral from Buy following the company’s report of worse-than-expected margins for the fiscal fourth quarter.

Although Q4 revenue met both the firm’s and street estimates, the gross margin of 11.3% fell significantly short of the anticipated 13.6%.

SMCI stock fell 20% on Wednesday.

The data center company’s revenue guidance for the first quarter of fiscal 2025 exceeded expectations, and its full fiscal 2025 revenue projection of $28 billion topped the consensus estimate of $23.8 billion.

However, BofA noted that Super Micro’s gross margin is expected to gradually return to its typical range of 14-17% by the end of fiscal 2025, assuming improvements in manufacturing efficiencies, a better customer mix, and the launch of new platforms.

“While the long-term benefit from AI remains intact, we move to a Neutral rating, from Buy, as we see the next several quarters remaining margin challenged as SMCI navigates a competitive pricing environment, delayed shipment of Blackwell GPU systems that require liquid-cooled racks (higher margin), and ongoing issues with component availability.”

Reflecting these headwinds, they also lowered their price objective for Super Micro Computer from $1,090 to $700, aligning with the broader sector trend where valuation multiples have seen a notable decline.

Wedbush: Palantir’s collab with Microsoft ‘a launching pad for the AIP story’

Palantir (NYSE:PLTR) and Microsoft Corporation (NASDAQ:MSFT) have announced a partnership this week to develop an integrated technology suite designed for the U.S. Defense and Intelligence Community.

This collaboration will leverage Palantir’s AI-powered platforms within Microsoft’s government and classified clouds, enabling secure cloud, AI, and analytics capabilities.

As part of the agreement, Palantir will deploy its full product suite, including Foundry, Gotham, Apollo, and AIP, on Microsoft’s cloud platforms. This will allow government agencies to build AI tools for operational and logistical purposes, with hands-on experiences to test the technology.

Also, Palantir will integrate Microsoft’s Azure OpenAI Service into secure environments, combining cloud computing with advanced language models to support AI-driven operations in defense and intelligence.

“With this marquee deal solidified and MSFT leveraging PLTR for AI and LLM capabilities to the US government, the company can now increase the pace of AI implementation while PLTR continues to accelerate AIP adoption within the federal sector,” Wedbush analysts commented.

“We believe this will be a launching pad for the PLTR AIP story to hit the DOD (Department of Defense) and broader Beltway ecosystem over the next 12 to 18 months,” they added.

Citi reiterates Micron as Top Pick on strong DRAM outlook

Semiconductor stocks have seen a sharp decline recently, driven by macroeconomic challenges and disappointing earnings that fell short of high expectations. The downturn has been linked to slower-than-anticipated replenishment of analog inventories and potential risks from the automotive sector, which accounts for 14% of semiconductor demand.

However, analysts at Citi remain optimistic about the sector, stressing that “the main reasons we are positive – AI and memory strength – remain intact.”

Despite the recent drop, Citi continues to favor Micron Technology (NASDAQ:MU) as their top pick within the industry. They believe that “it’s time to double down as the DRAM upturn should persist given reduced capacity and DRAM pricing in 3Q24 is better than expected.”

The DRAM market is showing signs of improvement, with strong performances from major players like Samsung (KS:005930) and SK Hynix.

Citi analysts have revised their forecast for 2024 DRAM pricing, now expecting a 62% year-over-year increase, up from their previous estimate of 53%. This adjustment is attributed to limited supply growth and a shift by memory makers towards high-bandwidth memory (HBM).

While there are weaknesses in the automotive and industrial sectors, the demand from the largest end markets – PCs, handsets, and servers, which collectively represent 61% of semiconductor demand – remains relatively strong.

Micron has reported that inventory levels in the traditional data center market improved during the first half of 2024 and anticipates further growth in the second half.

Citi analysts have also indicated that they “expect upside to guidance when Micron reports earnings in September.”

Micron saw its shares slump more than 30% over the past month.

5 big analyst AI moves: Intel, SMCI hit by downgrades; Micron still top semis pick

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