The artificial intelligence boom has been quite a thing to watch. The launch of ChatGPT in November 2022 took many by surprise, given it was the fastest app launch at the time to reach one million users. ChatGPT’s rapid adoption triggered a tsunami of AI interest, prompting a major overhaul of technology company budgets.
Businesses rushed to train their own large language AI chatbots and kick-start the development of agentic AI programs that can operate as workers’ digital assistants or, in some cases, replace workers altogether.
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Microsoft and Amazon were at the heart of the effort, given they operate two of the world’s biggest cloud data hyperscalers, Azure and Amazon Web Services, or AWS, respectively.
The companies plowed a ton of money building out server capacity to support clients’ insatiable demand for data crunching, and the flurry of activity wasn’t lost on investors. Amazon and Microsoft were both top performers in the post-2022 stock market rally.
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However, there’s growing concern that Microsoft and Amazon’s stock prices rallied too far too fast. Both stocks have seen their shares stall recently, and that’s got veteran analyst Helene Meisler paying close attention.
Meisler has been navigating the stock market since the 1980s when she worked at Cowen & Company and Goldman Sachs, so she’s seen more than her fair share of pops and drops. This week, she updated her outlook on Microsoft and Amazon, including a ‘line in the sand’ for each that investors should pay attention to.
The stock market has enjoyed a big rally since 2022 thanks to big-cap technology stocks including Amazon and Microsoft.
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Amazon and Microsoft spending frenzy
The stakes are high. Most expect that artificial intelligence may be the most compelling advance since the widespread adoption of the Internet.
AI isn’t a new concept. In the 1950s, a mathematician and computer scientist, Alan Turing, investigated how to design AI computers. Rand Corp created the first AI program in 1956.
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Many science-fiction books and movies examine the possibility of machines thinking for themselves someday, including I, Robot (Isaac Asimov wrote it in 1950, long before Will Smith’s movie adaptation), The Matrix, and The Terminator.
Although AI isn’t new, it has only recently gone mainstream. Today, many frequently use OpenAI’s ChatGPT, Alphabet’s Gemini, or Microsoft’s CoPilot to search, parse, and create content quickly and easily.
But it’s not just people like you and me. Companies are increasingly adopting it too.
Big banks like JP Morgan use it to hedge risks, healthcare companies are developing it to design better medicines, and retailers are using it to improve supply chains and curb theft. The U.S. military is even evaluating its potential on the battlefield, including working with AI data analytics companies like Palantir.
Just about every company in every industry is laser-focused on building AI programs, a complex, time-consuming process requiring far more computing power than preexisting infrastructure can efficiently handle.
For this reason, cloud service providers, including Amazon (AMZN) , Microsoft and Google parent Alphabet have unleashed a torrent of cash to buy new servers from Super Micro and Dell that are packed with increasingly powerful parts, including Nvidia’s expensive Blackwell graphics-processing units or GPUs.
In 2024, Microsoft (MSFT) and Amazon alone spent $69 billion on the stuff necessary to run their businesses, up from $85 billion in 2023. The two are expected to shell out a staggering $185 billion in 2024.
Analyst says watch key levels on Amazon and Microsoft stock
The spending isn’t a problem if the demand spigot stays stuck wide open. However, there’s growing worry that demand growth could slow from 2024’s breakneck pace, leaving Microsoft and Amazon with too much capacity instead of too little.
Last year, stocks rallied on the AI gold rush and a friendly Federal Reserve. Throughout the year, it was widely anticipated that the Fed’s policy would shift to interest rate cuts in September, November, and December. Lower rates are great because they make corporate debt cheaper and improve returns on new investments. That’s all good news for AI spending.
However, hopes for more rate cuts have all but disappeared this year after inflation started perking up again. Couple that with recent advances, including the launch of DeepSeek’s competing chatbot to ChatGPT at a fraction of the development cost, and many are now wondering if AI spending will need to be reset.
Investors have anticipated the shift, given that share prices for many big tech stocks, including Microsoft and Amazon, have stalled.
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Microsoft’s stock price has fallen 14% since mid-July, and Amazon’s stock price has been down 14% since February 4.
The retreat raises questions for investors, particularly short-term investors. Are these stocks overbought or oversold?
Technical analysis may offer clues. While fundamental analysis focuses on business performance trends like revenue and profit growth and future market opportunities, technical analysis gauges sentiment by charting stock prices over time.
Helene Meisler is one of the best-known technical analysts. In the 1980s, she trained under Justin Mamis, a legendary figure in the industry. In the mid-1980s, she was hired as Goldman Sachs’s first technical analyst. Nowadays, she shares her insight on TheStreet Pro.
In recent posts, she’s tackled Microsoft and Amazon’s charts to offer insight into when investors may want to get more nervous about the risk of additional downside.
“The elephant in the room is Microsoft. It has come down to this $405 area,” wrote Meisler. “I don’t know if we get any actual panic if it breaks, but the stock is exactly where it was a year ago, so yes, I think it’s an important level.”
On Monday, Microsoft violated that line in the sand, breaching her $405 support target before rallying back to it.
“Microsoft has done what ITB did last week: trade under the support and then rally back to close at it,” said Meisler. “I would love it if it plunged to that August low because that would show us something. What we have now is just more toying.”
The battle near support is also evident in Amazon’s stock.
“We looked at Amazon last week, and I said I thought it was coming down to the $215 level. It is almost there,” said Meisler. “Should it bounce off there and fail to get over $225-$230, it will look like a head and shoulders top (I drew that in when we looked at it).”
On Tuesday, Amazon undercut Meisler’s level, trading near $210 at last check.
That’s not a great sign, given that head-and-shoulders tops are bearish for stock prices. Perhaps the market will hold and build, providing support for the biggest stocks, including Amazon and Microsoft.
Of course, that may happen, but the market itself isn’t oversold, and if it were, that would give us better odds to bet on upside on both of these stocks.
“To set up a nice oversold bounce, we need more red on that table,” said Meisler. “The earliest I get is March 4th for an oversold reading.”
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