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Downgrades required for Intel and SMCI; Micron remains top pick in semiconductor business By Investing.com

Downgrades required for Intel and SMCI; Micron remains top pick in semiconductor business By Investing.com

Investing.com – Here are the biggest analyst moves in artificial intelligence (AI) this week.

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New Street upgrades Nvidia to Buy, saying recent share price decline provides an opportunity to increase exposure

New Street Research upgraded NVIDIA Corporation (NASDAQ:) to a buy rating with a $120 price target this week. The move came after a sharp decline in the chipmaker’s stock since its June peak, causing Nvidia to lag other semiconductor stocks related to AI in data centers.

“We believe the correction is healthy overall, recognize some limited and tactical headwinds specific to Nvidia, but overall view the price moves as an opportunity to show more presence,” analysts said.

Nvidia’s recent share price decline is partly due to reports that the release of its Blackwell chip could be delayed by three months due to design flaws. This delay could push shipments into the first quarter of 2025.

Blackwell’s design consists of two large chips connected at 10 TB/s using TSMC’s CoWoS-L packaging technology, a technology that has faced challenges during ramp-up and may need to be redesigned.

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

“Even if performance were lower than Blackwell’s dual-die SKUs, it would still be an improvement over Hopper,” analysts noted.

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

“We expect proprietary XPUs to compete well against GPUs and to be deployed in the millions in huge proprietary captive markets,” they admit, however, that AMD (NASDAQ:) is a potential challenger.

In addition, expectations for hyperscalers’ capital spending in 2025 have increased, now forecasting 13% growth, with AI infrastructure capital spending forecast to increase by at least 30%, supporting the company’s forecast that AI semiconductor spending could grow 50% annually.

“By far the third in trading AI”: Mizhuo downgrades Intel shares

Analysts at Mizuho downgraded Intel Corporation (NASDAQ:) shares from “outperform” to “neutral” on Wednesday and adjusted their price target from $36 to $22.

The investment bank initially upgraded Intel in November 2023, expecting strong momentum in the AI ​​space and new products to boost the PC and data center markets. Nine months later, however, the outlook has changed.

“We were wrong – INTC continues to lag its peers, losing share in all major AI/DC/PC markets through 2025,” analysts wrote. “We expect headwinds for INTC to persist and execution risks to its product portfolio, and downgrade INTC to Neutral.”

The technology gap between Intel and its competitors has widened, and while there is long-term potential for tailwinds from Foundry and 18A, Mizuho says it will be difficult to regain the lost leadership position.

Despite launching new products in servers (Sierra Forest/Granite Rapids), AI (Gaudi 3) and PC (Meteor Lake), Intel is losing market share in PCs and data centers and remains “a distant third in commercial AI.” Mizuho also pointed to internal challenges, including staff cuts, that could impact morale and execution.

The decision to cut the dividend has further weighed on investors’ sentiment towards the stock, analysts stressed.

Bofa downgrades SMCI stock to neutral due to margin headwinds

Earlier this week, analysts at Bank of America downgraded their rating on Super Micro Computer (NASDAQ:) stock from “buy” to “neutral” after the company reported worse-than-expected margins for its fourth fiscal quarter.

Although fourth-quarter sales met both company and stock market estimates, gross margin of 11.3% fell well short of the expected 13.6%.

SMCI shares fell 20% on Wednesday.

The data center company’s revenue forecast for the first quarter of fiscal 2025 beat expectations, and its full-year fiscal 2025 revenue forecast of $28 billion beat the consensus estimate of $23.8 billion.

However, BofA noted that Super Micro’s gross margin is expected to gradually return to its usual range of 14-17% by the end of fiscal 2025, assuming improved production efficiency, improved customer mix and the introduction of new platforms.

“While the long-term value of AI remains intact, we are moving from Buy to Neutral as we expect margin challenges to continue over the next few quarters as SMCI struggles in a competitive pricing environment, there are delays in shipping Blackwell GPU systems that require liquid-cooled racks (higher margin), and there are ongoing component availability issues.”

Given these headwinds, they also lowered their price target for Super Micro Computer to $700 from $1,090, following the broader industry trend of a significant decline in valuation multiples.

Wedbush: Palantir’s collaboration with Microsoft “a launching pad for AIP history”

Palantir (NYSE:) and Microsoft Corporation (NASDAQ:) this week announced a partnership to develop an integrated technology suite 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.

Under the agreement, Palantir will deploy its full suite of products, including Foundry, Gotham, Apollo and AIP, on Microsoft’s cloud platforms, enabling government agencies to develop AI tools for operational and logistical purposes and test the technology in the field.

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

“With this major deal in place and MSFT leveraging PLTR for AI and LLM capabilities for the U.S. government, the company can now increase the pace of AI implementation as PLTR continues to accelerate AIP adoption in the federal sector,” Wedbush analysts commented.

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

Citi reiterates Micron as top pick due to strong DRAM prospects

Share prices of semiconductor manufacturers have seen a sharp decline recently, reflecting macroeconomic challenges and disappointing results that fell short of high expectations. The downturn is due to slower-than-expected analog inventory replenishment and potential risks from the automotive sector, which accounts for 14% of semiconductor demand.

However, Citi analysts remain optimistic about the sector, stressing that “the main reasons for our positivity – artificial intelligence and strong memory – remain intact.”

Despite the recent decline, Citi continues to favor Micron Technology (NASDAQ:) as a top pick within the industry. They believe that “it is time to double down as the DRAM upswing should continue amid reduced capacity and DRAM pricing is better than expected in Q3 2024.”

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

Analysts at Citi have revised their forecast for DRAM prices in 2024 and now expect a 62% year-on-year increase, up from their previous estimate of 53%. This revision is due to limited supply growth and a shift by memory manufacturers to high-bandwidth memory (HBM).

While there are weaknesses in the automotive and industrial sectors, demand from the largest end markets – PCs, mobile phones and servers, which together account for 61% of semiconductor demand – remains relatively strong.

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

Citi analysts also indicated that they “expect an improvement in the outlook when Micron reports its results in September.”

Micron shares fell more than 30% last month.

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