diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/UI/PropertyEditor/PropertyAssetCtrl.cpp b/Code/Framework/AzToolsFramework/AzToolsFramework/UI/PropertyEditor/PropertyAssetCtrl.cpp
index 7f3b9e61fd..24b2c7466e 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/UI/PropertyEditor/PropertyAssetCtrl.cpp
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/UI/PropertyEditor/PropertyAssetCtrl.cpp
@@ -1387,7 +1387,10 @@ namespace AzToolsFramework
                     QDataStream stream(&pixmapBytes, QIODevice::ReadOnly);
                     QPixmap pixmap;
                     stream >> pixmap;
-                    GUI->SetBrowseButtonIcon(pixmap);
+                    if (!pixmap.isNull())
+                    {
+                        GUI->SetBrowseButtonIcon(pixmap);
+                    }
                 }
             }
         }
@@ -1417,6 +1420,8 @@ namespace AzToolsFramework
         }
         else if (attrib == AZ_CRC_CE("ThumbnailIcon"))
         {
+            GUI->SetCustomThumbnailEnabled(false);
+
             AZStd::string iconPath;
             if (attrValue->Read<AZStd::string>(iconPath) && !iconPath.empty())
             {
@@ -1434,8 +1439,11 @@ namespace AzToolsFramework
                     QDataStream stream(&pixmapBytes, QIODevice::ReadOnly);
                     QPixmap pixmap;
                     stream >> pixmap;
-                    GUI->SetCustomThumbnailEnabled(true);
-                    GUI->SetCustomThumbnailPixmap(pixmap);
+                    if (!pixmap.isNull())
+                    {
+                        GUI->SetCustomThumbnailEnabled(true);
+                        GUI->SetCustomThumbnailPixmap(pixmap);
+                    }
                 }
             }
         }
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/UI/PropertyEditor/ThumbnailPropertyCtrl.cpp b/Code/Framework/AzToolsFramework/AzToolsFramework/UI/PropertyEditor/ThumbnailPropertyCtrl.cpp
index d8ddee6b76..0bbb898196 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/UI/PropertyEditor/ThumbnailPropertyCtrl.cpp
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/UI/PropertyEditor/ThumbnailPropertyCtrl.cpp
@@ -67,16 +67,9 @@ namespace AzToolsFramework
 
     void ThumbnailPropertyCtrl::SetThumbnailKey(Thumbnailer::SharedThumbnailKey key, const char* contextName)
     {
-        if (m_customThumbnailEnabled)
-        {
-            ClearThumbnail();
-        }
-        else
-        {
-            m_key = key;
-            m_thumbnail->SetThumbnailKey(m_key, contextName);
-            m_thumbnailEnlarged->SetThumbnailKey(m_key, contextName);
-        }
+        m_key = key;
+        m_thumbnail->SetThumbnailKey(m_key, contextName);
+        m_thumbnailEnlarged->SetThumbnailKey(m_key, contextName);
         UpdateVisibility();
     }
 
diff --git a/Gems/AtomLyIntegration/CommonFeatures/Code/Source/Material/MaterialComponentController.cpp b/Gems/AtomLyIntegration/CommonFeatures/Code/Source/Material/MaterialComponentController.cpp
index 07082a87d5..ed6904b4ef 100644
--- a/Gems/AtomLyIntegration/CommonFeatures/Code/Source/Material/MaterialComponentController.cpp
+++ b/Gems/AtomLyIntegration/CommonFeatures/Code/Source/Material/MaterialComponentController.cpp
@@ -121,8 +121,13 @@ namespace AZ
             MaterialComponentRequestBus::Handler::BusDisconnect();
             MaterialReceiverNotificationBus::Handler::BusDisconnect();
             TickBus::Handler::BusDisconnect();
+
             ReleaseMaterials();
 
+            // Sending notification to wipe any previously assigned material overrides
+            MaterialComponentNotificationBus::Event(
+                m_entityId, &MaterialComponentNotifications::OnMaterialsUpdated, MaterialAssignmentMap());
+
             m_queuedMaterialUpdateNotification = false;
             m_entityId = AZ::EntityId(AZ::EntityId::InvalidEntityId);
         }
@@ -221,6 +226,11 @@ namespace AZ
             if (!anyQueued)
             {
                 ReleaseMaterials();
+
+                // If no other materials were loaded, the notification must still be sent in case there are externally managed material
+                // instances in the configuration
+                MaterialComponentNotificationBus::Event(
+                    m_entityId, &MaterialComponentNotifications::OnMaterialsUpdated, m_configuration.m_materials);
             }
         }
 
@@ -268,8 +278,6 @@ namespace AZ
             {
                 materialPair.second.Release();
             }
-
-            MaterialComponentNotificationBus::Event(m_entityId, &MaterialComponentNotifications::OnMaterialsUpdated, m_configuration.m_materials);
         }
 
         MaterialAssignmentMap MaterialComponentController::GetOriginalMaterialAssignments() const