Microsoft’s AI Lead Has Shrunk, Analyst Says

A Wall Street analyst on Monday downgraded Microsoft (MSFT) stock to neutral from buy, citing its diminished position in the artificial intelligence market.

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“We believe competition has largely caught up with Microsoft on the AI front, which reduces the justification for the current premium valuation,” D.A. Davidson analyst Gil Luria said in a client note Monday.

Although he lowered his rating on Microsoft stock, Luria kept his price target at 475.

In afternoon trading on the stock market today, Microsoft stock dipped a fraction to 434.34.

Microsoft grabbed an early lead in the generative AI market with its alliance with OpenAI in January 2023. It has since used OpenAI technology to add AI features, branded “Copilots,” to its software applications.

Microsoft Stock Is In Cup Base

The AI wave also boosted Microsoft’s Azure cloud computing business. But cloud rivals Alphabet‘s (GOOGL) Google Cloud Platform and Amazon.com‘s (AMZN) Amazon Web Services have jumped ahead of Microsoft in terms of developing their own custom AI processors, Luria said.

“We believe this makes Microsoft beholden to Nvidia (NVDA), which means it will continue to shift wealth from its shareholders to Nvidia shareholders,” Luria said.

Microsoft stock has formed a cup base with a buy point of 468.35, according to IBD MarketSurge charts.

D.A. Davidson’s Luria is an outlier in coverage of Microsoft stock.

Of the 59 equity analysts who cover Microsoft, 56 have buy ratings on the stock, while two are neutral and one has a sell rating, according to Wall Street Journal data.

Microsoft stock is in the IBD Long-Term Leaders Portfolio.

Follow Patrick Seitz on X, formerly Twitter, at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.

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