Investing.com — Here are the biggest analyst moves in the area of artificial intelligence (AI) for this week.
These software stocks are ’well-positioning for any AI scenario’
Citi said the recent selloff in software shares has opened a fundamental opportunity, as markets have compressed terminal multiples on AI disruption fears even as earnings revisions remain positive.
In a note this week, the bank screened for software stocks down at least 10% over the past month, but with consensus EPS estimates for 2025 through 2027 revised higher over the last six months. It also focused on names where implied terminal multiples have fallen and now sit below forward price-to-earnings (P/E) ratios.
“Basically, we are looking for stocks where the terminal multiple has de-risked enough so a potential price recovery from here is not solely predicated on sentimentor technical-driven re-rating,” analysts led by Drew Pettit said.
The screen flagged 22 stocks from an eligible universe of around 90 names. Citi noted the list is tilted toward Buy-rated companies and includes several that its analysts believe “are well-positioning for any AI scenario.”
These include , , , and . Buy-rated names “that are perceived relative winners in a bear ‘AI Disruption’ scenario for software” also include , the analysts added.
Citi argues that recent weakness has largely reflected markets “punishing terminal multiples” over uncertainty tied to AI-related business model risks, rather than a deterioration in near-term fundamentals.
The bank estimates that an approximately 10% reduction in terminal multiples for the S&P 500 Software & Services group is already fully priced in, while only part of a deeper 20% cut is reflected.
Even so, software is “not setting onerous implied growth expectations,” including under scenarios where terminal multiples decline 10% to 20%. “Therefore, upward revisions should matter to stock price action, at least in a relative sense,” the analysts wrote.
In a “fully valued and more volatile bull market,” they added, earnings momentum will be critical, and “positive revisions for software stocks will be an important fundamental catalyst to drive investors back to names that have corrected with the broader industry group.”
Barclays lifts Analog Devices on industrial demand recovery
Earlier in the week, Barclays upgraded to Overweight, arguing the chipmaker is best placed to benefit from a gradual recovery in industrial demand and offers “the cleanest operating model and balance sheet” among peers.
Analyst Tom O’Malley said purchasing manager indexes have at last delivered “the PMI inflection needed for some broader Industrial recovery,” while warning that the prior downturn has left lasting scars.
He noted that distributor inventories have largely normalized. However, “company inventories remain historically high impacting loadings and utilization, and impairing margins,” limiting the pace of margin recovery across the group, he said.
Within that environment, Barclays sees early growth opportunities linked to data-center trends but is staying selective in analog semiconductors. O’Malley wrote that ADI has “the most leverage to Industrial exposure,” positioning it as the preferred way to gain exposure to an improving cycle.
Investors showing no mercy for AI losers, strategists say
In a separate note, Barclays has warned that the fast, sentiment-led sell-off targeting companies seen as exposed to AI could continue, with investors still operating in the “sell first, think later” mindset.
Strategists led by Emmanuel Cau told clients that broader equity markets remain relatively resilient, but anxiety around AI disruption is driving “choppiness and more dispersion across sectors.”
According to the team, traditional labels such as cyclicals and defensives “have become obsolete,” as investors increasingly sort stocks by perceived “AI immunity or vulnerability.”
Hard-asset and so-called old-economy groups — including commodities, industrials, materials, healthcare and consumer goods — are being treated as AI-immune. In contrast, parts of consumer and commercial services as well as technology-linked industries “are being viewed as vulnerable.”
Barclays said the roster of perceived AI losers has expanded quickly. The theme started with media and business services, moved into software and has “now into financial services, logistics and CRE.”
Within this segment, selling “has become indiscriminate,” driven largely by narrative rather than underlying data, even as “EPS momentum remains resilient.”
The strategists noted investors are increasingly focused on “who is next,” showing “no mercy for anything remotely seen as an AI loser.”
Fears of potential business failures are beginning to spill over into credit markets and are pressuring banks, “until now seen as AI winners,” they added.
“In the near term, we acknowledge that momentum may be unstoppable with no clear catalyst to stop the rout,” the strategists said, though they believe the current dislocation could create longer-term opportunities.
Jefferies flags buying opportunity after sharp pullback
Jefferies sees “a great buying opportunity” in marketing platform after a steep sell-off, arguing that short-term concerns have opened a gap between fundamentals and valuation.
The broker reiterated its Buy rating and $860 price target, noting the stock is down around 37% year to date despite what it describes as a strong growth profile.
“We believe the YTD decline in APP’s stock is a great buying opportunity for a 50%+ top-line growth story trading at 15x our FY27 EBITDA,” analysts led by James Heaney said.
The team argues that worries tied to CloudX, Meta Audience Network and Google Genie have weighed disproportionately on the shares. These are “overblown risks creating a dislocation in APP’s stock ahead what we will expect will be a significant rev beat in Q4,” the note said.
On CloudX, the bank sees “near zero impact,” maintaining that no standalone mediation platform has proven successful. For Meta’s Audience Network, analysts acknowledged potential pressure from heavier bidding on iOS traffic but said there is limited evidence that this is becoming material.
Regarding Google Genie and generative AI in gaming, Jefferies expects new tools to be integrated into existing engines, potentially enhancing AppLovin’s distribution advantages.
At 15 times its FY27 EBITDA estimate against roughly a 40% five-year CAGR, Jefferies said the valuation “more than adequately prices in the risks.”
“With underlying fundamentals largely unchanged since the start of the year, the recent pullback offers an opportunity to own a unique growth asset at a compelling entry point,” the analysts said.
Deutsche upgrades after AI data center market push
Deutsche Bank upgraded auto parts supplier BorgWarner to Buy from Hold, arguing that its expansion into AI data center infrastructure could reshape the company’s longer-term growth profile.
“BorgWarner’s strategic entrance into the AI data center market, in our view, is a pivotal shift from being a traditional Tier-1 powertrain supplier to a more diversified multi-industrial entity – a move that warrants a valuation re-rate,” the bank’s analysts said.
Central to the upgrade is BorgWarner’s agreement with TurboCell to develop a modular turbine generator system. Deutsche estimates the initial phase could deliver more than $300 million in revenue in 2027, calling it the first step in a broader ramp.
At a full 2 gigawatt buildout, the revenue potential “clearly can be substantially larger,” the analysts said, framing the opportunity as a multi-year secular growth driver.
The announcement, together with stronger-than-expected fourth-quarter results, pushed shares up more than 22% on Wednesday.
Deutsche also highlighted the profitability profile of the new business. “The revenue should increment at mid-teens margin to start, suggesting large scale isn’t even necessary for profitability,” the analysts wrote.
Following the developments, the bank lifted its rating to Buy and raised its price target to $82.