Investing.com — Here are the biggest analyst moves in the artificial intelligence (AI) space this week.
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Microsoft downgraded to Oppenheimer
Analysts at Oppenheimer downgraded Microsoft (NASDAQ: ) stock from Outperform to Perform on Tuesday, citing concerns about higher consensus expectations for both revenue and earnings.
A key issue raised by the firm's analysts is potential losses from Microsoft's AI partner, OpenAI, which is expected to post a loss of nearly $5 billion this year. With Microsoft holding a 49% stake, the company may face a significant financial impact as a result.
The downgrade also highlighted the slower-than-expected business adoption of AI technology, which could lead to lower-than-expected revenue from AI-related services.
In addition, Oppenheimer pointed to rising capital expenditures (CapEx), especially for high-performance computing, such as GPUs and data centers. The company estimates that Microsoft's CapEx will reach $63 billion by 2025, a 14% year-over-year increase and double what it spent in 2023. Depreciation is also expected to increase by 28%, to $29 billion.
Analysts pointed out that the Federal Reserve's interest rate cut by 50 basis points in September, will have a negative impact on Microsoft's net interest income from its $76 billion in reserves.
Oppenheimer also expressed concern about Microsoft's gross and EBITDA, which is expected to decline due to inflation and operating costs linked to AI investments.
“This will translate to 3% EPS growth in 1Q25 and we expect weak guidance for 2025. We also think Street estimates for EPS growth are ~200bps too high for FY26 and FY27,” analysts said there is a note.
Other risks include potential constraints on data center capacity to meet expected GPU deployments and growing competition in the AI space, with other companies closing the gap on Microsoft.
Microsoft stock currently trades within a five-year price-to-earnings range of 25x-35x, though Oppenheimer suggests it could drift toward the lower end of that range.
Goldman raises Nvidia's price target after meeting with leadership
Goldman Sachs raised its price target for Nvidia (NASDAQ: ) to $150 from $135 on Friday, indicating potential upside of 11%.
After a recent investor meeting with Nvidia CEO Jensen Huang, CFO Colette Kress, and IR representative Stewart Stecker, Goldman Sachs analysts expressed strong confidence in Nvidia's competitiveness, especially as workloads become more difficult.
“We came out of NDR with a better appreciation of how the company is able to compete, most importantly, the perceived increase in the complexity of the Inference workload and its impact on computing demand in the future,” the bank noted.
Goldman Sachs highlighted several factors that underpin Nvidia's competitive advantage, including its large installed base, innovation at both the chip and data center levels, and its growing software offerings.
The report specifically mentions domain-specific libraries such as Nvidia Parabricks, used for genomics analysis, and Nvidia AI Aerial, which supports 5G networks from the cloud.
The company also raised revenue and non-GAAP EPS estimates for FY2026/27 by 7% and 8%, respectively. These adjustments reflect higher cloud capex, stronger AI server orders, and improved chip-on-wafer-on-substrate (CoWoS) visibility at TSMC.
Wells Fargo cut Amazon's rating, price target
Wells Fargo cut Amazon's (NASDAQ: ) stock rating to Equal Weight from Overweight earlier in the week, citing several challenges that could halt the company's earnings update momentum.
The bank also lowered its price target for Amazon to $183 from $225.
Although Amazon Web Services (AWS) remains a strong performer, Wells Fargo said it is “not enough” to improve the ratings in the short term.
Key concerns include Amazon's investment in Project Kuiper, pressure from Fulfillment by Amazon (FBA) fees, and slowing growth in its advertising business.
The company also warned that “margin expansion may be included in 1H25 as well” and suggested that positive reviews may not return until Amazon issues guidance for July 2025.
“While the market is poised for pressure on 4Q OI, we caution that margin expansion may be included in 1H25 as well. Therefore, we are moving to Equal Weight until visibility of margin expansion resumes,” Wells Fargo's team wrote.
In addition, Wells Fargo lowered Amazon's operating income (OI) estimates by $5.4 billion, $4.5 billion, and $5.5 billion by 2025, 2026, and 2027, respectively, citing reduced monetization of its merchant services and advertising businesses.
“Amazon remains a margin expansion issue,” according to the bank, but noted that the pace of this expansion will be slower than the market currently expects.
The note also highlighted increasing competition from Walmart (NYSE: ), whose fulfillment services are priced 15% below Amazon's FBA, adding pressure to Amazon's market share.
Morgan Stanley disappointed with Robotaxi event
Morgan Stanley analysts expressed disappointment following Tesla's much-anticipated “We, Robot” event this week, citing a lack of key details about its Full Self-Driving (FSD) technology, the ride-sharing economy, and a clear go-to-market strategy. private cars.
Shares of Tesla Inc (NASDAQ: ) fell nearly 9% on Friday, as several analysts pointed to the lack of detailed updates during the event.
Tesla unveiled its upcoming “Cybercab,” but Morgan Stanley noted that the presentation lacked significant new information. “We are deeply disappointed with the content and details of the presentation,” analysts said in the paper.
Before the event, Morgan Stanley expected important updates to Tesla's FSD technology, such as measurable improvements in miles driven without separation, but these details were not provided.
The Wall Street firm also expected details of the strategy behind the company's supervised and unsupervised car-sharing services, including economic analysis and total adjustable market (TAM) estimates.
“We were expecting at least more details about the 'level of change' of the FSD program,” he explained.
In addition, the event did not provide any meaningful discussion about Tesla's collaboration with xAI or updates on Tesla's “Master Plan 4”, leaving Morgan Stanley analysts to conclude that the event failed to advance Tesla's narrative as an AI-focused company.
Political tensions 'could burst the AI bubble'
Capital Economics warned in a paper on Friday that escalating trade tensions between the US and China, or a major escalation of tensions between China and Taiwan, represent a real risk to the country that could “kill the AI bubble.”
While technology stocks have seen strong performance this year, the company warned that the rally could stall as risks in the political environment increase, especially as the US presidential election approaches.
Of particular concern is Taiwan's key role in the AI supply chain. Taiwanese companies control nearly 90% of the market for advanced AI chips and servers, key drivers of the AI capital expenditure boom among major tech firms.
According to Capital Economics, any disruption in this supply chain due to the country's conflict could have serious consequences.
“China could restrict the flow of advanced semiconductor chips and AI servers from Taiwan to the US, thereby breaking the 'AI supply chain,'” the company stressed in a note.
On the US-China trade front, the report points to the potential risk of escalating tensions after the 2024 US presidential election.
If Donald Trump returns to office, strategists expect a “major increase in tariffs on Chinese goods” and a move away from free trade, which could raise costs for tech companies. Even under the Harris administration, which is expected to maintain current export controls, there is still significant risk in the technology sector.
