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Citi analysts recently turned their attention to Apple’s partnership with Baidu (NASDAQ:BIDU), saying that their collaboration on AI initiatives is primarily driven by regulatory concerns.
According to a report from the Wall Street Journal, Apple (NASDAQ:AAPL) plans to integrate Baidu’s ERNIE Bot as the local large language model (LLM) provider for its forthcoming iOS18, with monetization occurring through API interfaces.
“If true, we believe the collaboration is mostly driven by regulatory concerns while Apple is reported to be in talks with Google (NASDAQ:GOOGL) and OpenAI amidst internal Gen-AI efforts for other markets,” Citi analysts commented.
“China published an AI regulation in 2023 where it requires generative AI models to be approved before launching to the public, and ERNIE is one of the 40 models already approved,” they added.
On Monday, Wedbush upped its price target for Microsoft Corporation (NASDAQ:MSFT) to $500 from $475, while reiterating its outperform rating.
The firm remains optimistic about Microsoft’s AI capabilities, particularly regarding Copilot’s financial prospects, and observed a surge in AI adoption among Microsoft’s clients and industry leaders.
“We strongly view this as Microsoft’s ‘iPhone Moment’ with AI set to change the cloud growth trajectory in Redmond the next few years and our recent checks giving further confidence in this dynamic,” analysts noted.
The broker predicts that more than 70% of Microsoft’s user base will integrate its AI functionalities within the next three years, potentially boosting the company’s revenue by an additional $25 billion to $30 billion by 2025.
Simultaneously, it also pointed out several potential risks, including intensified competition, pricing strategies, technological changes, and economic challenges that might affect the company’s ability to meet these expectations.
Analysts at Bank of America (BofA) lifted their 12-month target price on Taiwan Semiconductor Manufacturing (NYSE:TSM) to NT$880 (US$155) on expectations of stronger structural advanced node demand bolstered by “AI strength, computing power, power and saving requirement.”
“In addition, Intel’s recent confirmation on outsourcing Lunar/Arrow Lake CPU tiles to TSMC should contribute and bode well for TSMC’s industry leadership,” the analysts added.
The analysts highlighted the increased importance of advanced semiconductor nodes due to the rising computing power requirements highlighted by AI, as recently noted by OpenAI CEO Sam Altman and TSMC founder Dr. Morris Chang.
Furthermore, the advanced nodes play a vital role in mitigating the escalating electricity consumption.
Against this backdrop, BofA projects that the revenue for industry-leading edge foundry services (sub-7nm) is expected to see a 22% compound annual growth rate (CAGR) from 2023 to 2025.
“TSMC share price has risen 27% YTD, backed by AI strength and industry recovery. The forward P/E tends to move along with SOX since 2020 but underperformed in 2H23- 2024 YTD,” analysts noted.
“Hence, we believe its valuation should catch up and deserves a re-rating since TSMC is indispensable in the AI era,” they added.
Earlier in the week, Adobe (NASDAQ:ADBE) hosted its much-anticipated Summit user conference and analyst event, where the company unveiled numerous new features.
Commenting on the event, analysts at BMO Capital Markets highlighted that Adobe’s latest product innovations are largely aimed at enhancing enterprise use cases within both its Creative Cloud and Experience Cloud offerings.
This, they noted, reinforces their perspective of Adobe as a forefront company in enterprise workflow solutions.
“While we believe there continues to be a tighter range around FY24 net new ARR, Adobe still has longer-term growth levers across price, mix, and seats, in our view,” BMO’s team said reiterating an Outperform rating and $610 price target on the stock.
Meanwhile, KeyBanc analysts maintained an Underweight rating and a $445 price target on Adobe after the conference.
The brokerage firm noted that the most significant takeaway from the meeting was a reiteration, and highlighted how confusing the initial lack of reiteration was to both analysts and investors.
They noted that Adobe’s FY24 targets were immediately addressed at the beginning of the meeting and, with the exception of the breakup payment related to Figma, remained precisely as initially outlined at the year’s start.
In this week’s note to clients, Macquarie analysts said that the market for foundational AI models seems to be undergoing a “shakeout” phase, which has notably impacted some AI startups.
The financial services firm anticipates such disruptions to continue as companies strive to keep up with rapid innovation.
“Between Inflection AI and Stability AI, it looks like the foundational AI model market is experiencing a shakeout event,” analysts wrote.
“We expect to see more shakeouts as the market allocates capital amidst accelerated innovation,” they added.
In the same note, Macquarie also pointed out that while Apple’s collaboration with Google grabbed attention, the iPhone maker has independently been advancing in local generative AI research.
Its analysts foresee the iOS ecosystem employing a hybrid approach: using Gemini-class models for intricate reasoning and analytical tasks, alongside deploying local AI models within the Apple Neural Engine for routine, daily operations, balancing both centralized and on-device AI capabilities.
