Microsoft (MSFT) received a rare Wall Street downgrade on Monday over concerns the tech giant's AI lead is diminishing while it has become too reliant on Nvidia (NVDA) for its artificial intelligence infrastructure.

Analysts at D.A. Davidson downgraded the stock to Neutral from Buy, keeping their price target unchanged at $475, still implying around an 8% upside from current levels.

The firm noted that Microsoft's early investments and commercial product rollouts initially gave the company an advantage over Amazon (AMZN) and Google (GOOGL, GOOG), who it said were both "caught flat-footed."

Since then, Amazon and Google "have invested in catching up to Microsoft, and we think you can start telling that they've caught up," Gil Luria, managing director at D.A. Davidson, told Yahoo Finance on Monday (video above).

"Going forward, we think AWS [Amazon Web Services] and GCP [Google Cloud Platform] actually have an advantage over [Microsoft] Azure because they have the capability to deploy their own chips into their data centers, which are a fraction of the cost of an Nvidia GPU — something Microsoft has yet to do with its own chips."

Citing their own hyperscaler semiconductor data, the analysts at D.A Davidson said Microsoft is "beholden" to Nvidia, its supplier of AI chips.

"Microsoft is so reliant on Nvidia that it's almost transferring wealth from its own shareholders to Nvidia shareholders," Luria said.

As Yahoo Finance's Dan Howley recently reported, Microsoft has embarked on broad push to infuse its vast portfolio of business software products with AI capabilities as it seeks to outpace rivals in the space and monetize its enormous investments in AI technology.

The company has been plowing cash into building out its AI data centers, with its latest quarterly capital expenditures topping out at $19 billion, up 35% from the prior quarter.

Microsoft pointed to a number of bright spots in its AI business, noting that AI contributed 8 percentage points of growth to its cloud Azure revenue, up from 7 percentage points in Q3 and 1 percentage point in Q4 last year.

Despite Monday's downgrade, Microsoft shares were trading mostly flat. The stock, which topped in July, is up roughly 15% year-to-date.

POLAND – 2024/04/09: In this photo illustration, a Microsoft Azure logo is displayed on a smartphone with Artificial Intelligence symbol in the background. (Photo Illustration by Omar Marques/SOPA Images/LightRocket via Getty Images) (SOPA Images via Getty Images)

Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X at @ines_ferre.