By Louis Juricic and Sarina Isaacs
Investing.com -- Here is your weekly Pro Recap on the biggest headlines out of tech this week: Potential new U.S. regulations on AI; concerns on Micron; a continued raft of Tesla downgrades after a red-hot run; Apple's close above $3 trillion.
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AI chip stocks Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD) lost ground Wednesday after a Wall Street Journal report said the Biden administration is contemplating imposing fresh limitations on the export of artificial intelligence (AI) chips to China.
The move stems from growing apprehensions surrounding the potential dominance of this technology by U.S. adversaries.
A move could be made by the Commerce Department to stop the shipments of AI chips made by Nvidia and other chip makers to customers in China as early as July, the report added. The ban would include the sale of Nvidia's A800 chips without a license.
Despite the latest news, Citi analysts believe AI demand will exceed supply this year and Nvidia can move its chips around. They maintain a Buy rating on the stock.
For the week, Nvidia slipped fractionally to $423.02, while AMD gained 2.4% to $113.91.
Micron's (NASDAQ:MU) fiscal third-quarter earnings came in better than expected, but concerns remained on its China market share risk.
Shares lost 4% on Thursday and continued drifting lower into Friday's close.
The chipmaker said the bottom was in for memory-chip revenue, announcing an adjusted loss of $1.43 a share on revenue of $3.75 billion. Analysts polled by Investing.com anticipated a loss of $1.59 a share on revenue of $3.67B.
Still, the chipmaker warned that China's recent Cyberspace Administration of China decision was a "significant headwind" impacting its outlook and slowing its recovery.
Wall Street analysts nonetheless mostly reflected positively on Micron's results and outlook. Citi said while the results were "ugly," which was expected, many signs are pointing at recovery being on the way.
"We continue to believe the worst of the memory cycle is behind us and a recovery is in sight," they said in a note.
And Piper Sandler analysts raised the rating to Neutral with a price target of $70 per share "primarily based on improving end-market inventory conditions with a potential improvement in volumes and pricing in 2H23."
After Tesla (NASDAQ:TSLA) shares' blistering run last month, the stock has been hit with a series of valuation-based downgrades over the past couple weeks, including cuts to neutral-equivalent ratings at Goldman Sachs, Morgan Stanley, and Barclays.
Since its bottom in late April, Tesla stock has rallied some 70% vs. an 8% rise for the S&P 500.
Goldman cut the shares to Neutral from buy, although analysts there still raised the price target to $248 per share from the prior $185, reflecting increased EPS estimates and a higher target multiple. It elaborated:
Overall we believe our view that Tesla is well positioned for long-term growth, given its leading position in the EV and clean energy markets (which we attribute in part to its ability to offer full solutions including charging, storage, software/FSD and services with a direct sales model), is now better reflected in the stock.
While the downgrade move was mostly driven by valuation, Goldman also highlighted a “difficult pricing environment for new vehicles,” which it believes will hurt Tesla’s non-GAAP gross margin in 2023.
Overall, Goldman remains “positive on EV adoption, and we continue to see the most investing opportunities among our broader set of suppliers, especially those with higher content to enable the shift to EVs and electrification.”
Barclays, for its part, downgraded the shares to Equal Weight from Overweight, saying it believes the recent sharp run-up in shares is ignoring questions on near-term fundamentals.
While Tesla stock movements tend to be driven by more than fundamentals sometimes, Barclays analysts say they are cautious to jump on the bandwagon. They believe the rally is mostly driven by investors’ renewed love for tech stocks, as well as by the excitement over recent announcements that Tesla will open its Supercharger network to other brands:
The relative disregard of challenges to near-term TSLA fundamentals amid the sharp rally is our key concern on the stock, and at the core of our downgrade to an EW rating. We see a number of underlying weak points in the near-term TSLA narrative.
It added, though, that it remains bullish in the longer term:
To be clear, we see significant long-term opportunity for TSLA - a view which underpinned our prior Overweight rating. We continue to see TSLA as the long-term winner amongst OEMs in the race to an EV world, with a strong 'balance of the two clocks.'
This is all in addition to the market seeing Elon Musk’s company as “more than a carmaker.” Still, analysts believe the market is ignoring near-term fundamental challenges.
And Morgan Stanley cut Tesla stock to Equalweight from Overweight with a price target of $250, up from $200, noting the stock's "relatively full valuation and a more balanced risk reward and highlight key drivers and investor debates for the stock at this level."
Tesla shares are up 122.8% year to date.
Apple (NASDAQ:AAPL) shares closed above a $3 trillion market cap on Friday - the first time any company has done so.
The latest push higher in Apple shares comes after Citi analysts initiated research coverage with a Buy rating and a Street-high $240 per share price target. They see further upside potential in Apple stock despite a ~47% year-to-date rally.
“Apple is navigating the macro slowdown and inflationary pressure on consumer spending by consistently gaining share from Android phones, we see ~30% further upside potential from current levels,” the analysts said in a client note.
They also argue that the market is underestimating continued gross margin expansion. This factor is one of the key pillars of the analysts’ bullish stance on Apple, in addition to growing services sales mix and strong balance sheet.
Apple shares did briefly trade above the $3T mark in early 2022, but failed to close above it.
Senad Karaahmetovic and Yasin Ebrahim contributed to this report.
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