Microsoft Corp (MSFT.O) fell behind big technology peers on U.S. exchanges on Wednesday as its shares plunged 5.3% following a downgrade by brokerage UBS on concerns over slowing growth for its Office suite and cloud services.
After years of strong growth in the cloud business that made Microsoft an investor darling, the Satya Nadella-led software giant is now grappling with reduced spending by businesses reeling from rising borrowing costs.
Microsoft’s Azure cloud unit “is entering a steep growth deceleration that could prove to be worse in FY23/FY24 than investors are modeling,” lead analyst Karl Keirstead cautioned, adding the market could be reaching saturation.
UBS downgraded the stock to “neutral” from “buy” and slashed the price target by $50 to $250. That is less than the median of $290 and the average “buy” rating from more than fifty analysts, according to Refinitiv data.
Microsoft’s stock reached a near two-month low of $226, making it the greatest loser on the benchmark S&P 500 index. It had shed 29% of its value last year, but eclipsing Big Tech peers such as Amazon.com Inc (AMZN.O) and Alphabet Inc (GOOGL.O) in a bad year for the rate-sensitive sector.
Declining spending on enterprise software from firms reducing costs and cutting jobs could also hurt Microsoft’s Office 365 business in 2023, Keirstead said.
“We don’t have as much confidence in the stock … (at current valuation) to see much (if any) multiple expansion,” he said.
Shares of Amazon also fell 2% after UBS slashed the price target on the stock to $125 from $165 on worries over slowing cloud growth.