5 big analyst AI moves: Two major 2023 beneficiaries downgraded

Here are the biggest analyst moves in the area of artificial intelligence (AI) for this week.

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Goldman sees more outperformance from AI beneficiaries

Goldman Sachs analysts are out with their 2024 outlook for IT Hardware and networking equipment providers. In essence, they argue that AI beneficiaries should continue to outperform in 2024.

Top Picks in this regard include Arista Networks (NYSE:ANET), which is expected to continue benefiting from accelerating capex growth at its key hyperscale customers (Microsoft and Meta) and milestones that support Ethernet as an AI networking fabric.

Moreover, Dell Technologies Inc (NYSE:DELL) is also flagged as a company that should see growing demand for AI servers as “infrastructure investments expand beyond hyperscalers (first movers) to AI cloud service providers and eventually enterprise.”

Mixed comments on Nvidia

Bank of America analysts maintained NVIDIA Corporation (NASDAQ:NVDA) as a Top Pick in the chip sector and highlighted that the company’s “genAI dominance can potentially help generate ~ $100bn of incremental free cash flow over the next two years (CY24/CY25E).”

“In our view NVDA’s solid FCF generation creates optionality in addressing these concerns, and in helping to expand its trading multiple back to its historical median 35x-40x,” the analysts said.

On the other hand, DA Davidson analysts initiated research coverage on NVDA stock with a Neutral rating and a $410 per share price target.

“While we continue to believe that generative AI is the most important transformative technology since the Internet, we do not expect the same level of investment we saw in 2023 continuing beyond 2024,” analysts said in a note.

Morgan Stanley discusses AI regulation

Analysts at Morgan Stanley shared key takeaways following their conversation with experts from Stanford University on AI regulation.

“We continue to believe that the development and implementation of AI regulation in the US will not be imminent and discuss multiple hurdles to clear,” analysts wrote.

Overall, analysts argue that development and implementation of AI regulation in the United States is still in the early innings and that it will “take years to implement anything enforceable in the United States.”

“The experts cited resource constraints at the Federal agency level and asymmetrical information between government and industry as two key factors that could hinder successful AI regulation.”

2023 AI beneficiaries cut

Two major AI beneficiaries from 2023, MongoDB (NASDAQ:MDB) and Palantir Technologies Inc (NYSE:PLTR), saw their ratings cut this week. The former was downgraded at UBS after a 108% rally in 2023.

“We still like the durable ~30% long-term growth story, but absent a material database revs pull-through from AI workloads in 2024, we conclude that a continued re-rating of the stock is unlikely,” UBS analysts said on MDB.

Elsewhere, Palantir is 'overhyped on AI' and therefore Jefferies analysts downgraded it to Neutral.

“We are concerned that the stock has rallied to unsustainable valuation levels primarily on the back of AI euphoria (and retail trading momentum) with no monetization strategy,” the analyst said in a note.

“We are still fundamental fans and believe that the company has potential to gain share in an underpenetrated and large TAM but believe that there is more risk than reward at current levels, even when factoring in upward estimate revisions.”

UiPath gets a new bull

William Blair analysts initiated research coverage on pure AI name UiPath (NYSE: NYSE:PATH) with an Outperform rating.

“We believe that UiPath is a leader in the workflow automation and process optimization markets. The company’s platform helps automate manual workflows through user interface (UI) and application programming interface (API)-based automations,” analysts wrote.

“UiPath addresses complex and enterprise-grade processes, which has led to the company’s platform becoming mission critical for its customers (as evidenced by its strong gross retention rate of 97%).”

All in all, analysts see PATH delivering “durable growth and expanding margins over the next few years.”