Microsoft and Amazon Got Hit With Huge Downgrades—Why I’d Buy Anyway

Microsoft (NASDAQ:MSFT | MSFT Price Prediction) and Amazon (NASDAQ:AMZN) reacted quite negatively after getting slapped with pretty significant downgrades earlier in the week, courtesy of Rothschild & Co. Redburn, which now holds “neutral” ratings rather than “buy ratings.” As you’d expect, much of the reason behind the downgrade was due to high AI spend and uncertainty regarding the potential for profit. Undoubtedly, this is the narrative that’s been in the driver’s seat in recent weeks, with the Nasdaq 100 plunging around 6% in a very short period of time, driving AI bubble fears and other worries into overdrive.

Of course, this isn’t the first time we’ve had an upsetting of the AI trade (remember the DeepSeek scare or the Liberation Day selling spree?), and it probably won’t be the last. In any case, the latest Microsoft and Amazon downgrades seem to have added more concerning news for startled investors to digest.

Though I respect Rothschild greatly, I must say there wasn’t a ton of new information to warrant the vicious selling in the shares of Microsoft and Amazon. Either way, I’d view any additional selling pressure as more of an opportunity to buy than anything else.

Microsoft and Amazon are spending heavily on AI. And there’s a cloud of uncertainty surrounding what to expect in terms of future returns

Microsoft and Amazon are among the bluest of blue chips in the market. And if their top bosses (think Microsoft CEO Satya Nadella and Amazon CEO Andy Jassy, both of whom are tech leaders at the very top of their game) and their teams believe the pricey AI efforts are worth spending on, I’ll take their word for it, even as investors turn against the names and look to pay more attention to the bearish calls, negativity, and all the sort.

Of course, there’s no guarantee that big AI spend will see returns that are anything close to satisfactory. That said, Microsoft and Amazon aren’t exactly the types of companies to throw big money at wildly expensive endeavors without very careful consideration for the returns to be had. As such, I think betting against the names is a losing proposition over the long haul.

Is there a chance that Microsoft and Amazon are proven wrong and their AI expenses are proven less optimal? While Amazon does have a history of seizing opportunities at the right moment, the e-commerce titan did overinvest in capacity during the post-lockdown boom. And its stock really did pay the price! But if you held on regardless, Amazon eventually found its way after big tech underwent an efficiency year, so to speak.

Overinvestment risk is definitely possible. But long-term investors might not wish to overreact

While there is the potential for another bear market if it turns out Amazon, Microsoft, and the rest of the pack are overinvesting in AI, I’d also argue that long-term thinkers should focus more on the longer-term growth potential, rather than getting caught in the nearer-term details that cause many to be scared out of a stock after many others have already acted on a narrative or new piece of news.

With Amazon pulling the curtain on some incredible third-quarter results that saw Amazon Web Services (AWS) enjoy 20% growth, I think there’s already enough evidence that suggests AI bets are already showing earlier signs of paying off. Undoubtedly, AWS was in need of a growth boost, and AI seems to have given the numbers giant a nice lift, which might not be limited to the third quarter.

With shares giving up pretty much all of the gains from the post-quarterly rally, I think there’s an opportunity for contrarians who believe not only in AI, but also in Amazon’s take on it, which, I think, might be among the best of the Magnificent Seven, especially considering AI-induced cloud growth prospects and robotics innovations that may very well make the e-commerce juggernaut the ultimate logistics automation play.

To borrow the highway analogy from the great Dan Ives, perhaps AWS is moving from the sleepy slow lane to the middle lane of the public cloud freeway. And, in due time, perhaps it’ll be back in the fast lane. Time will tell. At the same time, keep watch on the firm’s advancements in robotics, as Amazon rolls out its Zoox robotaxi offering in select markets. Robotics, I believe, is one of the top reasons to stick with the name over the long run.