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The oldest of the three main equity indexes hit new highs on Thursday, helped by its heavy exposure to blue-chip healthcare and financial names. But it was a difficult day for one of the biggest publicly traded companies in the world – a major player in the AI boom. At the same time, technology was one of only two sectors in the red at the end of a trading session defined by some semiconductor weakness but broad strength just about everywhere else.
By the closing bell, the Dow Jones Industrial Average had added 1.7% to 51,561 – another new all-time closing high. The S&P 500 was up 0.4% at 7,584, but the Nasdaq Composite had slipped 0.1% to 26,830.
The front-month West Texas Intermediate crude oil futures contract was down 2.9% to $93.22, as President Donald Trump said a Middle East peace deal could be completed “this weekend,” while Iranian Foreign Minister Sheikh Jarrah Jaber Al-Ahmad Al Sabah countered that there’s been no “significant progress” toward an agreement.
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“One day of weakness doesn’t necessarily signal the sudden demise of the chip rally,” observes Daniel Skelly, head of Morgan Stanley’s Wealth Management Market Research & Strategy team. “But it is a reminder that on a longer-term basis, history suggests semiconductor outperformance could slow and the rest of the market could catch up.”
As Skelly sees it, investors may want to focus on “opportunities in areas of the market that are positioned to benefit most from AI adoption and monetization, including financials and health care,” rather than AI stocks that have already seen “extreme” runs higher.
UNH gets upgraded
Indeed, UnitedHealth Group (UNH, +5.2%) was the top-performing Dow Jones stock on Thursday, as its recovery from recent setbacks, including a federal investigation of its Medicare Advantage business and the assassination of a top executive, is gaining pace – with a little help from artificial intelligence.
Morgan Stanley analyst Erin Wright reiterated her Overweight (Buy) rating on UNH and cited it as her top pick in the managed care space, noting management’s confidence that positive utilization trends from January through March carried into April.
Wright is broadly optimistic about UnitedHealth and its managed-care peers for another big reason: AI. The analyst notes that adoption across the ecosystem is well beyond pilot programs and that artificial intelligence is embedded across core workflows.
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In short, according to Wright, healthcare stocks are primed for AI, and companies like UNH are all in on the technology. The analyst raised her 12-month target price for the stock to $453 from $395 based on potential cost savings, revenue upside and long-term value creation.
Meanwhile, BofA analyst Kevin Fischbeck raised his rating on UNH to Buy from Neutral and upped his 12-month target price from $420 to $450, noting that UnitedHealth is well positioned within the managed-care industry should utilization trends continue to moderate.
AVGO is a big drag
Broadcom (AVGO, -12.6%) is still one of the top 10 companies in the world based on market cap. But it is about $29 billion smaller than it was yesterday at this hour. And because of its sheer size, it pulled on market-cap-weighted indexes such as the S&P 500 and the Nasdaq Composite today.
Management’s forward-looking guidance and conference-call commentary left investors, traders and speculators cool on the semiconductor stock after its hot run into its post-closing bell earnings announcement on Wednesday.
Broadcom reported earnings of $2.44 per share, up from $1.58 a year ago and better than Wall Street’s forecast for $2.40. Revenue of $22.19 billion was up 47.9% and topped an estimate of $22.13 billion.
The chip maker expects fiscal third-quarter revenue growth of approximately 84% to around $29.4 billion vs a Wall Street forecast of $28.25 billion.
As Susquehanna’s Christopher Rolland notes, CEO Hock Tan confirmed on Broadcom’s call that the company would now only sell chip solutions to its customers and no longer sell racks to Anthropic, explaining soft guidance. Rolland reiterated his Positive (Buy) rating and his 12-month target price of $490 for AVGO, noting that “broader demand here remains ‘insatiable’ as AI semis bookings in the quarter reached >$30B.”
Still, Macquarie analyst Arthur Lai cut his rating on AVGO to Neutral (Hold) from Outperform (Buy) and reduced his 12-month target price from $513 to $437, citing Alphabet (GOOGL, +3.7%) subsidiary Google’s accelerating effort to make its own chips.