Investing.com — Here are the biggest analyst moves in the area of artificial intelligence (AI) for this week.
Goldman adds and to Conviction List in August reshuffle
Goldman Sachs has reshuffled its U.S. Conviction List, adding Microsoft, Applied Materials, Delta Air Lines, O’Reilly Automotive, Viking Holdings and UPS while removing Broadcom, Dick’s Sporting Goods, Johnson & Johnson and ServiceNow.
For Microsoft, analyst Gabriela Borges highlighted the company’s position as the AI revolution shifts from training and infrastructure toward “the early stages of ’how to make AI work in enterprises.’” She said June-quarter results marked a meaningful step in reversing a period of underperformance, with Azure acceleration, improving AI unit economics and Copilot monetization, and expects earnings per share (EPS) growth to accelerate from 12% in fiscal 2027 to more than 20% by fiscal 2029.
On Applied Materials, Goldman believes the company is well-positioned to gain share at top DRAM makers and leading foundries, given its exposure to deposition and etch tools.
The true AI risk is an earnings bubble, not valuations: Goldman
In a separate note this week, Goldman Sachs strategists argued the key risk for technology stocks lies less in stretched valuations and more in the durability of their earnings growth, as market leadership broadens beyond the largest tech names.
Equity returns have broadened geographically and across sectors since 2025, reversing a fifteen-year pattern in which the U.S. market, technology sector and growth style all dominated. The premium once commanded by the five largest U.S. stocks has “almost disappeared,” with their forward price-to-earnings (P/E) now only marginally above the other 495 constituents.
Strategists led by Peter Oppenheimer drew a sharp contrast with the dot-com era. “Back then, valuations reached a much greater high, but they came down as stock prices collapsed. This time, prices have adjusted more modestly, but earnings have remained exceptionally strong,” they wrote.
Software stocks have seen an even steeper de-rating, with their global P/E premium falling to around 20%, “a far cry from the near 200% at the start of this century,” the strategists said. The driver has been the surge in hyperscaler capital spending since the introduction of ChatGPT, which has eroded the sector’s once-premium free cash flow and pushed companies toward debt and equity markets for funding.
Yet even as valuations have compressed, implied future growth expectations have kept rising. Using a dividend discount model, Goldman found the 10-year earnings growth CAGR has “accelerated well beyond the 2000 peaks.”
“Across Technology, there does not appear to be a valuation bubble, but there may be an earnings bubble,” the strategists said.
Goldman also pointed to a broader capex “super cycle” spilling over into old economy sectors, with Industrials now carrying the highest sector valuation globally while Technology has fallen back in line with its historical average.
Falling stock correlation across major markets was flagged as a sign of “healthy normalization,” with IT posting the strongest earnings growth this year alongside the biggest de-rating, a divergence the strategists said is opening up “alpha opportunities” for selective investors.
BofA calls pullback an “enhanced buying opportunity”
Bank of America has reiterated its Buy rating and $1,550 price target on Micron, telling investors the recent pullback is an “enhanced buying opportunity” rather than a reason for concern.
Analyst Vivek Arya acknowledged that memory prices and margins “will inevitably normalize at some point,” particularly as new capacity arrives from mid-2027 through 2028, but said the recent reset reflects investors positioning ahead of an eventual downturn “rather than responding to the fundamentals,” which he views as still improving.
Central to BofA’s case is earnings power. The bank models fiscal 2028 EPS of about $150, and said that even in a bear-case scenario where DRAM and NAND prices fall in line with historical downturns, EPS could hold near $100, “well above prior-cycle peak of ~$12 in 2018.”
At current levels, BofA said the stock discounts that bear case at roughly 8 to 9 times earnings, assigning little value to Micron’s HBM and AI businesses.
The analysts also flagged broadening long-term agreements, expected to cover 50% to 70% of capacity, which should reduce price volatility even if they cannot prevent a downturn. On China, BofA argued CXMT is still “not a threat in AI,” as it primarily serves commodity DRAM rather than high-bandwidth memory.
It added that GPU rental rates remain near all-time highs and no major hyperscaler has indicated memory is constraining AI deployments, “suggesting continued semis/memory pricing power.”
Summit Insights cuts to Hold as HAMR transition creates risk
Summit Insights has downgraded Western Digital to Hold, citing risks tied to the company’s shift to heat-assisted magnetic recording (HAMR) technology in its hard disk drive business.
Analyst Kinngai Chan believes the HAMR transition “creates risk,” expecting higher costs to weigh on gross margins in 2027, with average selling price per exabyte forecast to decline that year when HAMR drives begin shipping — after four straight quarters of sequential increases.
Long-term supply agreements with large customers could further limit margin upside. “We think most of the positives have already been priced into the stock and expect financial outperformance to moderate into 2027,” Chan said.
The downgrade follows Western Digital’s latest quarterly update, in which the company guided first-quarter revenue to $4.1 billion — slightly above the analyst estimate of $4.04 billion — and adjusted profit of $4 per share, above the $3.81 estimate.
Despite the upbeat guidance, shares fell 13% on Thursday as the forecast failed to impress investors following a year in which the stock had tripled on expectations of sustained AI-driven growth.
While hard disk drive demand-supply dynamics could remain favorable near-to-medium term, rising memory prices have slowed consumer electronics replacement cycles, weakening demand in the PC and consumer hard drive markets. That weakness in smaller segments could offset some of the momentum from the company’s core data center business, Chan said.
Wall Street downgrades as growth slows and catalysts dry up
HubSpot was downgraded by three Wall Street firms on Thursday following second-quarter results, with analysts pointing to slowing growth, disappointing guidance and a lack of near-term catalysts.
Bernstein analyst Firoz Valliji cut to Market-Perform from Outperform, slashing his price target to $220 from $381, saying results show “growth expectations have degraded since the company changed its GTM and pricing strategies.”
While stressing he does not think “the business is fundamentally broken,” he cited a difficult macro, uncertainty over AI adoption timing and maturation of the SaaS CRM market as a confluence of headwinds. Without a clear catalyst, he said the stock “will likely sit in the penalty box for a while.”
Separately, Oppenheimer’s Ken Wong downgraded to Perform from Outperform after “in-line-ish” results and disappointing guidance, flagging a shortfall in net customer adds of roughly 7,000 versus 9,000 to 10,000 expected, with static net revenue retention and projections for further erosion. Wong said he no longer sees “line of sight to an inflection,” though noted the valuation likely limits further downside.
Piper Sandler’s Billy Fitzsimmons also moved to Neutral, trimming his target to $220, citing third-quarter revenue guidance of 15% growth and a reduced full-year outlook. He attributed the weakness to “lengthening sales cycles and heightened budget sensitivity,” and said HubSpot will remain “in the penalty box” until there is a clearer sightline into stable growth and inflecting AI usage.
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