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Nvidia in a ‘bubble’ says hedge fund; Intel downgraded By Stuffsearth.com

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

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Nvidia is in a ‘bubble’ and AI is ‘overhyped’ – Elliot

Elliot Management said Friday that Nvidia (NASDAQ:) stock is in a “bubble” and the AI technology causing it is “overhyped,” according to a letter seen by the Financial Times.

Elliot raised concerns about the longevity of high-volume purchases of Nvidia’s graphics processing units (GPUs) by Big Tech companies, suggesting that mega-cap tech stocks, including Nvidia itself, are in “bubble land.”

The hedge fund noted that AI is “overhyped with many applications not ready for prime time.” It argued that numerous AI applications are “never going to be cost-efficient, are never going to actually work right, will take up too much energy, or will prove to be untrustworthy.”

This commentary comes as chip stocks, which had surged due to hype around generative AI, have recently faced setbacks amid worries over the sustainability of large company investments.

Elliott also believes that AI has not yet delivered the significant productivity gains that were promised, stating that there are “few real uses” for AI currently, other than “summarising notes of meetings, generating reports and helping with computer coding.”

The letter concluded that AI, so far, is essentially software that has not provided “value commensurate with the hype” and that the current bubble could burst if Nvidia reports disappointing financial results, potentially “breaking the spell.”

Analysts raise price targets on Meta after strong earnings

Meta Platforms (NASDAQ:) delivered a solid report for the fiscal second quarter, leading to a wave of price target raises on Wall Street.

Oppenheimer analysts hiked their price target on the stock from $525 to $615 while maintaining an Outperform rating on the stock.

This adjustment signals a positive outlook for Meta’s future, particularly following its second-quarter revenue results and third-quarter guidance.

The new price target implies a 24x multiple of the projected 2025 earnings per share (EPS), which is a 13% discount compared to Meta’s peers and a 4% discount relative to the NASDAQ.

Oppenheimer’s confidence in Meta is reinforced by CEO Mark Zuckerberg’s focus on AI spending, which is anticipated to boost future advertising revenue and user engagement.

BofA Securities analysts also reiterated their Buy rating with a $563 price target on Meta, highlighting it as the “top AI play in consumer Internet.”

Meanwhile, analysts at Deutsche Bank upped their price target on Meta stock to $585 from $525, while maintaining a Buy rating.

BofA downgrades Intel stock after disappointing Q2 print

Bank of America analysts downgraded Intel (NASDAQ:) stock from Neutral to Underperform following a disappointing Q2 report that caused the stock to plummet nearly 30% on Friday.

The rating cut was primarily driven by a weak Q3 outlook and ongoing profitability challenges expected to persist through the 2026 fiscal year.

BofA analysts identified several critical issues affecting Intel, including its Integrated Device Manufacturer (IDM) structure, which is seen as less competitive compared to more focused rivals like Nvidia, AMD (NASDAQ:), and Taiwan Semiconductor Manufacturing (BVMF:).

Furthermore, the bank pointed out Intel’s lack of competitive AI accelerators, which diminishes its appeal to key cloud customers. Analysts also raised concerns about Intel’s significant restructuring efforts, including a 15% reduction in headcount and cuts to capital expenditures, warning that these actions “could create unintended competitive consequences.”

Another factor influencing the downgrade is the suspension of Intel’s dividend, potentially making the stock less appealing to some investors.

Due to these concerns, BofA significantly slashed its earnings per share (EPS) forecasts for Intel for the fiscal years 2024, 2025, and 2026, and lowered its price objective (PO) for the stock from $35 to $23.

HSBC cuts Arm rating amid less bullish AI PC narrative

Earlier in the week, analysts at HSBC downgraded Arm (NASDAQ:) shares from Hold to Reduce.

“We believe Arm has one of the best narratives among our tech coverage given expectations of significant content growth from rising royalties for its smartphones and future AI markets such as AI PC and datacentre CPUs,” analysts said.

“However, Arm shares have continued to re-rate significantly, with y-t-d appreciation of 116%, and it now trades at FY26e PE of 72x – a significant premium relative to its largecap semiconductor peers.”

HSBC flagged short-term earnings downside risk ahead of the ARM’s 1Q25 results on 31 July, primarily due to a potential slowdown in Android smartphone momentum and a less bullish AI PC narrative.

ARM shares fell more than 20% across the last five sessions due to softer-than-expected guidance and broader tech sell-off.

Datadog stock upgraded to Buy at BTIG

The investment banking firm BTIG upgraded Datadog (NASDAQ:) stock from Neutral to Buy this week, setting a price target of $143 per share. The upward revision is based on strong market checks and an “underappreciated Splunk (NASDAQ:) displacement opportunity.”

Analysts at BTIG highlight Datadog as a leading player in the observability market, poised for substantial growth with innovative products and features like Flex Logs, LLM Monitoring, and Bits AI.

“In short, we see DDOG as the best play in the observability market with a large opportunity to gain share,” they state. “We also think new products and features (such as Flex Logs, LLM Monitoring, Bits AI, etc.) create a compelling long-term growth opportunity.”

The firm’s optimism is bolstered by recent fieldwork, which included discussions with ten partners, half of which skewed towards large enterprises. BTIG concluded that cloud cost optimization efforts tied to the broader macroeconomic environment are largely complete, benefiting observability spending.

BTIG also noted that despite Microsoft’s slight cloud growth disappointment, the general trend points to improving growth at the top three hyperscale cloud IaaS providers, suggesting a favorable outlook for observability spending.

Furthermore, BTIG believes Datadog is well-positioned to capture additional market share from Splunk following its acquisition by Cisco (NASDAQ:). While this displacement is not expected to have a significant impact in 2024, it represents a substantial opportunity over the next three to four years.

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