Microsoft stock gets rare downgrade as analyst says it’s “in debt” to Nvidia

Microsoft ( MSFT ) received a rare downgrade on Wall Street on Monday amid concerns that the tech giant’s artificial intelligence lead is waning and that it has become too dependent on Nvidia ( NVDA ) for its AI infrastructure.

Analysts at DA Davidson downgraded the stock to Neutral from Buy, keeping their price target unchanged at $475, which still implies about 8% upside from current levels.

The firm noted that Microsoft’s early investments and commercial product launches initially gave the company an advantage over Amazon ( AMZN ) and Google ( GOOGL , GOOG ), both of which it said were “caught red-handed.”

Since then, Amazon and Google “have invested in catching up with Microsoft, and we think you can start to say they’ve caught up,” Gil Luria, managing director at DA Davidson, told Yahoo Finance on Monday (video above ).

“Going forward, we think AWS (Amazon Web Services) and GCP (Google Cloud Platform) actually have an advantage over (Microsoft) Azure because they have the ability to deploy their own chips in their data centers, which is a fraction of the cost. of an Nvidia GPU – something Microsoft has yet to do with its own chips.”

Citing their own semiconductor hyperscaler data, analysts at DA Davidson said Microsoft is “indebted” to Nvidia, its AI chip supplier.

“Microsoft is so reliant on Nvidia that it’s almost transferring wealth from its own shareholders to Nvidia shareholders,” Luria said.

As Yahoo Finance’s Dan Howley recently reported, Microsoft has embarked on a broad effort to infuse its vast portfolio of business software products with AI capabilities as it seeks to outpace rivals in the space and monetize its investments enormous in AI technology.

The company has poured money into building out its AI data centers, with its latest quarterly capital spending reaching $19 billion, up 35% from the previous quarter.

Microsoft highlighted a number of positives in its AI business, noting that AI contributed 8 percentage points of growth to its Azure cloud revenue, up from 7 percentage points in the third quarter and 1 percentage point in the fourth quarter fourth last year.

Despite Monday’s downgrade, Microsoft shares traded mostly flat. The stock, which topped a peak in July, is up about 15% year to date.

Ines Ferre is a senior business reporter for Yahoo Finance. Follow X at @ines_ferre.

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