Amazon.com Inc. (AMZN) shares took a hit Tuesday after Rothschild & Co downgraded the stock from Buy to Neutral, keeping its $250 price target intact. The move raises questions about whether tech giants are building too much, too fast in the race to dominate artificial intelligence.

The AI Infrastructure Problem

Analyst Alexander Haissl from Rothschild & Co Redburn downgraded both Amazon and Microsoft Corp. (MSFT), pointing to a fundamental concern: companies are pouring tens of billions into AI infrastructure that might not deliver the returns investors expect.

The downgrades arrive amid a broader tech selloff. The Nasdaq 100 has shed nearly $1.8 trillion in value since peaking in late October, as investors reassess whether AI stocks have gotten ahead of themselves.

Here's the technical issue that has Haissl worried: AI infrastructure depreciates differently than traditional cloud computing equipment. According to the analyst, "Gen-AI margins already assume longer depreciation schedules of 5-6 years, versus just three years in the early cloud era." He added that "this indicates that, on a like-for-like basis, pricing power is noticeably weaker and capital intensity for Gen-AI is significantly higher."

Translation? Companies are spending more money on AI infrastructure that loses value more slowly, which suggests they can't charge as much for AI services as they could for traditional cloud offerings. Servers and graphics processing units don't come cheap, and if they're depreciating over longer periods, that's a red flag about profitability.

The Overbuild Risk

Haissl's bigger concern is what he calls an overbuild risk at companies like Amazon. The problem, as he sees it: "Gen-AI scales on a bloated, inefficient stack, while cloud 1.0 scaled only after achieving efficiency." In other words, the first generation of cloud computing got lean before it got big. Generative AI is doing the opposite.

Not Everyone Agrees

Rothschild's bearish view stands in sharp contrast to other Wall Street analysts who remain enthusiastic about Amazon's prospects. Rosenblatt and Mizuho maintained their positive outlook on November 4, setting price targets at $305 and $315 respectively.

Earlier that month, Wells Fargo and Canaccord Genuity also stayed bullish. On October 31, Wells Fargo kept its overweight rating while raising its target from $280 to $292. Canaccord Genuity maintained its buy rating and increased its target from $280 to $300.

AMZN Price Action: Amazon shares were down 4.10% at $223.32 at the time of publication on Tuesday.