The market headlines have been abuzz over the past 12 months with news of tech, AI, and bull rallies. It’s no secret that the explosive growth of AI has powered the gains among the market’s tech stocks, but that very success has raised the question, is this just a bubble?
We may be getting an early answer on that one, as initial earnings numbers from companies like Alphabet, Texas Instruments, and Seagate all showed strong results. And now the stock analysts at Deutsche Bank are closely watching two other major tech firms as they approach their own earnings announcements, which could provide further insight into the market’s direction.
Microsoft (NASDAQ:MSFT) and Advanced Micro Devices (NASDAQ:AMD) are well-known leaders, in their particular fields, in the tech ecosystem, and in the stock market generally, and both are intimately tied to the AI boom.
However, Deutsche Bank sees them heading in different directions going forward. Let’s take a closer look at both to find out which tech giant the analysts choose as the superior tech stock to buy ahead of earnings.
Microsoft
Starting with Microsoft, this tech blue-chip has capitalized on its widespread presence, dominance in the PC market, and strong branding to become one of Wall Street’s largest publicly traded companies. Over the past year, Microsoft has shared the top tier with Apple, with market cap valuations surpassing $3 trillion.
Microsoft has used its scale and resources well, adapting itself to the new tech landscape. The company was an early investor in AI, especially generative AI, as a backer of OpenAI, the company that brought us ChatGPT. Microsoft’s investments in OpenAI have reached a cumulative total near $10 billion.
That investment has allowed Microsoft to integrate generative AI into its Bing search engine, an effort that is one of the company’s multiple high-profile AI initiatives. With Bing, the addition of AI to the platform aims to make the search engine more user-friendly and intuitive while improving the quality of search results – and making Bing more competitive against market-leading Google.
In addition, Microsoft has also been integrating AI technology into its Azure cloud computing platform. This is another AI move that brings Microsoft into strong competition with Google, as well as with Amazon – Azure is a direct competitor to both Google Cloud and AWS. Microsoft’s cloud platform offers subscribers access to a package with more than 200 software tools and applications, and Microsoft is enhancing many of these with AI. From the user perspective, the AI integration will make Azure a stronger, more flexible platform.
Finally, in what is likely one of Microsoft’s most public uses of AI tech, the company is using AI in its Windows and Office software updates. The company has already launched its Copilot online assistant, which uses AI tech to provide user assistance in real-time, basing its advice on the user’s history of work and content creation.
This all adds up to an impressive portfolio of AI and cloud computing services, put together in a way that builds on Microsoft’s already-proven successes. And those business successes have translated into solid revenues and earnings.
In its last reported quarter this year, fiscal 3Q24, Microsoft generated a top line of $61.9 billion, a figure that was up 17% year-over-year and was $1.01 billion better than had been anticipated. At the bottom line, Microsoft realized earnings of $2.94 per share, beating the forecast by 11 cents per share.
Looking ahead, we find that Microsoft is expected to release its fiscal 4Q24 earnings on July 30, and analysts expect to see a top line of $64.4 billion, supporting earnings of $2.93 per share.
That would mark a strong quarter, and that expectation has caught the attention of Deutsche Bank analyst Brad Zelnick, who writes, “We expect another solid quarter led by sustained Azure momentum (both AI and non-AI workloads) and with potential for moderate upside across each of the three segments… With the stock trading in line with the Mag 7 mean on CY25 EPS and FCF, valuation while not cheap remains reasonable and near-term Microsoft remains one of the few tech companies seeing tangible benefits of enterprise GenAI investments.”
These comments back up Zelnick’s Buy rating on MSFT, while his $475 price target indicates room for an upside potential of ~12% on the one-year horizon. (To watch Zelnick’s track record, click here)
Overall, the Strong Buy consensus rating on Microsoft is unanimous, based on 28 recent positive analyst reviews of the stock. The shares are trading at $425.27 and the average target price of $506.27 implies a 19% gain in the coming year. (See MSFT stock forecast)
Advanced Micro Devices (AMD)
The second stock we’ll look at is AMD, one of the world’s leading semiconductor chip companies. While not in the same size league as industry-leading – and multi-trillion dollar – Nvidia, AMD still boasts a respectable market cap of $226 billion, making it the sixth-largest of the world’s semiconductor makers.
AMD’s place in the top-ten of semiconductor firms is based on sound engineering, successful development, and strong marketing. The company is known for its lines of high-end chipsets, which have found acceptance and success with data center providers, generative AI application developers, and in high-performance computing. These are all fields on the leading edge of the tech world, and by providing the quality high-capacity processors and other chips needed to drive these fields, AMD has been able to grow along with them.
The company’s newer products are driving its customer demand, particularly in the fields of high-performance computing and generative AI. These applications require faster, higher-capacity chips, and AMD met the challenge. The company’s MI300 and Ryzen series chips have already proven successful, and newer lines, like the EPYC 4004 series and Instinct Accelerators are also on the market. AMD’s products are used by such important PC manufacturers as Dell and Lenovo, and Supermicro, an industry leader in high-performance computing, is also a major customer of AMD.
In the first quarter of this year, AMD reported modest growth with total revenues of $5.47 billion, exceeding expectations by $20 million and marking a 2.2% increase from the previous year. The company’s non-GAAP EPS was 62 cents, a penny above forecasts. The company’s results were supported by record revenue in the data center segment, which was up 80% year-over-year to reach $2.3 billion.
For the upcoming fiscal 2Q24 results, expected for release on July 30, analysts are predicting quarterly revenues of $5.72 billion, along with 68 cents per share in non-GAAP earnings.
Deutsche Bank’s Ross Seymore views AMD’s advancements in AI technology positively. However, he advises caution for potential investors
“To-date, investors have largely looked through the cyclical weakness persistent across all of the co’s non-AI accelerator businesses (server CPU, Client, Gaming, Embedded) in favor of incremental AI goodness… Overall, we commend AMD for its rapid ramp of viable AI-related accelerators to compete in this age of AI, and we believe the cyclical trough for many of its non-AI businesses could be near. However, with shares trading near our $150 price target, we view the shares as fully valued at current levels,” Seymore explained.
To this end, Seymore rates AMD stock a Hold (i.e. Neutral), while his $150 price target implies that AMD will gain 7% in the coming 12 months. (To watch Seymore’s track record, click here)
The Street in general is more bullish than that. AMD has 36 recent analyst reviews, including 30 Buys and 6 Holds, for a Strong Buy consensus rating. The stock’s $195.03 average target price suggests a one-year upside potential of 39%. (See AMD stock forecast)
After reviewing these stocks, the data, and the analyst comments, Deutsche Bank’s conclusion is clear – Microsoft is the superior tech stock for investors to buy, if they’re looking to take advantage of the upcoming earnings releases.
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
