Microsoft downgraded on fear its AI lead over Amazon and Google is gone

D.A. Davidson believes that Microsoft ‘s rivals may have caught up to the cloud computing giant. These fears prompted the investment firm to downgrade the tech titan and “Magnificent Seven” member to a neutral rating from buy. Analyst Gil Luria maintained his price target of $475, which is approximately 9% higher than where Microsoft stock closed on Friday. Shares of Microsoft have risen nearly 16% this year. MSFT YTD mountain MSFT YTD chart The justification for Microsoft’s premium valuation may have been lost as competitors have largely caught up in the artificial intelligence space, Luria said. In particular, Amazon Web Services and Google Cloud Platform appear to pose the biggest threats to Microsoft’s Azure cloud computing platform. “We believe that Microsoft’s lead is now diminished in both the cloud business and code generation business, which will make it hard for MSFT to continue to outperform,” Luria wrote. Microsoft gained its edge through an early investment in OpenAI and its ability to quickly deploy capabilities within Azure and GitHub, translating to “superior results” in the last several quarters, Luria said. But Amazon Web Services is now adding nearly as much cloud business, while Google Cloud Platform’s current acceleration is comparable to that of Azure’s last-quarter growth rates. Despite having the first-mover advantage, Luria also expects Microsoft’s lack of technological prowess versus its peers will pose a significant obstacle for the firm. “Our new proprietary hyperscaler semiconductor analysis indicates AWS and GCP are far ahead in terms of deploying their own silicon into their data centers, which gives them a significant advantage over Azure going forward,” he said. “While Microsoft has discussed its Maia chips, it is years behind Amazon and Google and appears to be using them only to run Azure OpenAI Services workloads. We believe this means Microsoft has been escalating an arms race it may not be able to win.”