Investing.com — Here are the biggest analyst moves in the area of artificial intelligence (AI) for this week.
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You have to own Microsoft, Bernstein says
Bernstein analysts reiterated their Outperform rating on Microsoft (NASDAQ:MSFT) with a price target of $511, emphasizing the stock’s strong growth potential.
In a note issued Thursday, they highlighted Microsoft’s expanding AI revenue, which is expected to surpass a $10 billion run rate by the end of the next quarter, as a central reason for their optimism.
Microsoft’s AI business is built on two primary components: SaaS-based Copilots (excluding GitHub Copilot) and Azure AI. Bernstein explained that Azure AI generates revenue primarily through inferencing for enterprises, including OpenAI, offering stability and attractive margins.
“Microsoft AI revenue is not exposed to the concerns relating to AI training spending but is instead predominantly inferencing which is more stable and better margins,” analysts noted.
The analysts also called attention to the rapid rise of Microsoft 365 Copilot, which has achieved an annual revenue run rate of $1–$1.5 billion within its first year. While this figure is lower than initial expectations, Bernstein remains optimistic about its long-term growth potential.
“While smaller than most hoped by the point, we believe that it will continue to grow and grow at a healthy rate for many years to come,” they stated.
Despite recent stagnation in Microsoft’s stock performance, Bernstein remains bullish on the tech giant’s outlook.
“With Microsoft’s stock having gone nowhere for months we are getting much more constructive on the setup and believe that within less than a year investor sentiment will swing back toward – you have to own Microsoft,” it concluded.
BofA raises Tesla PT
Bank of America raised its price target for Tesla (NASDAQ:TSLA) to $400 from $350, citing stronger growth confidence following a recent visit to Tesla’s Giga Texas factory in Austin. The visit included meetings with investor relations, factory tours, and test drives, providing insights into Tesla’s current operations and future prospects.
“The trip gave us increased confidence that TSLA is well-positioned to grow in 2025+ with its core EV business (new vehicles will expand its TAM) and launch of its robotaxi offering, and longer-term from its investments in Optimus,” the analysts stated, reiterating their Buy rating on the stock.
Bank of America pointed out Tesla’s advancements in its Full Self-Driving (FSD) technology, describing the capabilities of the latest versions, 12.5 and 13.2, as “impressive and much improved from prior versions.”
Tesla demonstrated autonomous navigation on challenging roads and projected intervention rates of just once every 10,000 miles—a milestone aligned with its planned 2025 robotaxi launch.
The analysts also noted Tesla’s rapid progress in AI compute, with the deployment of 50,000 H100 chips providing a significant edge over competitors like Waymo. This expansion supports Tesla’s ambitious robotaxi plans and the development of its Optimus robot program.
Optimus, currently used internally for tasks such as sorting 4680 battery cells, is set to scale production to 1,000 units by 2025. Bank of America expects enhanced training and expanded compute resources to accelerate Optimus’s capabilities, potentially reducing production costs significantly by 2026.
Looking ahead, the bank anticipates Tesla’s margin growth to shift from hardware to software, leveraging high-margin services like FSD and connectivity. The analysts also suggested that Tesla’s AI and robotics initiatives could justify an equity raise to expand compute capacity – a move they believe investors would view positively.
HSBC starts Broadcom at Hold
HSBC initiated coverage on Broadcom (NASDAQ:AVGO) with a Hold rating and a $160 price target, citing limited upside to FY25 earnings amid slowing growth in key segments and potential challenges in the fiscal year 2026 (FY26).
While Broadcom remains a significant player in the AI sector, driven by its custom silicon and AI networking business, HSBC expressed concerns over decelerating momentum.
The bank projects FY24 application-specific integrated circuit (ASIC) revenue to grow by 185% year-over-year but anticipates a sharp slowdown to 23% growth in FY25.
“We expect ASIC revenue growth to fall to 23% y-o-y in FY25e, despite the addition of two new customers, given slower growth in chip-on-wafer-on-substrate (CoWoS) capacity allocation,” HSBC stated.
The bank’s FY25 ASIC revenue estimate of $10 billion is 5% below consensus, highlighting Broadcom’s challenges in keeping pace with competitors like NVIDIA and AMD (NASDAQ:AMD), which are expected to see AI GPU revenue growth of 139% and 124%, respectively.
HSBC acknowledged planned upgrades to Broadcom’s AI switch product line, including the transition to the higher-priced Tomahawk 5. However, even under an optimistic scenario where Tomahawk 5 makes up 30% of the product mix, HSBC estimates the potential EPS boost at just 3%, signaling limited impact on earnings.
Looking to FY26, HSBC flagged potential risks, including a slowdown in momentum from VMware (NYSE:VMW), which Broadcom acquired in 2023, and possible loss of wireless market share if Apple (NASDAQ:AAPL) develops in-house Wi-Fi modules.
Valuation remains another concern for HSBC, with Broadcom trading at 27x FY25 earnings, significantly above its historical 18x multiple and higher than peers NVIDIA and AMD. Despite Broadcom’s leadership in custom AI solutions, HSBC projects slower AI revenue growth, which may temper enthusiasm for the stock.
Citi upgrades HPE to Buy on AI-driven growth
Citi analysts upgraded Hewlett Packard Enterprise (NYSE:HPE) to a Buy rating from Neutral on Friday, pointing to strong AI-driven growth and improving business fundamentals as key factors. The price target was also raised from $23 to $26.
The analysts highlighted the company’s solid performance in AI, noting that “AI server momentum continues to remain robust in 4Q24 results, with the company noting strength in AI systems.”
Citi emphasized that AI-related revenues grew by over 300% year-over-year in the fourth quarter, reaching $1.5 billion. They project continued growth in AI revenues at an annual rate exceeding 25% through 2026, driven by increasing adoption across enterprises and advancements such as liquid cooling technology.
HPE’s robust pipeline also stood out, with $3.5 billion in orders secured following Q4, underscoring its strong foothold in private cloud AI solutions. Citi analysts see this as a key component of HPE’s strategy moving forward.
Recovery in networking was another positive highlighted by Citi, with three consecutive quarters of order growth.
Although Q4 revenues were flat sequentially, analysts anticipate further upside following the completion of the Juniper acquisition. They estimate that the deal could result in up to 16% EPS accretion by FY26, enhance HPE’s margin profile, and increase networking’s contribution to total sales to between 25% and 30%.
Moreover, Citi noted strength in hybrid cloud.
“Hybrid cloud revenues grew 18% y/y and 22% q/q, and came in much better on expected on demand in private cloud and ongoing adoption of HPE Alletra storage.”
Analysts also pointed to improving server demand and new AI-driven opportunities as foundational elements for HPE’s sustained growth trajectory.
BofA double upgrades Credo after Q3 results
BofA Securities analysts double upgraded Credo Technology (NASDAQ:CRDO) from Underperform to Buy, following a strong earnings report that drove the stock up over 30% in premarket trading on Tuesday. The firm also significantly raised its price objective for Credo shares to $80, up from $27.
Credo outperformed expectations in its fiscal third-quarter results and offered an optimistic outlook, prompting BofA to boost its fiscal year 2026 and 2027 earnings per share (EPS) estimates by 65% and 88% to $1.01 and $1.51, respectively.
The new $80 price target reflects a 60-times calendar year 2026 PE multiple, consistent with the higher range of comparable companies.
Analysts attributed this adjustment to Credo’s shift toward a more profitable growth model, bolstered by its multi-year adoption cycle for Active Electrical Cable (AEC) products, which play a critical role in power-efficient AI clusters.
BofA expects a strong second half for fiscal year 2025, driven by growing AI demand from Amazon (NASDAQ:AMZN) Web Services, a key customer and investor in Credo.
“Our prior cautious view was based on limited TAM assumptions for AEC, but CRDO’s earnings call addressed those concerns nicely, with 3x 10% customers, and growing momentum in other adjacent areas,” wrote analysts led by Vivek Arya.
The report also highlighted Credo’s expanding product portfolio and increasing exposure to AI technologies, including NVIDIA Corporation (NASDAQ:NVDA) GPUs and Amazon’s Trainium2 AI chip. These developments position Credo to benefit from the ongoing AI boom.
On the other hand, BofA cautioned about potential risks, including Credo’s premium valuation, vulnerability to changes in AI investment sentiment, and heightened competition in the AEC market from players like Marvell (NASDAQ:MRVL) Technology and Broadcom.