Microsoft (MSFT) received an unusual downgrade on Wall Street on Monday over concerns that the company’s lead in artificial intelligence is declining and that it is too reliant on Nvidia (NVDA) for its AI infrastructure.
Analysts at DA Davidson downgraded the stock from “buy” to “neutral” and kept their price target unchanged at $475, which still suggests an upside of about 8% from current levels.
The company noted that Microsoft’s initial investment and rollout of commercial products initially gave it an advantage over Amazon (AMZN) and Google (GOOGL, GOOG), saying both companies were “disadvantaged.” .
Since then, Amazon and Google have “invested to catch up with Microsoft, and I think you can say they’ve caught up,” DA Davidson managing director Gil Luria told Yahoo Finance on Monday (video above).
“We think that going forward, AWS (Amazon Web Services) and GCP (Google Cloud Platform) will actually have an advantage over (Microsoft) Azure. Developing Nvidia GPUs is something Microsoft hasn’t yet done with its own chips.”
Analysts at DA Davidson, citing their own hyperscalar semiconductor data, said Microsoft “owes a debt of gratitude” to AI chip supplier Nvidia.
“Microsoft relies heavily on Nvidia and is trying to transfer wealth from its own shareholders to Nvidia’s shareholders,” Luria said.
As Yahoo Finance’s Dan Howley recently reported, Microsoft is adding AI capabilities to its vast portfolio of business software products, aiming to outperform its competitors in the space and monetize its massive investment in AI technology. We have embarked on a wide-ranging effort to incorporate
The company has been pouring money into building AI data centers, with capital spending reaching $19 billion in the latest quarter, up 35% from the previous quarter.
Microsoft points to many bright spots in its AI business, with AI contributing 8 percentage points to cloud Azure revenue growth, up from 7 percentage points in the third quarter of last year and 1 percentage point in the fourth quarter. I pointed out what I did.
Despite Monday’s downgrade, Microsoft stock traded mostly flat. The company’s stock, which peaked in July, has risen about 15% since the beginning of the year.
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Ines Ferre is a senior business reporter at Yahoo Finance. Follow her on X @ines_ferre.
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