Rothschild & Redburn analyst Alexander Haissl downgraded Amazon (AMZN) and Microsoft (MSFT) stocks, citing a more cautious view on hyperscalers. He lowered both ratings from a Buy to Hold, while cutting his price target for MSFT from $560 to $500, implying 1.5% downside potential from current levels. Haissl maintained his AMZN price target of $250 intact, which implies 7.4% upside potential.
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Amazon Web Services (AWS) and Microsoft’s Azure are leading global cloud platforms that provide computing, storage, and AI solutions to enterprises, forming critical profit engines and growth drivers for both companies.
Underlying Economics ‘Are Far Weaker than Assumed’
Haissl argues that large cloud providers face growing financial strain, as new investments in GPUs (graphics processing units) for AI infrastructure cost about six times more than traditional cloud computing systems but have yet to deliver comparable returns.
He stated that investors are giving these companies “too much benefit of the doubt.” They are overestimating how profitable these heavy AI-related spending cycles will be and assuming they will produce the same kind of returns as earlier cloud services.
He further cautions that the economics behind this new “AI cloud wave” are weaker than expected and that earnings could come under pressure from higher capital expenditures and slower profit growth.
AI Potential vs Bubble Concerns
Shares of major hyperscalers like Amazon, Microsoft, Alphabet (GOOGL), and Meta Platforms (META) have surged this year amid a boom in AI infrastructure investment. This robust spending is driven by the need to build AI-ready data centers capable of handling massive computational workloads.
However, some investors and experts worry that growing excitement around AI may have inflated valuations beyond what current earnings justify. They fear that too much money is being spent on building AI infrastructure that might not be fully used if demand doesn’t grow as expected. While the long-term potential of AI remains strong, these concerns suggest the market could face a correction if enthusiasm fades or expectations are not met.
AMZN vs MSFT: Which Is the Better Tech Stock?
According to the TipRanks Stock Comparison Tool, both Amazon and Microsoft shares carry a “Strong Buy” consensus rating, with AMZN stock offering a higher upside among the two.
