Microsoft Shares Lag Behind Big Tech Rivals as Growth Concerns Lead to UBS Downgrade

Microsoft Corp experienced a decline on U.S. exchanges, with shares dropping 5.3% following a downgrade from UBS. Concerns over slowing growth in its cloud services and Office suite prompted the downgrade, highlighting the challenges the company faces in a changing economic landscape.

The tech giant, under the leadership of Satya Nadella, is grappling with reduced spending from businesses confronting rising borrowing costs after a period of rapid growth in cloud services that had attracted significant investor interest.

Lead analyst Karl Keirstead noted that Microsoft’s Azure cloud unit is facing a steep growth slowdown that may exceed investor expectations for fiscal years 2023 and 2024. He suggested that the market may be nearing saturation.

UBS adjusted its rating on Microsoft to “neutral” from “buy” and revised the price target down by $50 to $250, which is below the median of $290 and the average “buy” rating from more than 50 analysts, according to Refinitiv data.

Microsoft’s stock reached a near two-month low of $226, making it the largest decliner on the benchmark index. Despite a 29% drop in value in 2022, it managed to outperform peers like Alphabet Inc and Amazon.com Inc during a challenging year for the rate-sensitive technology sector.

Keirstead also highlighted that diminishing enterprise software spending, driven by companies cutting costs and jobs, could negatively impact Microsoft’s Office 365 business this year.

He expressed doubts about the stock’s potential for multiple expansions at current valuations, stating, “We don’t have as much confidence in the stock.”

In a related note, shares of Amazon also fell by 2% after UBS reduced its price target from $165 to $125 due to concerns over slowing growth in the cloud sector.