Microsoft Stock Won’t Be Immune to a Recession, but the Company Should Gain Market Share in Key Sectors

Microsoft Stock

Microsoft Stock (NASDAQ:MSFT)

Concerns about increasing interest rates, growing inflation, and a faltering global economy caused Microsoft stock to fall more than 25% in 2022.

A worldwide economic slowdown and possible recession are still widely anticipated for 2023. Still, it is not predicted to be nearly as terrible as in 2022. A minority of investors on Wall Street believe that business will improve for the software titan this year.

Microsoft (NASDAQ:MSFT) is expected to gain from continuing IT expenditure, according to Morgan Stanley analyst Keith Weiss, who has an overweight recommendation on the Microsoft stock and says the business is more highly regarded than it is among CIOs, according to a study conducted by the firm.

According to the poll, Microsoft is “better positioned than others” in a downturn since the company is still the leader in predicted IT budget increases owing to the migration to the cloud. The survey predicts software expenditure will climb by 3.3% in 2023. According to the study, Microsoft (NASDAQ:MSFT) is predicted to have a net share increase of 40% in IT wallet expenditure, much higher than Amazon’s expected share gain of 24%.

According to Weiss, Microsoft currently has a wider lead than Amazon, with 48% of CIOs anticipating Microsoft “to enjoy the highest incremental IT budget share increases over the next three years,” compared to 15% for Amazon.

Microsoft (NASDAQ:MSFT) has also made strides in other areas, including security, cloud computing, data warehousing, business intelligence and analytics, digital transformation, artificial intelligence, and machine learning.

Microsoft has apparently considered integrating OpenAI’s ChatGPT into its products, such as Bing and Office, which might lead to further advancements in artificial intelligence.

The CIO study concludes that Microsoft (NASDAQ:MSFT) stands to gain as fewer suppliers compete for clients’ business in key areas like data management and automation.

We consider Microsoft best positioned to profit from consolidation given its range of responsibilities and alignment to the CIO priority list and defensive IT initiatives,” Weiss said.

Microsoft isn’t having a perfect year despite the predicted positive outcomes.

First, it will have to contend with a less robust IT expenditure climate, a problem that, to some extent, all competitors in the sector will share.

Furthermore, there is a chance that Microsoft 365, formerly known as Office 365, might see downgrades owing to its cost and other expectations indicated in the poll for Microsoft not materializing.

The poll found that 8 percent of CIOs plan to downgrade subscription tiers next year, and 5 percent want to convert to lower-priced versions of Microsoft 365, with fewer possibilities, which might affect Microsoft’s income.

Despite this, it is believed that Microsoft would ultimately do better than its competitors; however, this premise has not yet been reflected in the stock price, which trades at about 19 times the expected 2024 profits, compared to approximately 30 times for competitors.

Even though “there are definitely some indicators Microsoft is not immune from the weaker IT spending environment,” Weiss wrote, “the preponderance of evidence in our survey work suggests favorable near-term consolidation trends and a further improvement in the longer-term positioning against core secular growth initiatives.”

On Thursday, Microsoft was named by Citi as one of its preferred corporate application software stocks for 2023.

Featured Image: Unsplash @ Turag Photography

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About the author: I'm a financial journalist with more than 1.5 years of experience. I have worked for different financial companies and covered stocks listed on ASX, NYSE, NASDAQ, etc. I have a degree in marketing from Bahria University Islamabad Campus (BUIC), Pakistan.