After downgrading Amazon, Wells Fargo says it’s buying Microsoft shares through Investing.com

Investing.com — After downgrading Amazon (NASDAQ: ) this week, Wells Fargo said it is increasing its position in Microsoft (NASDAQ: ), recommending investors focus on the tech giant as part of its “Signature Picks” portfolio.

The change comes on the back of limited visibility for Amazon’s future estimate revisions, while Microsoft is showing strong momentum in its cloud and AI services, according to Wells Fargo analysts.

The bank removed Amazon from its Signature Picks portfolio after the downgrade, which cited challenges in the company’s outlook.

While Amazon has performed solidly, rising 40% since reintroduction to the portfolio in July 2023, Wells Fargo’s Ken Gawrelski highlighted “limited visibility of further upward revisions” as the reason for the downgrade.

Instead, Wells Fargo increased its position in Microsoft, raising its allocation from 3.9% to 8.9%.

The bank’s analysts are optimistic about the Microsoft Azure platform and its artificial intelligence capabilities. The report highlighted positive Azure checks with partners finishing above plan for Azure last quarter, driven by strong demand in cloud migration, modernization projects and AI workloads.

“Stronger than usual checks suggest continuation of underlying Azure momentum; expect stocks to benefit as more clarity on the model surfaces by FY25,” the bank said.

Azure growth is expected to accelerate to 33% year-over-year growth in Q1, including 12 points from AI, Wells Fargo said.

Additionally, Microsoft’s launch of Copilot, its AI-powered productivity tool, is expected to gradually drive long-term adoption and revenue, even though it’s still in its early stages.

Wells Fargo has a $515 price target on Microsoft, reflecting a premium based on its significant scale and favorable long-term growth prospects.

The report pointed out that current AI capital investments would continue to impact free cash flow multiples, but long-term earnings growth remains robust.