Microsoft Corp (NASDAQ:MSFT) shares are dipping on Tuesday as profit-taking and uncertainty surrounding the valuation of AI put pressure on the tech industry.
MSFT is lagging behind market performance. Find out why here.
What Happened: Rothschild & Co. analyst Alex Haissl downgraded Microsoft from Buy to Neutral rating and lowered its price target from $560 to $500.
According to Bloomberg, Haissl says that the the argument for generative AI is no longer convincing, and hyperscalers need to be used carefully. The analyst said that the underlying economics are “far weaker than assumed,” making the industry’s “trust us — Gen-AI is just like early cloud 1.0” story seem to be getting further and further off.
Tens of billions of dollars are being spent by tech companies to expand their AI infrastructure. The speed at which depreciating assets, such as servers and graphics processing units, lose value has worried investors in recent weeks.
“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.”
Additionally, Haissl pointed out that there was a greater chance of an overbuild at the companies because “cloud 1.0 scaled only after achieving efficiency, while Gen-AI scales on a bloated, inefficient stack.”
On top of the analyst’s rating, The Gates Foundation Trust sold 17 million shares of Microsoft Corp. in the third-quarter, drastically cutting its stake by 65% and removing $8.267 billion.
MSFT Analyst Ratings
Microsoft has seen mixed ratings from analysts recently. As previously mentioned, Rothschild & Co downgraded the company from ‘Buy’ to ‘Neutral’, reducing the target from $560 to $500 on Nov. 18. On Nov. 14, Baird initiated coverage on the tech giant, rating it ‘Outperform’ with a target of $600.
Prior to that, on Oct. 30, JP Morgan maintained an ‘Overweight’ rating for Microsoft, slightly increasing the target from $565 to $575. Meanwhile, Citigroup continued with its ‘Buy’ rating, raising the target from $682 to $690. Bernstein also kept its ‘Outperform’ rating, lifting the target from $637 to $645.
MSFT Price Action: Microsoft shares were down 2.7% at $493.70 at the time of publication on Tuesday, according to Benzinga Pro.
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