A handful of big tech players, including Apple and AMD , could end 2024 with strong returns after a slow start to the year, according to Melius Research. “In 1H23 we saw big moves in many of the stocks that were deemed ‘AI winners’ before some had a 2H23 pause….Could we be in for a replay where some laggards pick up? We think so,” Melius analyst Ben Reitzes said in a research report on Monday. “Once again, we are believers in a ‘catch-up’ trade for some in semis, hardware and even software — those with lower expectations.” Melius noted that the VanEck Semiconductor ETF was up 50% in the first half of 2023, but only up another 15% in the second half of last year as “as expectations were digested.” Underdogs from the first half of last year like Intel and IBM did well in the second half, however, Reitzes said, suggesting that this year’s rally in semiconductors could herald a similar rebound in some lagging stocks. For example, the semiconductor ETF similarly rallied 49% in the first half of 2024, while the software index ETF added 7%, the analyst pointed out. The S & P 500, meanwhile, jumped nearly 15% in this period. According to Reitzes, Advanced Micro Devices , Intel , Apple and IBM could benefit from a potential catch-up trade, as all four underperformed the broad-market index in the first half of this year. Fresh product cycles and AI-tied hardware needs should also boost these names, he noted. Of Reitzes’ picks, IBM looks best positioned to make a comeback this year as he believes the company —which gets the bulk of its revenue from software — could benefit from a steady catch-up in infrastructure software spending. Infrastructure software supports the computing environment and, according to the analyst, looks more attractive compared to application software, which focuses on helping the user perform specific tasks. “Application software is still threatened long-term by AI factories and coding tools that will make it easier to create apps and [software as a service] companies may see some challenges charging extra for AI tools given compounding inflation. We think infrastructure software may be harder to disrupt,” the Melius analyst said. “The company best positioned in our coverage to play catch-up in our space right now after a 1Q24 stumble is IBM.” IBM shares are up almost 9% this year, less than half the broad market’s gains. Reitzes’ $210 price target suggests IBM could gain 18% over the next year. Apple, AMD and Intel should benefit from looming product cycles and an eventual easing of cloud capital expenditures spending, according to Reitzes. For Apple, the analyst believes consumers will favor its iPhone 16 out in September given its “Apple Intelligence” AI capabilities. His $260 price targets suggests 14% potential upside for Apple from Monday’s close. Intel and AMD should benefit from AI-driven demand in the personal computer market, Reitzes said, believing Intel’s Lunar Lake chip and AMD’s Strix Point processor should get a lift by the fourth quarter. Intel’s new Xeon chips and AMD’s Turin processors may also prove catalysts for improved performance from traditional servers. “AMD may be the ‘cleaner’ way to play these cycles since expectations have been lowered for its AI accelerators and it lacks Intel’s ‘foundry’ overhang. However, Intel is much more unloved into what could be a seasonal bounce (Dell is also leveraged to a pick-up in Intel product cycles),” Reitzes said of the two chipmakers. His price targets on Intel and AMD suggest the stocks can advance some 16% and 22%, respectively, over the next year.
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