Microsoft Stock Declines as UBS Downgrades to Neutral on Azure/Office Concerns

Microsoft Stock

Microsoft Stock (NASDAQ:MSFT)

UBS analysts have lowered their recommendation on Microsoft’s (NASDAQ:MSFT) stock to Neutral from Buy and lowered their price objective for the company to $250 per share from $300. Consequently, Microsoft stock prices are around 2% down in pre-market trading on Wednesday.

After a series of field tests on cloud providers proved less favorable than anticipated, UBS lowered its rating on the scale it uses to evaluate companies. In addition, the analysts point out that the expansion of office seats is anticipated to slow down in 2023, while Microsoft’s multiple “already seems reasonable, not cheap.”

Consequently, the analysts lowered their projections for revenue in fiscal year 24 to $243.2 billion. However, they boosted their projections for earnings per share to $11.27, which is somewhat higher than the current consensus estimate on Wall Street.

“We’d flag: a) Microsoft’s growth engine – Azure – is undergoing a sharp growth deceleration that might prove to be worse in FY23/FY24 than investors are expecting and that, along with AWS, may be slowing due to maturity, not just a bad macro, b) Office 365 revs growth has been a wonderfully consistent machine of late, but this seat-based company is susceptible to a slowdown in 2023 as the installed base throttles back on.

To summarize their findings, the analysts state that they are not “making a substantial bearish call on the Microsoft stock.” Instead, shares now selling at a multiple of 24.5 times CY23E FCF “already incorporate a protective premium and are a consensus long.” As a result, UBS believes that risks are skewed toward the bearish side from their present levels.

The price of Microsoft stock dropped by about 30 percent in 2022.

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