Alphabet GOOGL +0.34% ▲ CEO Sundar Pichai has added his voice to the growing number of leaders warning about potential overinvestment in artificial intelligence. This trend has already caused a selloff in some AI-related stocks. Pichai stated that the search company isn’t “immune” if the AI trend turns out to be a bubble.

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He expanded on this cautious view in a BBC interview, saying: “When we go through these investment cycles, there are moments we overshoot as an industry. There are elements of irrationality.” When asked how badly Alphabet would be affected if an AI bubble bursts, Pichai confirmed that “no company is going to be immune.”

Stock Defies Selloff after Receiving Warren Buffett’s Endorsement

Despite the CEO’s gloomy outlook on the industry, Alphabet stock outperformed rivals during the general technology selloff, rising 1.1% in early trading on Tuesday. This positive movement built on a 3.1% gain from the previous day after it was revealed that Warren Buffett’s Berkshire Hathaway (BRK.B) had invested in Alphabet during the previous quarter.

Being chosen as the “bargain stock” in the AI trade by the famed long-term investor seems to be giving Alphabet shareholders a sense of safety, isolating it from the immediate tech downturn that is hitting peers like Amazon AMZN -2.83% ▼ , Meta META -1.57% ▼ , and Microsoft MSFT -3.04% ▼ .

Massive Spending on AI Creates Cash Flow Concerns

The concern about a potential bubble is tied directly to how much cash big tech companies are pouring into AI infrastructure. According to Goldman Sachs GS +0.75% ▲ , large technology companies such as Google, Amazon, Meta, and Microsoft are now using around 95% of their operating cash flows on capital projects (like data centers), stock buybacks, and dividends. This is a significant jump from 80% in 2019, with the main reason being the huge increase in capital expenditure (capex) dedicated to AI.

Investor Worry about Overinvestment Reaches a 20-Year High

Pichai’s warning reflects a spreading concern among professional money managers. A Bank of America BAC +0.82% ▲ global fund manager survey showed that worries about AI overinvestment are growing. For the first time since August 2005, out of the investors surveyed, a net 20% believe that companies are overinvesting. The survey explicitly stated that this jump is “driven by concerns over the magnitude and financing of the AI capex boom.”

Analysts at Rothschild & Co. Redburn have also recently downgraded Microsoft and Amazon, arguing that the financial returns from generative AI might not be as great as people assume. Despite the warnings, Pichai continues to compare AI’s importance to the invention of the internet and calls for more investment in energy infrastructure to support the technology.

Is Google a Buy, Hold, or Sell?

Turning to TipRanks, Alphabet’s shares currently enjoy a Strong Buy consensus rating based on 30 Buys and seven Holds issued by analysts over the past three months.

Moreover, at $312.50, the average 12-month GOOGL price target indicates about 10.6% upside from the current trading level.

See more GOOGL analyst ratings

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Rothschild & Redburn analyst Alexander Haissl downgraded Amazon AMZN -2.83% ▼ and Microsoft MSFT -3.04% ▼ stocks, citing a more cautious view on hyperscalers. He lowered both ratings from a Buy to Hold, while cutting his price target for MSFT from $560 to $500, implying 1.5% downside potential from current levels. Haissl maintained his AMZN price target of $250 intact, which implies 7.4% upside potential.

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Amazon Web Services (AWS) and Microsoft’s Azure are leading global cloud platforms that provide computing, storage, and AI solutions to enterprises, forming critical profit engines and growth drivers for both companies.

Underlying Economics ‘Are Far Weaker than Assumed’ 

Haissl argues that large cloud providers face growing financial strain, as new investments in GPUs (graphics processing units) for AI infrastructure cost about six times more than traditional cloud computing systems but have yet to deliver comparable returns.

He stated that investors are giving these companies “too much benefit of the doubt.” They are overestimating how profitable these heavy AI-related spending cycles will be and assuming they will produce the same kind of returns as earlier cloud services.

He further cautions that the economics behind this new “AI cloud wave” are weaker than expected and that earnings could come under pressure from higher capital expenditures and slower profit growth.

AI Potential vs Bubble Concerns

Shares of major hyperscalers like Amazon, Microsoft, Alphabet GOOGL +0.34% ▲ , and Meta Platforms META -1.57% ▼ have surged this year amid a boom in AI infrastructure investment. This robust spending is driven by the need to build AI-ready data centers capable of handling massive computational workloads.

However, some investors and experts worry that growing excitement around AI may have inflated valuations beyond what current earnings justify. They fear that too much money is being spent on building AI infrastructure that might not be fully used if demand doesn’t grow as expected. While the long-term potential of AI remains strong, these concerns suggest the market could face a correction if enthusiasm fades or expectations are not met.

AMZN vs MSFT: Which Is the Better Tech Stock?

According to the TipRanks Stock Comparison Tool, both Amazon and Microsoft shares carry a “Strong Buy” consensus rating, with AMZN stock offering a higher upside among the two.

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Amazon AMZN -2.84% ▼ founder Jeff Bezos unveiled Prometheus, his most ambitious AI project, and it didn’t take long for Elon Musk to weigh in. Wasting no time, Musk slammed the new platform as a “copycat,” reigniting the long-running rivalry between the two tech leaders. For context, Bezos is focusing on industrial AI through Prometheus, while Musk is advancing Grok and xAI, which specialize in large language models and chatbots.

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What Is Project Prometheus?

Bezos’ new AI startup, Prometheus, is his first hands-on role since stepping down as Amazon CEO. According to market reports, the company raised $6.2 billion, including a personal investment from Bezos. Overall, Prometheus aims to create advanced AI tools that speed up product development, automate industrial processes, and transform large-scale engineering.

Is Prometheus Really a ‘Copycat’?

Prometheus isn’t just about chatbots — its goal is to build AI for the physical economy, covering engineering, manufacturing, aerospace, and automotive. It’s carving out a unique niche in AI that focuses on real-world industrial applications, unlike Grok, which is primarily a generative chatbot and LLM.

At a glance, both are billionaire-backed AI ventures, making the rivalry unsurprising. Musk’s “copycat” comment grabs headlines, but it’s more about competition than true product copying.

Musk vs. Bezos

Bezos and Musk share some business interests, notably space and AI. Interestingly, Bezos founded Blue Origin in 2000, two years before Musk started SpaceX. However, Musk achieved far greater success, now handling the majority of space launches worldwide. Blue Origin has tried to catch up, including recently landing a rocket on a barge at sea, following the approach pioneered by SpaceX.

Musk has a history of reacting whenever Bezos enters a space he dominates, including when the Amazon founder launched Blue Origin to rival SpaceX.

Which AI Stock Is a Strong Buy, According to Analysts?

Although xAI and Prometheus are not publicly traded, investors can use TipRanks’ Stocks Comparison Tool to evaluate other AI companies in the sector. Click the image below to explore further.

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Artificial intelligence (AI) and data software firm Databricks (PC:DTBRK), a rival to Snowflake SNOW +0.27% ▲ and Oracle ORCL -1.21% ▼ , is reportedly targeting a $130 billion valuation in its latest funding round, according to The Information. This new valuation is roughly 30% higher than the company’s September financing round, when Databricks raised $1 billion at a $100 billion valuation.

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If successful, the round would make Databricks one of the most valuable private technology companies, surpassing several publicly traded software firms, including Snowflake. The company’s soaring valuation highlights sustained investor interest in enterprise AI firms despite ongoing concerns about an overinflated “AI bubble.”

Why Is Databricks a Threat to Listed Players?

Founded in 2013, Databricks provides a platform that helps users collect, analyze, and create AI applications. It operates in the cloud and data software space alongside major players like Oracle and Snowflake, helping clients transform large-scale data into actionable insights.

The company recently achieved a major financial milestone, reaching a $4 billion annual revenue run rate in Q2, representing more than 50% year-over-year growth. Its AI products alone generated over $1 billion in revenue, and Databricks has maintained positive cash flow over the past year. Databricks has over 15,000 enterprise clients globally, including more than 650 who each spend over $1 million a year. Also, over 60% of the Fortune 500 companies use Databricks to manage their data.

In 2023, Databricks acquired MosaicML to boost its AI and model training capabilities. Its Lakehouse architecture combines data lakes and warehouses into a unified platform that supports scalable storage, large language model (LLM) training, and multi-cloud deployment for AI transformation across industries.

Databricks’ software runs on major cloud platforms like Microsoft MSFT -3.06% ▼ Azure and Amazon AMZN -2.84% ▼ Web Services. As the company has grown, it now competes more directly with Snowflake and major cloud providers.

Databricks is widely seen as a strong candidate for an IPO (initial public offering), attracting significant interest from prominent investors like Andreessen Horowitz, Tiger Global, Insight Partners, and sovereign wealth funds.

Which Is the Best AI Stock to Buy, According to Analysts?

We used the TipRanks Stock Comparison Tool for Best Artificial Intelligence Stocks to determine which company is currently favored by analysts.

Currently, Wall Street has assigned a “Strong Buy” consensus rating on several AI stocks, with Meta Platforms META -1.61% ▼ offering the highest upside potential among them.

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