The 'next important test for AI bulls' happens this week with Nvidia's earnings

Investing.com -- Nvidia is set to become as large a customer as Apple (NASDAQ:AAPL) for Taiwan Semiconductor Manufacturing Co this year, as the chipmaker’s AI-driven growth accelerates.

Apple is not shrinking in importance, but Nvidia (NASDAQ:NVDA) is expanding rapidly. Bernstein estimates Nvidia’s contribution to TSMC’s revenue will grow from 5-10% in 2023 to the low-20s% in 2025, matching Apple’s share.

TSMC’s AI and backend business, particularly advanced packaging, are key growth drivers, the brokerage said, forecasting that AI will account for more than 20% of TSMC’s total revenue this year. The company is expected to navigate changes in production schedules across Nvidia's Blackwell, Blackwell Ultra, and Rubin chips while maintaining full capacity.

Bernstein projects TSMC’s earnings per share to grow 40% this year, with data center AI revenue rising from 6% of total revenue in 2023 to 14% in 2024 and over 20% in 2025.

While Nvidia's GPU business remains dominant, with GPUs expected to make up two-thirds of TSMC’s AI-related demand this year, the rise of ASIC chips—led by Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOGL) is a long-term trend.

Bernstein highlighted TSMC’s growing presence in backend services, predicting it will surpass ASE Technology Holding Co (NYSE:ASX) Ltd to become the world’s largest outsourced semiconductor assembly and test provider this year.

The firm maintained an "Outperform" rating on TSMC, setting a one-year price target of NT$1,430, implying a 30% upside.

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Monday - US Markets Closed for George Washington’s Birthday

Bath & Body Works

What happened? On Tuesday, JPMorgan upgraded Bath & Body Works Inc. (NYSE:BBWI) to Overweight with a price target of $47.

*TLDR: BBWI foresees revenue growth, margin expansion. Cash flow boosts shareholder returns.

What’s the full story? JPMorgan highlights three key drivers behind its upgraded outlook for BBWI:

First, the bank models a revenue inflection to +3% growth in FY25, reversing a -2.5% decline over the past three years. Post-pandemic headwinds in candles and sanitizers, once a 300bps drag, are now immaterial. Low-single-digit square footage growth and innovation in core categories like home fragrance and body care are expected to drive growth, while adjacent segments like hair and men’s products could contribute ~100bps.

Second, the investment cycle is shifting, with operating margins set to expand by +10-15bps in FY25. Gross margin improvements and SG&A leverage, supported by stabilized marketing and technology costs, are key catalysts. JPMorgan sees BBWI’s margins bridging toward its long-term target of ~20%, driven by fixed-cost leverage and a multi-year growth trajectory. The bank notes BBWI’s margins rank among the top 5 in its coverage universe.

Finally, BBWI’s free cash flow generation of $825M+ over FY25/26 supports a visible low-teens total shareholder return profile. A balanced capital allocation strategy includes $625M in annual buybacks (driving ~5% EPS growth) and ~$200M in dividends (~2% yield). Debt leverage, held steady at 2.5x, could unlock an additional $480M in buybacks. Combined, JPMorgan projects 9% annual returns from capital allocation alone, fueling a robust 13-14% total shareholder return outlook.

NetApp

What happened? On Wednesday, BofA Securities upgraded NetApp Inc (NASDAQ:NTAP) to Neutral with a $128 price target.

*TLDR: Morgan Stanley (NYSE:MS) harbors favorable view on AI-driven growth and stable margins. Limited upside keeps the outlook cautious.

What’s the full story? Morgan Stanley analysts highlight several catalysts driving the revision: expanding total addressable market fueled by AI and public cloud demand; a rebound in macroeconomic conditions and all-flash-array market share gains; stable gross margins in the 71-72% range following robust F24 margin expansion; operating margin growth toward long-term targets above 30%; and strong free cash flow margins supporting capital returns and EPS outperformance. While these trends signal improving fundamentals, limited upside to consensus estimates keeps the rating at Neutral.

NTAP’s F24 free cash flow margin reached 24%, with a long-term target of 20% through FY27. The company has historically returned nearly 100% of free cash flow to shareholders. Morgan Stanley models EPS growth in line with consensus estimates—a 7% CAGR through FY27—though both the firm and Bank of America project F26 and F27 EPS below NTAP’s double-digit annual growth target.

While the outlook is steadier, the analysts remain cautious on substantial upward re-rating potential.

NXP Semiconductors

What happened? On Thursday, Citi upgraded NXP Semiconductors NV (NASDAQ:NXPI) to Buy with a $290 price target.

*TLDR: Analog recovery nears as Industrial market rebounds.

What’s the full story? The analog recovery is on the horizon, with ADI signaling a broad-based resurgence in the Industrial end market and guiding for normal seasonality amid rising bookings. While Citi anticipates continued weakness in the Automotive sector—which accounts for 58% of 4Q24 sales—the analysts expect the rebound in Industrial markets (17% of 4Q24 sales) to partially offset the drag, leading to only a modest cut to estimates. This shift underscores a pivotal inflection point in the analog cycle.

NXPI’s stock, buoyed by Infineon (OTC:IFNNY) and ADI’s upbeat earnings commentary, has surged in recent weeks, reflecting early signs of recovery. The analysts project NXPI’s multiple to expand by 30-40% during this upturn, nearing the lower end of its historical 30-100% range. With consensus estimates down 30% from their peak and now only 9% above Citi’s forecasts, the worst appears to be over.

Citi upgrades NXPI to Buy, raising the price target to $290 (27x C26 EPS) from $210 (20x C26 EPS), driven by multiple expansion and the analog replenishment cycle. The analysts see significant upside as the recovery gains momentum.

Akamai Technologies

What happened? On Friday, Piper downgraded Akamai Technologies Inc (NASDAQ:AKAM) to Neutral with a $100 price target.

*TLDR: Piper downgrades Akamai citing weak 2025 outlook and murky growth prospects.

What’s the full story? Piper downgrades Akamai to Neutral after Q4 results reveal a 2025 outlook that falls short of even cautious expectations, compounded by a newly introduced 3-5-year framework. While the brokerage acknowledges progress in Enterprise IaaS, go-to-market adjustments, and stabilized operations excluding TikTok, significant challenges loom. Low growth, including in core Security, declining margins, higher capex needs, and uncertainties around revenue substitution create a murky path forward. Fast-growing segments like ZTNA, IaaS, and API remain marginal as the core business decelerates, prompting Piper to advise investors to wait for clarity before re-engaging.

The brokerage also questions the optimism of the 3-5-year framework, raising concerns it echoes unmet targets from prior analyst days. With estimates revised downward, Piper cuts its price target to $100, reflecting tempered expectations. Until Akamai navigates these complexities and delivers more consistent results, Piper remains on the sidelines.

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

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Nvidia supply chain fears are “overblown”, Jefferies says

Jefferies analysts remain optimistic ahead of Nvidia's (NASDAQ:NVDA) earnings next week, downplaying recent supply chain concerns. The firm believes these fears are overstated and expects Nvidia to deliver a strong performance.

While the stock has traded within a range since November 2022 due to worries about a slower Blackwell ramp, Jefferies analysts, led by Blayne Curtis, acknowledge that these headwinds “are real” but see limited impact on Nvidia’s outlook.

“The DeepSeek impact has largely reversed and newsflow has turned positive with hyperscalers all discussing rising capex numbers,” analysts noted.

Jefferies remains bullish on Nvidia during product ramps and expects a significant acceleration as GB200 shipments scale up, particularly ahead of potential announcements at the GTC conference.

The investment bank anticipates another earnings beat, with a possible guidance raise, though the upside may not reach Nvidia’s typical $2-3 billion range. Still, they expect these beats to grow in magnitude in the second half of the year as GB200 becomes a larger revenue driver.

“Overall, we see continued momentum into earnings and GTC and believe the supply chain fears are overblown,” analysts concluded.

BofA cuts Dell price target amid near-term AI servers risk

Bank of America analysts lowered their price target on Dell Technologies Inc (NYSE:DELL) to $150 from $155 ahead of the company's fiscal Q4 earnings, citing near-term risks tied to AI servers. They maintained a Buy rating on the stock, reiterating their long-term optimism.

Dell is set to report earnings on February 27, with BofA expecting discussions to center on AI server backlogs and Blackwell delays.

Their revenue forecast for the fiscal Q4 is $24.7 billion, slightly above the Street's $24.6 billion and within guidance. Analysts project Dell’s Infrastructure Solutions Group (ISG) revenue growth of 26.2% year-over-year and Client Solutions Group (CSG) up 2.6%.

The firm's EPS estimate of $2.50 aligns with Dell’s guidance but is just below the Street's $2.52.

Looking ahead to F1Q26, BofA anticipates revenue of $23.2 billion and EPS of $1.84, compared to the Street's $23.8 billion and $1.82.

“While the near-term set-up could be challenged on AI server revs/margins, we believe this to be transitory,” analysts led by Wamsi Mohan noted. They expect revenues and margins to improve as Dell scales AI server production and customers shift toward enterprise solutions.

BofA sees AI server revenues as volatile, with Dell previously guiding for a quarter-over-quarter decline due to Blackwell delays.

The bank estimates Q4 AI server revenue at $2.5 billion, down 14% sequentially, but expects a strong backlog of $5.6 billion, supporting future growth as shipments ramp up.

BofA: Buy Marvell stock on AI share gains

Bank of America urged investors to buy shares of Marvell Technology Inc (NASDAQ:MRVL), citing its expanding AI market share and a potential catalyst at its upcoming June 10 Investor Day.

In a recent note, BofA analysts highlighted Marvell’s strong positioning in AI optics and custom AI ASICs, particularly through partnerships with Amazon (NASDAQ:AMZN) Web Services, Google (NASDAQ:GOOGL), and Microsoft (NASDAQ:MSFT).

The Wall Street firm expects stronger-than-anticipated fiscal Q4 2025 results and Q1 2026 guidance, driven by AI-related demand.

“We note overall improving AI visibility into FY26/27E (CY25/26E) as the cloud capex outlook continues to increase,” BofA wrote, adding that Marvell’s custom silicon pipeline remains solid amid a fast-growing market.

Marvell has a “multi-generational” partnership with AWS, which is expected to expand beyond the Trainium 2.0 AI chip to include Trainium 2.5 and potentially Inferentia.

BofA estimates Marvell’s AI sales at $860 million in Q4, exceeding the $737 million consensus.

For Q1, AI sales are projected to grow 23% quarter-over-quarter to $900 million, with potential upside depending on AWS’s Trainium 2 ramp.

Time to buy memory stocks, according to Mizuho TMT specialist

Mizuho's TMT specialist Jordan Klein sees an opportunity to buy memory stocks, citing improving supply-demand dynamics and a potential pricing recovery in the second half of 2025.

“I would be buying Micron (NASDAQ:MU) and Western Digital (NASDAQ:WDC) and looking to get more positive on memory stocks,” Klein wrote, adding that Lam Research (NASDAQ:LRCX) could also benefit as a semiconductor capital equipment play.

The call follows TrendForce’s forecast for a NAND and DRAM turnaround, with NAND prices expected to decline only 0-5% in Q2 before rising 10-15% in Q3 and 8-13% in Q4.

“These are just price forecasts, so only time will tell,” Klein cautioned, but noted that memory stocks tend to rally before spot prices recover.

Investor sentiment in DRAM and NAND remains cautious, though Klein pointed out that “just a little bit of good news could help drive these stocks a lot higher.”

Micron has been seeing its share price surge in recent days, despite management lowering gross margin guidance at the Wolfe Conference.

“[It is] very bullish price action to me and likely will pressure all the shorts who have a decision to make near term,” Klein said.

Beyond Micron, Klein is particularly bullish on Western Digital and Sandisk, citing WDC’s upcoming NAND flash spin-off and its joint venture with Japan’s Kioxia.

Kioxia shares surged 25% in three days following earnings that signaled a NAND market recovery in the second half of the year.

With AI server storage demand rising, China stimulus boosting consumer sales, and inventory levels shrinking, Klein sees MU testing $130+ later this year and believes memory stocks are poised for upside.

2025 will be another strong year for AI stocks, UBS says

UBS analysts remain bullish on global AI stocks, forecasting mid-teen returns in 2025, driven by accelerating AI adoption and strong investment commitments.

In a note Thursday, the bank reiterated that “AI is the tech theme of the decade” and sees further upside despite the sector’s strong gains.

Since the launch of ChatGPT in late 2022, the NASDAQ 100 has surged over 84% to all-time highs. UBS attributes this rally to market confidence in both low-cost and high-cost AI models coexisting, driving broader adoption.

“We think there is more to go in the AI rally despite the strong performance so far,” they wrote.

For global markets (excluding China), UBS projects AI spending to approach $500 billion in 2026, with AI-related revenues reaching the same level.

The bank estimates this could create a $1 trillion AI end-demand opportunity, with global AI operating profits reaching $350 billion next year based on a 35% operating margin.

Applying a 30x multiple to those profits—consistent with quality growth stocks—UBS values the AI sector’s market cap at $10.5 trillion by the end of 2025, up from the current $9 trillion.

Despite macro uncertainty, UBS remains optimistic, advising investors to “buy the dip in quality AI names” and favor large-cap AI leaders, cloud platforms, and semiconductor companies globally.