Investing.com — Here are analysts' biggest trends in the artificial intelligence (AI) space this week.
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Loop Capital upgrades Apple and announces highest price target on the market
Apple Inc. (NASDAQ:) shares rose on Monday after analysts at Loop Capital upgraded the stock to a “buy” rating and set a new target price of $300, the highest on Wall Street.
Analysts expressed confidence that Apple could become a leading platform for next-generation AI, similar to its historic success with the iPhone and iPod.
“Our $300 forward price-to-earnings multiple is 33x 2026 EPS of $9.00 (trailing-twelve-month stock valuation). The 33x price-to-earnings multiple is at the high end of AAPL's 20x to 35x price-to-earnings multiple range post-COVID,” Loop Capital explained in a client note.
This latest upgrade comes on the heels of recent findings suggesting that excitement around AI has led to a significant increase in iPhone 16 production.
“AAPL has an opportunity over the next few years to solidify its position as 'base camp' for the AI generation of consumers, similar to what social media was to 15 years ago (iPhone) and digital content consumption to 20 years ago (iPod),” the analysts wrote.
Wolf Research begins investigation into Google shares
Sell-side research firm Wolfe Research initiated coverage on shares of Alphabet (NASDAQ:) on Monday and gave the stock an outperform rating and a $240.00 price target.
Analysts said their bullish assessment is based on a long-term view that Alphabet's scale, investments in AI, market leadership and product innovation will enable the company to stay ahead in the digital advertising market, gain share in cloud computing, develop new revenue streams and maintain a strong position in the race to become AI-enabled.
Moreover, the current valuation is viewed as “fair on a growth-adjusted basis.” Wolf noted that the $240 target price is derived from a price-to-earnings multiple of 25 times fiscal year 2025 forecasts.
“This multiple is above the median multiple of its similar digital advertising peer group but below the median multiple of its mega-cap peer group, which we believe is reasonable given GOOGL's ability to grow beyond the digital advertising market and expand margins in the process,” the analysts noted.
HSBC sells Qualcomm shares as AI PC outlook weakens
Later in the week, HSBC downgraded Qualcomm (NASDAQ:) shares to “hold” on Wednesday, citing a lack of catalysts and “diminished bullish view on AI PC.” Despite slightly raising its price target from $190 to $200, the analyst remains cautious about Qualcomm's near-term performance.
In its report, HSBC said Qualcomm's third quarter fiscal year 24 results are in line with consensus, with revenue expected to be $9.3 billion, close to the consensus estimate of $9.2 billion. Third quarter fiscal year 24 gross margin (GM) is expected to be 55.9%, slightly below the consensus estimate of 56.1%.
However, HSBC expects quarterly revenue to be flat at $9.3 billion, below the consensus estimate of $9.8 billion due to lower mobile phone revenue forecasts, raising concerns about the fourth quarter of fiscal 24. Fourth quarter gross profit margins are also expected to decline to 55.6% from the consensus estimate of 55.9%.
HSBC noted continued uncertainty in the smartphone market, with China's Android device market in particular expected to decline 15% quarter-on-quarter.
Speaking of AI PCs, HSBC has revised down its forecast following mixed reviews after Computex. Initially optimistic about the first-mover advantage of QCOM's Snapdragon X Elite/X Plus processors, HSBC now expects Qualcomm to ship only 600,000 AI CPUs in FY24, well below previous market expectations of 1-1.5 million. This revision has significantly reduced the projected AI CPU revenue.
UBS upgrades Accenture to “buy” on growth expectations from GenAI
Meanwhile, UBS upgraded Accenture (NYSE:) shares to buy from neutral, saying the stock could double in value as the market expects faster revenue growth amid growing AI options.
“We understand the concerns about the pace of IT spending, but the change in business mix [towards cloud, digital transformation, cybersecurity, and now Gen AI should drive higher and more durable growth,” UBS analysts stated.
Further, UBS’s analysis of the revenue from Accenture’s top 10 alliance partners relative to Accenture’s own revenue suggests a top-line acceleration over the next 12 months. As such, UBS believes the stock is not currently pricing in the full extent of GenAI potential.
The bank’s analysts also expect Gen AI adoption to accelerate as clients begin to realize value at scale from their experiments, potentially scaling even faster than Accenture’s cloud business, which grew from $1 billion in FY12 to $32 billion in FY23, representing approximately 50% of total revenue.
TD Cowen ups Fortinet to Buy
During the week, cybersecurity firm Fortinet (NASDAQ:) received an upgrade from TD Cowen analysts, who now hold a Buy rating on the stock.
The investment bank cited several factors behind the move, including solid channel checks indicating a bottoming cycle for security appliances, expectations of an improved outlook for the second half of 2024 due to easier year-over-year comparisons, an operational technology (OT) upgrade cycle, and increased SASE (Secure Access Service Edge) adoption.
In addition, analysts view Fortinet “as a beneficiary of on-premise Gen-AI ramp-up.”
TD Cowen also said the valuation of Fortinet at 27x its projected fiscal year 2025 free cash flow (FY25E FCF) is viewed as offering potential upside to the newly established $75 price target.
