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Microsoft Sinks as Downgrade Highlights Cloud Concerns

Microsoft Corp. shares fell to their lowest level since November after UBS Group AG downgraded the stock!

On rising concern about the company’s cloud-computing business, for years a key driver of revenue.

Tweet on Microsoft stock weakness

Bloomberg chart on Microsoft cloud revenue

The stock fell as much as 5.7% on Wednesday, its biggest intraday decline since October. The tumble follows a 29% slide in 2022, the steepest annual slump for the software giant since 2008, as the Federal Reserve ramped up borrowing costs to combat soaring inflation.

UBS wrote that Azure, the cloud computing business it described as the company’s growth engine, “is entering a steep growth deceleration that could prove to be worse in FY23/FY24 than investors are modeling.” The business “may be slowing due to maturation, not just a tough macro,” the bank wrote.

In Microsoft’s most recent quarterly results, released in October, the company gave a lackluster forecast for Azure sales growth, and analysts have been scaling back expectations. The consensus for adjusted 2023 earnings per share has dropped 5.6% in the past three months, while the view for revenue is down 3.7%, data compiled by Bloomberg show.

  • The stock trades at 21.8 times estimated earnings, a slight discount to its 10-year average of 22. In UBS’s view, the valuation “feels fair, not cheap,” and it lowered its price target to $250 from $300.

Tech stocks came under broad pressure as the growing threat of a recession is underscoring concern about a slowdown in business spending.