AI capex to exceed half a trillion in 2026: UBS

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

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Jefferies lifts Nvidia price target to $240 on booming AI compute demand

Jefferies raised its price target for Nvidia to $240 from $220 this week, citing stronger-than-expected demand for AI compute and greater visibility into the company’s order pipeline. The brokerage kept its Buy rating but removed the stock from its list of “Franchise Picks.”

Analyst Blayne Curtis said Nvidia remains the clear leader in the AI accelerator market, noting that Jefferies is boosting estimates for both Nvidia and Broadcom “to reflect takeaways from recent Hyperscaler announcements, NVDA’s outlook from GTC DC, and new CoWoS forecasts.”

Curtis described a “scramble to secure compute to meet demand,” as hyperscalers such as Google, OpenAI, and Anthropic rush to lock in AI infrastructure deals. He highlighted that Nvidia “pointed to line of sight to fulfilling $500 billion of orders in 2025/2026 between Blackwell and Rubin.”

The firm’s bottom-up model projects around $464 billion in revenue for 2025–2026, with “another $36 billion in upside assuming NVDA hits that estimate.” Jefferies raised its revenue forecasts for 2026 and 2027 to $293 billion and $384 billion, respectively, from $283 billion and $334 billion.

The brokerage now expects 2027 EPS of $9 and said its model “suggests $10+ in EPS in 2027.”

“We still see more room for the stock to work and raise our PT to $240 (27x CY27 EPS of $9.03),” Curtis wrote, adding that Nvidia remains the dominant force in AI hardware despite being dropped from the firm’s top ideas list.

Evercore removes Apple from Tactical List after strong earnings rally

Earlier in the week, Evercore ISI removed Apple from its Tactical Outperform (TAP) list following a robust September-quarter report and optimistic guidance for the December quarter. The move comes following the stock’s strong gains in the past two weeks, outperforming the broader market.

Evercore credited the rally to strong execution around the latest iPhone refresh and accelerating Services growth. Apple’s September-quarter revenue climbed 7.9% year-over-year, with Services up 15%.

The standout, Evercore said, was the December-quarter forecast. Apple guided for 10–12% revenue growth, led by double-digit iPhone sales and low-teens Services expansion.

“The iPhone revenue strength is expected to be driven by strong demand for the 17 lineup as well as some average selling price (ASP) tailwinds,” analysts led by Amit Daryanani wrote.

“Notably, AAPL has done a good job mitigating memory cost headwinds, as it was a tailwind in the Sep-qtr and it’s expected to have no impact on the Dec-qtr," they added.

Apple also projected sequentially higher gross margins, though operating expenses are set to rise due to incremental AI initiatives. Analysts pointed to signs of stabilization in China, where iPhone sales are expected to return to year-over-year growth in fiscal Q1 after a decline in fiscal Q4.

“We’re removing our tactical outperform following a strong print and guide from AAPL,” the analysts said, while reaffirming their Outperform rating and $300 target price.

Chief Executive Tim Cook said Apple struggled to keep up with demand for several iPhone 17 and older iPhone 16 models last quarter and faced delays launching the new iPhone Air in China — its thinnest model and biggest redesign in years.

He told Reuters the delay was the “primary reason” for weaker China sales but added, “However, we’re very enthusiastic about China. We love the response to the new products there, and we expect to grow or to return to growth in Q1.”

Jefferies names Broadcom top pick, sees ’outsized upside’ as AI chip demand surges

After removing Nvidia, Jefferies named Broadcom its new Top Pick, saying the semiconductor company is “at an inflection point” amid soaring demand for custom AI chips across major hyperscalers.

The broker raised its price target to $480 from $415 and added the stock to its list of Franchise Picks, citing “outsized upside relative to estimates.”

“We return to AVGO as our top pick as we see the larger upside to estimates as ASICs hit an inflection point,” Curtis wrote. He said Broadcom’s Application-Specific Integrated Circuit (ASIC) business is poised for rapid growth as Google, Meta, and OpenAI ramp production of their in-house AI accelerators.

Jefferies’ checks indicate Google’s Tensor Processing Unit (TPU) volumes could surge, with 2026 shipments nearing 3 million units, supported by Anthropic’s $10 billion order for about 250,000 units and additional potential follow-ons.

The firm models Broadcom’s AI-related revenue at $10 billion in calendar 2027 (C27) but said it “could easily scale to $40-50B per year in C28+” as hyperscaler expansion accelerates. Meta is expected to launch its first AI chip using high-bandwidth memory in the third quarter of 2026 and an OpenAI ASIC later that year.

Curtis raised Broadcom’s 2026 and 2027 revenue forecasts to $100 billion and $130 billion, respectively, and increased EPS estimates to $10.31 and $13.88. “

We expect numbers will have to continue marching higher and see step function estimate revisions upward over the next year,” he wrote. “Given the significant upside to numbers, we are making AVGO our top pick.”

Jefferies’ upside case envisions EPS of $20 in 2027 and potentially $30 in 2028 if OpenAI’s capacity expands by 2–3 gigawatts annually.

UBS upgrades Cisco to Buy on ’multi-year growth cycle’ from AI and security

In another notable analyst move, UBS upgraded Cisco Systems to Buy from Neutral and raised its price target to $88, saying the company is entering a “multi-year growth cycle driven by AI infrastructure demand, a large-scale Campus refresh cycle, and momentum in Security.”

“We upgrade Cisco to Buy based on a multi-year growth cycle,” said analyst David Vogt, citing surging AI infrastructure orders and improving enterprise and security demand. He highlighted that Cisco has “secured more than $2 billion in AI orders in fiscal 2025, nearly all from hyperscalers,” with “two-thirds full systems running Silicon One.”

Vogt added that enterprise and sovereign demand is also ramping, with orders “approaching $1 billion, up sharply from a couple hundred million dollars in the most recent quarter,” setting the stage for “sustained AI-fueled growth" in fiscal 2026 (FY26) and FY27.

The analyst pointed to an accelerating campus refresh cycle as customers replace outdated hardware, noting that Cisco’s installed base includes “tens of billions in aging Cat 4K/6K gear (5–15 years old).” UBS expects upgrades to “AI-enabled Smart Switches” to lift Campus growth from 5% in FY26 to about 7% in FY27.

In security, UBS said “next-gen products like Hypershield are growing more than 20%, and Splunk integration is gaining traction.” Evidence Lab survey data backed the bullish stance, with 83% of respondents expecting Cisco’s future sales to be “strong” or “very strong,” up from 71%.

Vogt also raised its 2027 EPS estimate to $4.62 from $4.34 and lifted its valuation multiple to 19 times earnings, calling Cisco “a San FranCISCO treat” that trades at over a 20% discount to large-cap tech peers.

Pinterest downgraded at Monness after ’uninspiring’ results and ’muted’ outlook

Meanwhile, Pinterest shares were downgraded this week at Monness Crespi Hardt to Neutral from Buy after what the broker called “uninspiring” third-quarter results and a “muted” outlook for the rest of the year. The stock tumbled nearly 22% Wednesday.

“Worthy of a Weak Wednesday,” analyst Brian White wrote, citing a “more challenging environment within certain advertising verticals” and “growing concerns around the competitive landscape in the gen AI era.” He said the combination of these factors “is driving us to the sidelines.”

Pinterest posted third-quarter revenue of $1.049 billion, just below Monness’s $1.062 billion estimate, and adjusted EBITDA of $306.1 million with a 29.2% margin. Earnings per share came in at $0.38, missing the firm’s $0.43 forecast.

White described management’s tone on the call as “downtrodden,” pointing to “more cautious ad spending trends at larger U.S.-based retailers” and “cautious commentary around the potential tariff impact on the home furnishings category.”

He added that Pinterest “tap danced around fulfilling long-term revenue growth targets.”

Still, the firm noted some positives, including a 12% year-over-year increase in monthly active users to 600 million, topping its 593 million projection, with gains across all regions. However, a 24% decline in pricing offset higher ad impressions.

For the fourth quarter, Monness trimmed its revenue forecast to $1.335 billion from $1.365 billion and lowered its EPS view to $0.66 from $0.73, cautioning that “competition remains fierce and the macro treacherous.”

Investing.com -- China’s newly proposed 15th Five-Year Plan offers long-term growth ambitions but few concrete policy commitments, according to market strategists.

Macroeconomic research firm BCA Research believes that it is “too early to go long any Chinese sector stocks purely on Beijing’s five-year blueprint,” and expects reform risks over the next 12 months to weigh on equities.

The proposal, released after the Fourth Plenum, outlines broad goals to sustain growth, raise household incomes and promote industrial upgrading from 2026 to 2030.

Yet, BCA strategists note that the previous five-year plans have consistently met their growth targets without delivering sustained stock outperformance.

“History reminds us that Chinese equity performance—both aggregate and sectoral—has been driven far more by business and profit cycles than by aspirational statements in official documents,” a team led by Jing Sima wrote.

BCA estimates China would need nominal GDP growth of 4.5–5% annually through 2035 to reach the World Bank’s “moderately developed” status, up from the 4.1% pace recorded so far this year.

However, the strategists warn that higher growth targets alone do not guarantee returns, particularly as Beijing’s industrial priorities could intensify deflationary pressures and geopolitical tensions.

The report highlights that China’s weak consumption share of GDP does not stem from low consumer spending, but from an investment sector that “has expanded too rapidly for too long.” Boosting consumption’s share of the economy without reviving investment could hurt job creation and income growth, ultimately weighing on household demand, it cautioned. 

The strategists also noted that Beijing’s push to “build a modernized industrial system” and mobilize national resources to achieve technological breakthroughs could “exacerbate deflationary pressures and heighten geopolitical tensions,” especially as China seeks to expand its manufacturing share globally.

They point out that each five-year plan typically starts with a “house cleaning” phase, when authorities tighten regulations to correct prior excesses.

Such cycles have historically caused Chinese equities to underperform global peers in the early years of each plan. Sectors that benefited from policy support—like property and internet firms during the last decade—often become the next targets of regulatory crackdowns.

BCA expects the premium liquor and electric vehicle sectors could be next in line. It says high-end liquor makers such as Kweichow Moutai may face scrutiny under renewed austerity measures, while EV manufacturers risk tighter oversight amid overcapacity, aggressive price wars, and rising leverage.

“Beijing’s drive to curb excesses and promote high-quality growth suggests that sectors marked by speculation, overcapacity, and moral hazard could face intensified regulatory scrutiny,” the report said.

In portfolio terms, BCA maintains an overweight in Chinese offshore equities but stays cautious about onshore A-shares and domestic bonds. It is closing its long consumer staples trade, largely dominated by liquor producers, and initiating a short on onshore auto sector stocks.

While Beijing’s policy focus remains on supply-side expansion, strategists argue this will likely sustain deflationary pressures—supporting lower yields and stronger returns in government bonds.

Overall, BCA said the 15th Five-Year Plan “signals continuity rather than a sharp policy pivot," strategists said. It reaffirms long-term goals on growth, domestic demand, and technological self-reliance while warning that pursuing all these objectives simultaneously could reignite old distortions or create new structural imbalances.

Investing.com -- Artificial intelligence is consuming capital faster than investors can recalibrate. Bank of America now sees global hyperscale spending rising 67% in 2025 and another 31% in 2026, with total outlays climbing to $611 billion. That is a $145 billion increase in just one month’s estimates.

The surge shows how cloud giants are doubling down. Google raised its 2025 capital budget to $92 billion, Microsoft plans even faster growth into fiscal 2026, and Meta now expects spending of about $100 billion in 2026.

Amazon’s data center capacity is on track to double by 2027. None show intent to slow down, even as capex intensity approaches 30% of sales, roughly triple historic norms.

That level of investment is extraordinary. At its peak, the 5G telecom buildout consumed about 70% of operating cash flow, AI infrastructure is now approaching the same strain.

Yet companies remain convinced that scaling compute is both offensive and defensive: whoever trains bigger models gains advantage, while falling behind risks irrelevance.

The numbers also hint at a second-order boom. Memory, chipmaking tools, and networking equipment tied to AI data centers are now seeing clearer demand signals. Bank of America expects annual AI data center investment to triple to more than $1.2 trillion by 2030.

OpenAI’s $38 billion, seven-year deal with Amazon Web Services typifies the scramble for capacity. It follows supply agreements with Nvidia, AMD, Oracle and Korean memory makers. Such commitments lock in scarce chips and secure bandwidth in a race that is starting to resemble an arms buildup.

“We remain bullish on AI capex. We expect annual investments to nearly triple between CY25-30E to over $1.2Tn+, constrained only by ability to scale buildings and power,” analysts said.

Investing.com -- Market sentiment around the Supreme Court’s handling of President Trump’s tariffs under the International Emergency Economic Powers Act shifted dramatically following Wednesday’s oral arguments, with prediction markets showing investors had placed roughly a 40% chance on a favorable ruling before the session, according to analysts at Capital Economics.

"The abolition of tariffs justified under the International Emergency Economic Powers Act (IEEPA) would be bad news for Treasuries, and perhaps not as good for the US dollar and stock market as it might seem," said Thomas Mathews, Capital Economics’ Head of Markets for Asia Pacific, in the note.

The probability of a ruling in favor of Trump’s IEEPA tariffs dropped sharply after what observers characterized as tough questioning from the justices. 

Market reactions remained relatively modest compared to movements around tariff news earlier this year, suggesting investors expect the administration would seek replacement mechanisms such as expanded Section 232 and Section 301 tariffs if it loses the case.

The fiscal implications carry particular weight for Treasury markets. Capital Economics noted the biggest moves in Treasuries occurred at the long end of the yield curve, indicating concerns about the supply and demand balance may be at least as important as the federal funds rate path. 

The loss of tariff revenue would raise difficult questions about the deficit, with the administration unlikely to offset it completely even with replacement tariffs.

Investor focus centers on fiscal stimulus rather than immediate inflation effects. Small falls in near-term inflation swap rates Wednesday indicated some expected disinflationary impact from tariff removal, though overnight indexed swap pricing suggests expectations for less Federal Reserve easing than before. 

A strong ISM Services print likely contributed to that shift. Capital Economics observed the direct boost to inflation from tariffs has not been especially large so far.

The dollar’s potential response may disappoint those expecting a significant rally. The apparent discount that emerged after Liberation Day seems mostly to have faded, meaning less scope exists for a rebound if those tariffs are undone.

At the time of writing, the dollar was on the back foot, consistent with investor concerns about fiscal risks outweighing the monetary policy outlook.

The equity market faces additional headwinds. A renewed period of uncertainty about ultimate rate levels, combined with constrained fiscal stimulus, might restrict any stock market boost despite tariff removal.

Tariffs have been a key driver of markets this year, making the Supreme Court’s eventual decision critical for determining whether that dynamic continues or gives way to new fiscal and monetary policy considerations.

Investing.com -- Europe’s push for data sovereignty and artificial intelligence (AI) self-reliance is accelerating as governments and corporations seek to reduce dependence on U.S. cloud providers. 

According to a recent UBS Global Research, the European Union (EU) and its member states are promoting locally controlled digital infrastructure amid rising concerns over data privacy, geopolitical risk and access to computing power.

The brokerage said Amazon, Microsoft and Google together account for more than 80% of Europe’s infrastructure-as-a-service (IaaS) market. 

In contrast, sovereign cloud, defined by Gartner as cloud services that ensure data, operational and technological control within European jurisdictions, represented roughly 10% of the market in 2024. 

Gartner expects this share to surge to 47% by 2028, expanding at an 86% compound annual growth rate compared with 12% for non-sovereign European IaaS. 

UBS noted that while “isolated/managed clouds are 10-20% more expensive to run than "public" cloud,” their adoption may be driven by regulation such as the GDPR, EU Data Act and European Data Governance Act.

The EU’s proposed Cloud and AI Development Act marks a central plank in this strategy. It seeks to triple the bloc’s data centre capacity within five to seven years and mobilize €200 billion in AI investment. 

This includes a €20 billion fund to build five AI “gigafactories,” each with more than 100,000 advanced processors, and a €10 billion fund to develop over 13 smaller factories with about a quarter of that capacity. 

UBS estimated that “taking the first phase of Stargate’s Abilene project as a template would imply a capital cost of c$6-8bn per gigafactory” based on Nvidia’s H100 GPU architecture, with up to 35% of the capital expenditure potentially subsidized by the EU and member states.

Interest among industry participants has been robust. The European Commission received 76 expressions of interest across 16 member states to host AI gigafactories, with decisions expected by the end of 2025. 

German web-hosting firm IONOS confirmed it had applied with construction group HOCHTIEF, stating its proposal aimed to “support large scale AI workloads with a fully sovereign and sustainable ecosystem.” 

Deutsche Telekom, Europe’s largest telecom operator, said it plans to partner with SAP, Nvidia and power companies such as RWE, noting, “we are trying to partner with RWE… former coal sites or nuclear power plant sites where we have water and power supply.” 

It has already announced a sovereign industrial AI cloud in Munich deploying 10,000 GPUs, an increase of 50% in Germany’s GPU capacity.

Enterprise software group SAP remains cautious on direct investment, saying it was “not seeking a role as an operator or investor in connection with AI gigafactories,” though it will “contribute our strengths as a technology and software provider.” 

Still, its Delos sovereign cloud now offers 4,000 GPUs for AI workloads. French software firm Dassault Systèmes’ Outscale unit, which secured the SecNumCloud 3.2 certification, joined the NumSpot project alongside Bouygues Telecom and Banque des Territoires to serve the public sector.

While Europe’s sovereign cloud market remains small, about $4 billion of the $37 billion regional IaaS market in 2024, UBS said growth is being accelerated by AI’s infrastructure demands and new funding frameworks. 

“AI advances have raised awareness of the strategic value of data,” the brokerage said, adding that digital sovereignty is no longer just a regulatory issue but an industrial priority.