Dan Ives, a highly regarded tech analyst at Wedbush Securities, has recently revised his price target for Microsoft Corporation (MSFT) from $550 to $475. This adjustment comes in light of his assessment that spending on data centers is projected to experience a decline in the near future.

During an appearance on CNBC, Ives elaborated on his perspective regarding the long-term outlook for major technology firms. He suggested that the scenario facing Big Tech now could mirror the challenges experienced during the height of the coronavirus pandemic. This period saw significant disruptions across various sectors, and Ives believes that similar patterns could emerge as companies reevaluate their expenditures.

In his analysis, Ives expressed concern that spending on data centers by key players such as Microsoft, Alphabet (GOOG), and Amazon (AMZN) is anticipated to decrease by approximately 10% to 15%. He noted that many tech companies are currently pausing capital expenditures, reflecting a cautious approach as they navigate an uncertain economic landscape.

Adding further context, Ives pointed out that a considerable number of tech firms have substantial ties to China. The ongoing high tariffs imposed on goods from this Asian powerhouse will significantly inflate costs associated with many of these companies' projects. Ives remarked, China is the epicenter, and once you stop projects, the process snowballs, highlighting the challenges of restarting halted initiatives, which could complicate recovery efforts.

Looking ahead, Ives anticipates that Big Tech firms will report notably weak results for the upcoming second quarter. He plans to adopt a strategy akin to the Covid playbook when evaluating these companies in the longer term. This method involves disregarding performance metrics from the next two or three quarters in order to better identify the "winners" based on their projected outcomes for 2026.

In the interim, Ives foresees that shares of Big Tech companies will experience substantial volatility over the coming weeks. While acknowledging the potential of Microsoft, he expressed a stronger belief that artificial intelligence (AI) stocks might present greater opportunities for higher returns in a shorter timeframe. Notably, Ives mentioned an AI stock that has been on the rise since the beginning of 2025, contrasting it with popular AI stocks that have seen declines of around 25% during the same period. He encouraged investors to explore a report highlighting a promising AI stock trading at less than five times its earnings, suggesting it might be a more attractive option than Microsoft.

For those interested in exploring the AI landscape further, Ives recommended checking out his lists of the 20 Best AI Stocks To Buy Now and the 30 Best Stocks to Buy Now According to Billionaires.

In a disclosure statement, the author noted that he holds shares of Amazon (AMZN) but has no plans to sell them within the next 24 hours. This article was originally published on Insider Monkey.