Tue Nov 18 15:40:00 UTC 2025: News Article:

Analyst Downgrades Microsoft and Amazon, Citing Concerns Over Generative AI Economics

New York, NY – In a move that bucks Wall Street consensus, Rothschild & Co Redburn analyst Alexander Haissl has downgraded Microsoft and Amazon from “buy” to “neutral,” raising concerns about the underlying economics of generative artificial intelligence (Gen-AI). The downgrades sent shares of both tech giants down over 2% in Tuesday trading.

Haissl, who previously held a bullish outlook on both companies, stated that the narrative of Gen-AI mirroring the early days of cloud computing is “increasingly misplaced.” He argues that the economics of Gen-AI are “far weaker than assumed,” pointing to higher capital intensity due to faster depreciation of hardware like GPUs and servers, despite companies using longer depreciation schedules to improve margins.

“Gen-AI margins already assume longer depreciation schedules of 5-6 years, versus just three years in the early cloud era,” Haissl said. “On a like-for-like basis, this means capital intensity for Gen-AI is significantly higher, while pricing power is notably weaker.”

The analyst also suggests a risk of overbuilding within the industry as Gen-AI scales on a “bloated, inefficient stack,” contrasting it with the efficient scaling of early cloud computing. Haissl cut Microsoft’s price target to $500 from $560, while maintaining Amazon’s target of $250.

This downgrade comes amid a broader selloff in tech stocks, with the Nasdaq 100 losing almost $1.8 trillion in value since late October. Investors are growing increasingly cautious about the stretched valuations of AI-related stocks.

Haissl’s move stands in stark contrast to the prevailing sentiment on Wall Street, where over 90% of analysts covering Microsoft and Amazon have buy-equivalent ratings.

Interestingly, amidst the AI concerns, Loop Capital upgraded Alphabet to “buy,” highlighting the complex and rapidly evolving landscape of tech stock analysis. Alphabet is currently the best performer among the Magnificent Seven group, rallying 49% this year.

This development has renewed discussions about the sustainability of Gen-AI investments and the potential impact on the tech industry’s financial future.

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