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Microsoft Corp. shares retreated from record high levels Thursday as one analyst downgraded the stock despite the general agreement from Wall Street that the software giant was well diversified to handle the challenges posed by COVID-19.
Microsoft MSFT, -4.04% shares fell to an intraday low of $204.42 and were last down 3.4% at $204.62, compared with a 0.8% decline in the Dow Jones Industrial Average DJIA, -1.20%, a 0.8% decline in the S&P 500 index SPX, -1.25%, and a 1.7% drop in the tech-heavy Nasdaq Composite Index COMP, -2.36%
Late Wednesday, Microsoft topped Wall Street earnings estimates for the quarter to end its fiscal year with record quarterly revenue of $38 billion, and forecast revenue that was largely in-line or slightly higher than analysts expectations.
Oppenheimer analyst Timothy Horan downgraded Microsoft to “perform” from “outperform” on slowing sales growth and margin expansion as well as the elevated stock price. Shares of Microsoft closed at an all-time high of $214.32 on July 9, and are up about 31% year-to-date, compared with a 1% gain in the S&P 500 and a 18% rise in the Nasdaq.
“Services businesses usually lag the economy by six months or so,” Horan said. “Major business failures and employee downsizing at larger enterprises will hurt MSFT’s revenue growth. The stock is trading at historically high multiples while facing difficult revenue comps for next year.”
Morgan Stanley analyst Keith Weiss, who has an overweight rating and a $230 price target, said Microsoft’s exposure to IT trends benefitting from the COVID-19 pandemic was “unmatched.”
“While not immune to the weaker macro, the increasing priority of digital transformation and a broad solution suite enables Microsoft to sustain momentum through a difficult environment,” Weiss said.
Not only did Microsoft’s Azure cloud computing platform benefit from work-from-home and shelter-in-place directives, but so did the company’s gaming division, Software-as-a-Service products, Teams communication and collaboration platform, and Dynamics 365 product line that competes directly with Salesforce.com Inc. CRM, -1.18%
Mizuho analyst Gregg Moskowitz, who has a buy rating and a $225 price target, said Microsoft’s Azure business is positioned for “increasing cloud success,” taking into account “economic pressures associated with COVID” and a tough comparison of 22% growth in the year-ago quarter.
“In short, we are not fazed by the slightly greater Azure revenue deceleration this quarter,” Moskowitz said. “Rather, we continue to believe that Azure will become increasingly more powerful.”
Jefferies analyst Brent Thill, who rates Microsoft a buy and has a $240 price target, said the company “remains a pillar of software” despite the “noisy quarter.” Thill also defended the slowdown in Azure growth.
“The moderation in growth was due to COVID impacted industries, customers optimizing their spend and some delayed decisions,” Thill said.
Of the 33 analysts who cover Microsoft, 29 have buy or overweight ratings and four have hold ratings. Of those 18 hiked their price targets on the stock, while one reduced theirs, resulting in an average price target of $227.59, according to FactSet data.
