Well friends, it looks like the AI honeymoon might be over for Microsoft. Why? Well, because the tech darling was just brutally slapped with a rare downgrade, as Wall Street finally decided to pump the brakes on its AI hype train. 

(Source: Giphy) 

In short, D.A. Davidson’s Gil Luria downgraded the stock from a “buy” to a “neutral,” claiming that Microsoft’s once-commanding lead in the AI race is shrinking faster than your attention span reading the Wall Street Journal. Whereas, he thinks Microsoft can no longer justify its sky-high valuation, especially with rivals like Amazon and Google breathing down its neck.

(Source: Fintel)

In fact, according to the Debbie downer himself, the competition has “caught up,” leaving Microsoft’s AI crown looking a little tarnished. And while he’s sticking with a $475 price target (so it’s not all doom and gloom), the message is clear: Microsoft isn’t as special as it once was in the AI game.

(Source: CNBC) 

One of Luria’s harshest burns? Microsoft is basically a walking, talking ATM for Nvidia. The analyst pointed out that Redmond’s reliance on Nvidia’s semiconductors is costing them big time, while Amazon and Google are out here building their own AI chips—because why not cut out the middleman when you’re rolling in tech billions? Luria quipped that Microsoft is “transferring wealth” to Nvidia shareholders. Ooof…

(Source: Giphy) 

To add insult to injury, Microsoft’s cloud business, Azure, isn’t exactly setting the world on fire lately. Luria noted that Azure’s growth is slowing, while AWS and Google Cloud are picking up steam. Meaning, Microsoft doesn’t have the momentum they need if they are looking to be the frontrunners of the AI revolution (uhhh, did he even read Blackrocks $100 billion AI bet?). 

The problem is like we have mentioned before: AI Hype vs. Cold Hard Cash. Sure, Microsoft’s been waving the AI flag for a while, ever since its $1 billion bet on OpenAI back in 2019. That partnership helped it roll out some seriously impressive models, like GPT-3, and gave it a head start over those “caught flat-footed” (Luria’s words) competitors. But that head start? It’s looking more like a jog these days.

(Source: Giphy) 

And while some analysts are still bullish on Microsoft’s AI future—Wedbush’s Dan Ives practically dubbed Microsoft the AI Messiah, and Truist’s Joel Fishbein is all-in on Microsoft being a “disproportionately large beneficiary” of the AI boom—Luria’s downgrade is a sobering reminder that the market is more than just hype. At some point, you’ve got to show the money.

(Source: Giphy) 

But, but, but… what do the numbers say? Well, Microsoft’s been spending like a tech bro with a black AMEX, pouring over $19 billion into AI data centers last quarter alone. That’s not chump change, and it’s starting to show up on the company’s bottom line.

(Source: Geek Wire) 

Luria pointed out that Microsoft’s operating margins, which had been expanding nicely, are now under pressure thanks to all this AI investment. Microsoft’s capex on data centers has ballooned from 12% of revenue to 21%—and Luria isn’t convinced that’s sustainable in the long run (*ehm*... again, did he see Blackrocks $100 billion bet?)

In addition, the downgrade comes on the heels of cautious notes from Jefferies and Evercore ISI, both of whom have also raised a skeptical eyebrow at Microsoft’s AI spending spree. It’s not that the AI play is a bad bet—it’s just that the bill is coming due, and investors are starting to wonder if the ROI will be worth the cost. 

(Source: IT Pro) 

The bottom line here? It’s simple: While Microsoft might still be the AI darling in some circles, cracks are starting to show in its shiny facade. The company’s early AI lead is no longer the ace up its sleeve, and with rivals catching up and costs ballooning, Microsoft will need to prove it can turn all that AI investment into cold, hard cash. 

(Source: Giphy) 

But for now, Luria’s downgrade is definitely a wake-up call. Because, while the AI race is far from over, Microsoft isn’t guaranteed a gold medal (see: Intel). In fact, it might just find itself clawing and biting for a friggin spot on the podium. 

In the meantime, stay safe and stay frosty, friends! Until next time… 

P.S. Buckle up butter cups! After our massive +146% win last Thursday, we are officially dropping our next seismic opportunity tomorrow at 12pm EST! Like last time, this big drop will only be available for premium members - UNTIL 20 or so minutes after the fact. Meaning, as our last two alerts have shown, you definitely want to be in the action right when we reveal… (think, our LFLY alert skyrocketed +100% in less than 3 minutes!). So to ensure you don’t miss out, click here asap for the details… 

Stocks.News holds positions in Amazon, Google, Microsoft, and Intel as mentioned in the article.