5 Major Analyst AI Developments: Microsoft and Amazon Rating Downgrades; Disappointing Robotaxi Day

Major Analyst Moves in Artificial Intelligence This Week

This week brought several significant updates from analysts in the artificial intelligence (AI) sector. Here’s a summary of the key changes and insights:

Microsoft Downgraded by Oppenheimer

Oppenheimer analysts have downgraded Microsoft from Outperform to Perform, expressing worries about heightened expectations for revenue and earnings. A significant concern is potential financial losses linked to Microsoft’s investment in OpenAI, projected to incur around $5 billion in losses this year. With Microsoft owning a 49% stake, the impact could be considerable.

The downgrade also points to the slower-than-expected adoption of AI technologies in enterprises, possibly leading to revenue shortfalls from AI services. Increased capital expenditures, particularly on high-performance computing and data centers, were highlighted, with forecasts estimating Microsoft’s capital spending to reach $63 billion by 2025—a 14% rise from the previous year. Depreciation costs are expected to increase by 28%, totaling $29 billion.

Oppenheimer analysts noted that the recent interest rate cut might have a limited effect on Microsoft’s net interest income from its significant cash reserve. They also expressed concerns about declining gross and EBITDA margins due to rising operational costs from AI investments.

Analysts project weak EPS growth in the upcoming quarters and suggest that current market earnings estimates for FY26 and FY27 might be overly optimistic. Potential risks include data center capacity challenges for upcoming GPU shipments and intensifying competition within the AI industry.

Goldman Sachs Raises Nvidia Price Target

Goldman Sachs has increased its price target for Nvidia to $150 from the previous $135, indicating an 11% upside potential. This change followed an investor meeting with Nvidia’s leadership, which bolstered confidence in the company’s competitive stance, particularly as the complexity of inference workloads grows.

The investment bank noted several advantages for Nvidia, such as its extensive installed base and continuous innovation in both chip and data center technology. They also revised revenue and non-GAAP EPS estimates for FY2026/27 upwards, pointing to robust AI server demand and an optimistic outlook for advanced chip technologies.

Wells Fargo Lowers Amazon Rating and Price Target

Wells Fargo downgraded Amazon’s rating from Overweight to Equal Weight, reducing its price target from $225 to $183. The firm cited various challenges, such as pressures on growth from its advertising business and investments in Project Kuiper.

Despite the strength of Amazon Web Services, Wells Fargo believes it is insufficient to drive upward revisions in estimates in the near term. The firm has also reduced its operating income forecasts due to the slower expansion of its merchant services and advertising businesses. They warned that margin expansion may remain limited for the foreseeable future and highlighted competitive pricing pressures from companies like Walmart.

Morgan Stanley Disappointed with Tesla’s Robotaxi Event

Following Tesla’s "We, Robot" event, Morgan Stanley expressed disappointment due to a lack of substantive updates regarding Full Self-Driving (FSD) technology and ride-sharing strategies. Tesla shares saw a nearly 9% drop, with analysts lamenting insufficient details that were anticipated.

The event showcased Tesla’s "Cybercab," but analysts were expecting more comprehensive updates on FSD improvements and market strategies. The lack of information regarding collaborations and future plans for AI also left Morgan Stanley feeling that Tesla’s narrative as an AI leader was not significantly advanced.

Geopolitical Risks to AI Sector

Capital Economics issued a warning about potential geopolitical risks, particularly escalating tensions between the US and China, which could "prick the AI bubble." The firm cautioned that such challenges could hinder the impressive performance of tech stocks in light of upcoming US elections.

A significant concern is Taiwan’s critical position in the AI supply chain, as it accounts for about 90% of advanced chips and servers—essential for the AI capital expenditure surge. Any disruption here could have serious repercussions, with potential restrictions from China on critical semiconductor flows to the US.

As the political landscape evolves, investors are advised to consider the broader implications of these geopolitical tensions on the technology sector.