5 Major Analyst AI Developments: SK Hynix Faces Double Downgrade; ADI Recognized as Top Semiconductor Pick

Key Analyst Updates in the Artificial Intelligence Sector This Week

This week saw notable analyst movements in the artificial intelligence (AI) sector, with several firms making significant updates.

William Blair Initiates Coverage on Arm and Broadcom with Buy Ratings

William Blair has begun coverage on Arm Holdings, issuing an Outperform rating due to the company’s potential for substantial earnings per share (EPS) growth and stock price appreciation in the upcoming years. The analysts identified growth drivers such as increased Average Selling Prices (ASPs), market share gains in data centers, rising demand spurred by AI, and a new upgrade cycle in mobile and PCs. Although Arm’s stock is trading at a premium, this is viewed as justified by its robust growth outlook, particularly as financial forecasts for 2026 and 2027 are expected to clarify.

Their analysis suggests approximately 35% upside potential for Arm’s shares, supported by anticipated revenue growth and improving profitability over the next decade. Furthermore, William Blair assigned an Outperform rating to Broadcom, highlighting the company’s strategic move into software to mitigate the cyclical challenges of the semiconductor industry. Analysts believe Broadcom is well-positioned for further growth due to AI-driven demand in networking and custom chip areas.

Morgan Stanley Downgrades SK Hynix Amid Cloudy Future

SK Hynix shares fell following a double downgrade from Morgan Stanley, with the rating shifted from Overweight to Underweight. Analysts acknowledged that current conditions are favorable, predicting a strong 2024 driven by rising DRAM prices leading up to the fourth quarter. However, concerns loom beyond this period, as analysts see potential risks to revenue and EPS growth due to declining prices and increased competition in high-bandwidth memory.

Morgan Stanley also substantially cut its price target for SK Hynix, reducing it from 260,000 to 120,000 Korean won.

Citi Names Analog Devices as Top Semiconductor Pick

Citi analysts have designated Analog Devices as their top pick in the semiconductor sector. This decision follows an update to their rankings, which included adjustments for Micron Technology and an upgrade for Texas Instruments. Citi highlights that Analog Devices holds lower downside risk in the automotive sector compared to competing analog semiconductor manufacturers, especially after recent earnings results.

Citi sees this positioning making Analog Devices a safe bet amid ongoing market fluctuations, placing it at the top of their semiconductor stock recommendations.

AI Sector Gains Traction Post-Fed Rate Cut, According to Wedbush

Wedbush analysts reported a boost in the AI revolution trade following the recent 50 basis point rate cut by the Federal Reserve, suggesting a more favorable landscape for Big Tech and AI stocks. This aggressive move is viewed as a catalyst for tech sector momentum leading into 2025.

Analysts noted the recent resilience in the tech sector, with earnings reports indicating that the AI revolution is moving into its software and application phase. Predictions also point to substantial investments in AI expected to reach $1 trillion in the coming years, with Nvidia emerging as a leader in this sector.

Melius Research Upgrades Oracle to Buy

Melius Research has upgraded Oracle’s rating from Hold to Buy, setting a price target of $210. Analysts praised the strategic partnerships and influence of Oracle’s leadership in driving its AI-first Cloud initiative. Despite Oracle’s stock already rising 54% this year, Melius Research believes this upgrade is timely and suggests that Oracle is set for continued growth, potentially outpacing notable competitors.

Analysts anticipate a significant earnings run rate and expect strong growth prospects that warrant a 25x earnings multiple for the company.