Analyst Downgrades Amazon and Microsoft, Casting Doubt on AI Rally

Rothschild & Co Redburn has downgraded both Amazon (AMZN) and Microsoft (MSFT) to neutral from buy, signaling a shift in sentiment for two of the Magnificent 7 stocks. "We no longer see a bull case," analyst Alex Haissl wrote, citing skepticism around generative AI's revenue potential. Shares of both companies fell sharply on the news—Microsoft dropped 2.7%, while Amazon slid 4.4%.

The AI-driven market rally, which propelled indices to record highs, shows signs of fatigue. Concerns over valuations, dot-com bubble comparisons, and uncertain returns on capital expenditures have tempered enthusiasm. This downgrade arrives just before Nvidia's (NVDA) earnings report, a key bellwether for AI sentiment.

While AI Optimism persists, investors increasingly question whether the technology can generate sufficient revenue to justify massive infrastructure spending. The market's appetite for unproven AI narratives appears to be waning as fundamentals come back into focus.