Rothschild is adopting a more bearish stance when it comes to Microsoft and Amazon . The investment firm downgraded both “Magnificent Seven” titans to neutral from buy. Analyst Alex Haissl cited the need for investors to practice more caution when it comes to the generative artificial intelligence trade thesis going forward. “It is time to take a more cautious stance on the hyperscalers and move beyond the industry’s reassuring ‘trust us — Gen-AI is just like early cloud 1.0′ narrative, which looks increasingly misplaced,” he wrote. “Our analysis shows that the underlying economics are far weaker than assumed: GPU deployments require roughly six times more capital to generate the same cloud 1.0 value, with risks skewed to the downside/” Haissl continued: “At current valuations, investors appear to be giving management teams too much benefit of the doubt, still pricing today’s heavy capex as if it carried cloud 1.0-level returns, even though there is no clear path back to those economics.” The analyst reduced his price target for Microsoft to $500 from $560, citing lower earnings expectations and a higher capex required to sustain growth. Haissl’s new forecast implies a downside of around 1% from Microsoft’s Monday close. Shares have surged 20% this year. MSFT YTD mountain MSFT YTD chart The analyst believes that the company will suffer from leakage within Office 365, as other third-party models such as OpenAI and Anthropic shift value away from the company. Meanwhile, lower value creation from Gen-AI related revenues — versus the traditional cloud 1.0 business — will present a significant headwind for Microsoft going forward. “It now takes roughly six times more capex to generate the same level of value – making the business structurally more capital-intensive and weighing on long-term cash flow potential, with no clear end in sight,” he wrote. On the other hand, Haissl’s price target for Amazon remains unchanged at $250, corresponding to 7% upside from Monday. Shares have popped 6% this year. AMZN YTD mountain AMZN YTD chart The analyst cited limited upside in Amazon Web Services’ growth as a challenge moving forward. “AWS has reaccelerated broadly as we expected, leaving limited scope for meaningful upside relative to buy-side expectations,” he wrote. “Moreover, Amazon now finds itself in a similar position to Microsoft: although AWS captures more value within the stack, Gen-AI remains dilutive to returns — and its share is increasing.”